By J
02/04/2010

Leasehold update

We here at NL pride ourselves on providing comprehensive coverage of housing law (or, at least as comprehensive as six people who do this in their spare time can be) and that includes updates on leasehold property related matters. So, without further delay…

Right to manage

The Commonhold and Leasehold Reform Act 2002 created a new right for qualifying tenants to acquire the management of the building containing their flats; such a right was to be exercised through the vehicle of a “Right to Manage” company (RTM company). The process involves the service of a number of prescribed notices:

(a) a “notice of invitation” inviting leaseholders to join the RTM Company (s.78, 2002 Act);

(b) a “notice of claim to acquire the right to manage” (s.79, 2002 Act)

(c) a counter-notice, to be served by the landlord or other interested parties (s.84, 2002 Act).

In England, from April 19, 2009, there are new prescribed forms for all these notices: The Right to Manage (Prescribed Particulars and Forms) (England) Regulations 2010 S.I. 2010/825 (replacing the 2003 Regulations of the same name). The changes are minor and are mainly needed to bring the notices into line with the new constitutional requirements for companies under the Companies Act 2006.

Collective enfranchisement

The Commonhold and Leasehold Reform Act 2002 also introduced various amendments to the right to collective enfranchisement. The idea behind the reforms was that the right would have to be exercised through a Right to Enfranchise company (RTE Company) that all qualifying tenants would have the right to join. The relevant provisions of the 2002 Act have not yet been brought into force; in May 2009, the Government accepted that there were serious flaws in the legislation and consulted on the way forward (Right to Enfranchise (RTE) Provisions: a consultation, CLG, May 2009). Following the conclusion of the consultation period, the Government has announced that it does not now plan to bring the reforms into force (Right to Enfranchise (RTE) Provisions – consultation: Summary of responses, CLG, March 2010).

Collective enfranchisement / lease extension

The right to collective enfranchisement and to an individual lease extension requires the tenant(s) to serve an notice claiming the right (s.13, Leasehold Reform, Housing and Urban Development Act 1993 and s.42, 1993 Act, respectively). The notice has to be personally signed by the tenant (s.99(5), 1993 Act). It cannot be signed by someone under a power of attorney (St Ermins Property Company Ltd v Tingay [2002] EWHC 1673 (Ch); [2002] HLR 11) or any agency agreement (Cascades & Quayside Ltd v Cascades Freehold Ltd [2007] EWCA Civ 1555; [2008] L&TR 23). In the case of a corporate tenant, it can only personally sign the notice if it complies with s.36A Companies Act 1989 (or, for notices given after April 6, 2008, s.44, Companies Act 2006). This requires the notice to contain the common seal of the company or be signed by two directors or one director and the secretary (1989 Act) or, additionally in the case of the 2006 Act, by a director in the presence of a third party who attests the signature: Hilmi and Associates Ltd v 20 Pembridge Villas Freehold Ltd [2010] EWCA Civ 314.

Consultation provisions: dispensation

Where a landlord carries out qualifying works to a building, or enters a qualifying long term agreement (QLTA) for the provision of services (or works projects under the agreement), the recoverable service charges are capped at £250 per leaseholder (works) or £100 per leaseholder (QLTA) unless the landlord has either:

(a) consulted the leaseholders in accordance with the requirements of s.20, Landlord and Tenant Act 1985 and the consultation regulations made thereunder (Service Charges (Consultation Requirements) (England) Regulations 2003 S.I. 2003/1987); or

(b) obtained dispensation from the LVT in accordance with s.20ZA, 1985 Act.

In LB Southwark v Over 13,000 Leaseholders in the borough LON/00BE/LDC/2009/0061 (not yet available online), the LVT rejected an application for dispensation under s.20ZA, 1985 Act. Whilst only an LVT decision and not of any precedential value, it is a well argued and reasoned decision and worthy of further examination.

Southwark were proposing to enter into a qualifying long term agreement for various works to their housing stock over the next 10 years. The consultation procedure in such a case is governed by Sch. 2, 2003 Regulations (QLTA for which public notice in the Official Journal of the European Communities is required). It can be broken down into three stages:

(a) stage 1 – notice of intention;

(b) stage 2 – preparation (and provision) of a detailed proposal, including likely costs to leaseholders; and,

(c) stage 3 – final notice of the contract.

Southwark sought dispensation from stage 2 because, so they argued, the nature of the QLTA was that t would be impossible to provide information about expenditure under the contract(s) until they had surveyed their housing stock and knew exactly what needed to be done. Whilst it was possible to provide information about standards payment rates under the contract, the problem was that there would, almost inevitably, also be non-standard works with additional costs.

