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Service charges ad infinitum

By J

The Upper Tribunal is hearing what might turn out to be quite an important s.20, LTA 1985 dispensation case today (LB Southwark v over 13,000 leaseholders in the borough (our note here) and, as ever, we’ll bring it to you as soon as we have news of the result. In the meantime, the UT(LC) has been hard at it with two more cases, starting with LB Newham v Hannan and others [2011] UKUT 406 (LC).

Newham had tried to consult leaseholder in respect of a qualifying long term agreement (see s.20, LTA 1985) under which various works to 71 tower blocks would be carried out. The works were of a scals to engage the Public Works Contracts Regulations 2006 (i.e. to require pan-EU tendering) and, therefore, should have been governed by Sch. 2, Service Charge (Consultation Requirements) (England Regulations 2003. That, in turn, obliges the authority to give Notice of Intention to enter a QLTA before it publishes the details of the tender in the Official Journal of the European Communities. Newham made a mistake and did it the other way round (i.e. the notice of intention was served after the contract had been published in the OJ). Newham applied to the LVT for dispensation. The LVT refused the application and Newham appealed.

The appeal was allowed. The LVT had not even turned its mind to the question of what – if any – prejudice had been caused to the leaseholders. The Upper Tribunal therefore reconsidered the question of dispensation for itself. The purpose, said the UT, of giving notice before the contract is published in the OJ is to allow leaseholders to know where to look for more information about the contract (i.e. in the OJ itself) and to respond accordingly. The problem in the present case was that no leaseholder had responded, nor could they identify anything that they might have said. There was nothing to suggest that, had Newham got the order right, any tenant would have said anything of use. In those circumstances, dispensation was granted.

I confess that I can’t quite see how such an approach accords with the decision of the Court of Appeal in Daejan (our note here) and the strict approach, including that it’s not for leaseholders to show any particular degree of prejudice.

In Country Trade Ltd v Noakes and others [2011] UKUT 407 (LC), the LVT appears to have rather “gone to town” on the appellant and their management arrangement. In short, there was a commonality of ownership and directorship between the various legal entities involved although, as the UT(LC) pointed out, the appellant had always been entirely open about this. The decision contains very little in the way of factual analysis, but does, very helpfully, restate the correct approach to dealing with evidence in the LVT:

(a) the LVT must base its decision on the evidence before it;

(b) the parties must be given a chance to comment on any evidence that the LVT thinks relevant (especially if the LVT is using its own expert knowledge);

(c) the LVT must give reasons for its decision;

(d) the burden of proof is a last resort, so that where the landlord adduces evidence of e.g. cleaning being done, it is perfectly possible for the LVT to find for a tenant who simply asserts that the cleaning was poor quality by finding him a credible witness;

(e) the LVT can scrutinise invoices, etc, closely and take its own issues that it requires the landlord to deal with.

(f) the difficulty comes where the LVT accepts that “some” work has been done, but does not accept that the rate is reasonable, but there is no comparable evidence of what the market rate might be; in those circumstances, the LVT should apply robust common sense and make such deductions as it considers appropriate, giving adequate reasons.

I confess a certain fear about (e) and (f), neither of which are per se objectionable but both of which, I fear, are liable to be misunderstood by the LVT. The LVT should not be engaging in some sort of forensic accounting exercise; to do this is to see the LVT descend into the arena and, in effect, take sides. There is a world of difference between testing the evidence of the landlord (and it will usually be the  landlord and even between pointing out obvious areas of concern (say, e.g. failure to demand within 18 months, hiring artwork for common parts, etc), and taking new factual points which the leaseholders have not challenged. It must be remembered that the LVT is still a judicial body in an adversarial system and not an inquisitorial regulatory body.



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.

1 Comment

  1. JAC

    I suppose the difference between the earlier Daejan and Camden cases and this new Hannan case is that in Hannan the landlord’s mistake related to the timing of the OJ notice rather than later stages of the consultation process. The tenants might have lost the chance to advert possible contractors to the OJ notice and, as a result, apply to be considered for the QLTAs an lost the chance to consider the OJ notice after the notice of intention was served but that is probably the only prejudice that they could suffer. None of the tenants when put to identify any specific prejudice could do so. In Daejan and the Camden Grafton Way cases (qualifying works rather than QLTA cases) the mistake was at a later stage of consultation and, although it may have been difficult for the tenants to identify prejudice it was plain that they were denied an important consultation opportunity – in Daejan the landlord failed to provide priced specifications and in Camden/Grafton Way teh wrong notice was sent out so that tenants did not have an opportunity for their observations to be considered. There was, therefore, more of a basis for claiming prejudice to the lessees when considering whether to grant dispensation in the Daejan and Camden Grafton Way cases.

    It could also be that the court was less inclined to see a problem with a minor error in QLTA consultation than with qualifying works consultation as, supposedly, the QLTA system is intended to give better value for money.

    Finally, Daejan had a cosy relationship with the favoured contractor and Camden had a bit of a history of poor consultation procedures so they may have made less sympathetic applicants for dispensation than LB of Newham.


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