The leaseholders opposed the application, and argued that it was perfectly possible for the authority to provide adequate information and, in particular, that they already knew the unit costs of the works. The leaseholders accepted that it may be necessary for the authority to produce quite a sizeable document in order to comply with the consultation requirements, but argued that this was not a reason to grant dispensation; that it may be of little practical use to leaseholders is not the issue. In addition, the presence of non-standard items did not mean that the authority could not currently produce a unit cost figure. Finally, the authority could comply with the consultation provisions by providing an estimate.

The Tribunal refused to grant dispensation. The decision states both the evidence and submissions in some detail, but the actual reasons for refusing dispensation appear to be:

(a) that the purpose of the consultation provisions is to give leaseholders information; if leaseholders do not know what their expected service charges are likely to be, they cannot properly budget for the same and may experience difficulties in selling their flats;

(b) that, once dispensation is granted (or the consultation procedure complied with), it’s very difficult for leaseholders to successful challenge the reasonableness of service charges under s.19, 1985 Act;

(c) dispensation should only be granted where all reasonable efforts to comply have failed; it was, as the leaseholders argued, possible for the authority to produce more detailed information;

(d) the more significant the dispensation sought, the more compelling the reasons that would be needed; in the present case, the authority sought dispensation for works projects that could last for up to 10 years and in respect of over 13,000 properties.

Service charges

Paddington Walk Management Ltd v Governors of Peabody Trust Central London County Court, April 16, 2009, HHJ Marshall QC [2010] L&TR 6 is not a new case but, despite reading various reports of it, I’ve only been able to get my hands on a copy of the judgment recently (it’s reported in the current volume of the Landlord & Tenant reports). Whilst only a county court decision, HHJ Marshall QC is recognised as something of an expert in leasehold property law (and is, for example, the current editor of the EGLR).

The Paddington Basin is a large development which comprises five linked blocks of flats. The Defendant, a PRPSH (or an RSL, as it was then) held, inter alia, 79 flats in the development which it let on shared ownership leases and assured tenancies. The Claimant was a party to the relevant lease, as the manager responsible or the collection of service charges and discharge of the usual covenants (repairing, etc). The dispute involved five issues:

(a) the ability of the Claimant to recover, in 2008/09, service charges which should have been paid in 2005 but which, owing to a delay in preparing the relevant accounts, had not been demanded;

(b) whether three year contracts for building maintenance services were qualifying long term agreements; (QLTA)

(c) whether a management agreement or a term of 12 months and then subject to three months notice was a QLTA;

(d) if the contracts were QLTAs, was the service charge recovery capped at £100 per contract or per flat?

(e) whether window cleaning was “qualifying works”.

The problem started when, on August 17, 2005, the managing agents for the claimant had sent a service charge demand based on estimated service charges for the period to December 31, 2005. It was not until August 21, 2006 that it was discovered that there was discovered that the August 2005 demand was significantly short of what the actual expenditure was and the shortfall was demanded in August 2007.

The problem for the claimant was that s.20B, Landlord and Tenant Act 1985 requires service charges to be demanded within 18 months of being incurred, or, if that is not possible, the leaseholder must be notified (within the same period of time) that the costs have been incurred.

The claimant sought to argue that s.20B, 1985 Act didn’t prevent a subsequent correction of an error. The 2005 demand was erroneous and had later been corrected. The judge rejected that argument; the purpose of s.20B was to finalise service charge contributions; errors had to be corrected within the 18 month period. The demand in August 2007 was outside of the 18 month period. Correspondence from 2006, when the error was discovered, was not sufficient to constitute notification within the 18 month period because it dd not actually refer to any costs that had been incurred, but merely raised the probability that the 2005 demands were erroneous.

As regards the consultation provisions, the building contracts were QLTAs; they were entered into after the defendant had been granted their lease, the fact that the defendant had not yet granted any sub-lease was irrelevant. However, the contract with the managing agents was not as it was not an agreement for a term of more than 12 months, rather, it was an agreement for 12 months which was capable of being terminated with a notice period thereafter.

Because the building contracts were QLTAs that had not been consulted on, recovery was capped at £100 per sub-tenant of the defendant (i.e. £7,900) and not merely £100 payable by the defendant, as the actual tenant of the claimant. Whilst th judge did not find this an easy matter, she was swayed by the fact that the sub-tenants were entitled to apply for a determination of the reasonableness of their service charges, as against both the claimant and defendant (Oakfern v Ruddy [2006] 3 EGLR 30, CA).

Window cleaning was not qualifying work; qualifying work meant “building works” which is not what one would usually consider window cleaning to be.

Appeals / Procedure

Ascham Homes Ltd v Various Leaseholders in LB Waltham Forest LRX/8/2009 is also not a new case; but, again, I’ve only recently been able to find a transcript. It is an important decision on the procedure to be adopted in an appeal from the LVT to the Upper Tribunal.

By way of background, the LVT had determined that Ascham Homes, the ALMO responsible for most, if not all, of the housing stock of LBWF, had failed to comply with the consultation requirements for a major works contract, such that c.£5 million was irrecoverable (see local press coverage, here, for example). Permission to appeal was refused by the Lands Tribunal (as it then was) but the appellant wrote to the Lands Tribunal, asking for an opportunity to make oral representations in support of the appeal.

The President (George Bartlett QC) agreed to hear oral submissions on the question of whether or not the Upper Tribunal (as it had become by the time of the hearing) was empowered to revisit a decision to refuse permission to appeal. He held that he was not so entitled:

(a) A decision of the Lands Tribunal to refuse permission to appeal was susceptible to judicial review; R (Sinclair Investments) v Lands Tribunal [2006] HLR 11;

(b) The Lands Tribunal Rules permitted a review of an application for permission to appeal if the Lands Tribunal had overlooked a relevant legislative provision or authority which was binding on it;

(c) there was no general power to re-open a permission decision, although, in an exceptional case (i.e. one involving a breach of natural justice) the Lands Tribunal could do so.

Accordingly, the application was dismissed. The President also made clear that, even if he had the power to revisit the permission decision, he would still have concluded that permission should not be granted.

It may be, however, that the position is different for more recent cases where the appeal has always been dealt with by the Upper Tribunal (under the Tribunals, Courts and Enforcement Act 2007) and not the Lands Tribunal Act 1949). The 2007 Act provided that a decision of the Upper Tribunal to refuse permission to appeal could be the subject of a further application to the Court of Appeal (unless the Lord Chancellor exercised his powers to exclude such decisions from the scope of decisions which could be appealed to the Court of Appeal).

Variation of leases

The LVT may vary a residential lease if it fails to make satisfactory provision for, inter alia, the maintenance of any services which are reasonably necessary to ensure that the occupiers of the flats enjoy a reasonable standard of accommodation; when making such a decision, the LVT may have regard to factors relating to the safety, security and condition of any common parts – Landlord and Tenant Act 1987, s.35.

Baystone Investments Ltd v Perskins and others [2010] UKUT 70 (LC) concerns the power of the LVT to vary a lease and order one party to pay the costs of that variation. The property in question comprised seven shops with six maisonettes and a bedsit above. The leases of the residential units did not oblige the leaseholders to contribute towards the costs of maintaining the common parts. The LVT found that this was capable of remedy under s.35, 1987 and did so. However, it also ordered that the deed of variation should provide that the landlord paid the costs of the variation.

The Landlord appealed to the Upper Tribunal against this part of the decision. HHJ Huskinson granted permission to appeal, expressing the view that it was reasonably arguable that the LVT had no power to prescribe the content of a deed of variation beyond that necessary to give effect to the variation.

HHJ Jarman QC, allowing the appeal, assumed without accepting that the LVT had such a power but held that, on the facts, it was inappropriate to make such an order. Whether or not the power actually exists will, it appears, have to be decided on another occasion.

Limitation

In Warwickshire Hamlets Ltd and another v Gedden and Others [2010] UKUT 75 (LC), the Upper Tribunal held that, applying Hillingdon LBC v ALC Ltd [1999] Ch 139, CA, proceedings in the LVT were “proceedings in a  court of law” so that the Limitation Act 1980 applied to proceedings in the LVT, but declined to rule on what the appropriate limitation period was. The unusual facts of the case made it undesirable do so and, in any event, only one of the parties was legally represented.

Forfeiture

The majority of residential leases contain a covenant requiring the leaseholder to pay costs of and occasioned by the service of a notice under s.146, Law of Property Act 1925 (forfeiture). Such a covenant is not apt to include legal costs or surveyors costs of either corresponding with the tenant, seeking to persuade them to remedy the breach without forfeiture or the costs of supervising the subsequent works: Agricullo Ltd v Yorkshire Housing Ltd [2010] EWCA Civ 229.

J is a barrister. He considers housing law to be the single greatest kind of law known to humankind and finds it very odd that so few people share this view.

2 Comments

  1. Francis Davey

    I thought Gedden was particularly interesting because of the idea that, in order to determine whether something is a service charge, you don’t look at the elements that compose it and rejects those that don’t fall within section 18. That may be right on a literal reading, but its quite a generous one for the LVT’s jurisdiction.

    Reply
  2. NL

    Apparently Southwark are seeking permission to appeal the LVT in LB Southwark v Over 13,000 Leaseholders in the borough on the dispensation from consultation.

    Reply

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