Southwark LBC v Leaseholders of the London Borough of Southwark [2011] UKUT 438 (LC) [not yet on bailii] was an appeal brought by Southwark against the decision of the LVT (our report here) not to grant them dispensation from complying with the requirements of paragraphs 4 and of Schedule 2 to the Service Charges (Consultation Requirements) (England) Regulations 2003 (“the Regulations”) in respect of five major works agreements which the authority had entered into to repair and renew their housing stock.

In case you had forgotten, an agreement between a landlord and a contractor for works to be carried out over a period of 12 months or more is defined by the Landlord and Tenant Act 1985 as a qualifying long-term agreement. If a landlord enters into a QLTA without first consulting his leaseholders (in accordance with the Regulations) he is limited to recovering £250 from each leaseholder as a service charge. The consultation requirements in respect of QLTAs differ depending upon whether the award of the QLTA must comply with EU public procurement rules (of which this was such a case). The requirements are set out in Schedule 2 of the Regulations.

Paragraph 4(1) to Schedule 2 of the Regulations provides that a landlord must prepare a proposal and give each tenant and any relevant tenants’ association notice of the proposal. Any proposal must comply with the requirements set out in the remainder of paragraph 4. These are not particularly onerous as most of the requirements need only be complied with if it is reasonably practicable for the landlord to do so. Thus, in any proposal a landlord must set out an estimate of the tenant’s likely contribution (paragraph 4(4)). However, if it is not reasonably practicable for the landlord to provide such an estimate he is required to estimate the total amount of the landlord’s expenditure under the QLTA in respect of the building (paragraph 4(5)). If this isn’t reasonably practicable, then he must set out the unit cost or hourly or daily rates under the QLTA (paragraph 4(6)). If that isn’t reasonably practicable, the landlord must (in all cases) give reasons why he cannot comply with the preceding requirements and provide a date by which he expects to do so (paragraph 4(7)).

None the less as we all know there remains the option of the landlord making an application to the LVT (before or after the QLTA has been entered into) to dispense with any or all of the consultation requirements and the LVT must do so if it considers it reasonable.

In this case Southwark opted to apply to the LVT for dispensation from paragraph 4(4), (5), (6) & (7) to Schedule 2 of the Regulations in advance of serving their notice of proposal on the basis that they could not provide the information that was required by those paragraphs of the Regulations. In doing so they relied upon Paddington Basin Developments Ltd. v West End Quay Management Ltd. [2010] EWHC 833 (Ch) (our note here), in which Lewison J suggested that an LVT should dispense with the consultation requirements under the Regulations if, owing to the nature of the QLTA, it was impossible for a landlord to comply with them. This application was opposed by the Respondents (a company which had been formed to represent the interests of leaseholders in Southwark).

Before the LVT Southwark contended that it was not reasonably practicable for it to comply with paragraphs 4(4) or (5) because surveys had not been undertaken (and would not be undertaken until after contracts had been awarded) and so it was unclear as to what the cost would be. In respect of paragraph 4(6), Southwark argued that while it had been able to provide a schedule of rates, under the QLTA these rates were subject to change and as a result of such if they were included in a proposal they would not comply with the Regulations. As to paragraph 4(7), Southwark argued that they could not provide a date for when the relevant information would be provided because any date given would be liable to change as it would be contingent on the availability of funding (in the end a date for when the contract was to expire was provided).

The LVT agreed that Southwark did not have the information available at that stage to comply with paragraphs 4(4),(5) & (6), but considered any finding to that effect to be premature as the notice had not yet been served. Further, Southwark could not comply with paragraph 4(7) because it had not provided a sensible or reasonable date.

However, the LVT refused to grant dispensation. The Regulations required that tenants be given information in advance so that they could set aside the relevant funds to pay for the works or sell their properties. While acknowledging the problems posed by QLTAs and the difficulties landlords had in complying with the Regulations, dispensation should not be granted unless all reasonable efforts have failed. In this case Southwark had adopted an approach which was always going to fail to comply and yet had the potential to affect leasehold properties across Southwark for ten years.

Southwark appealed to the Upper Tribunal. By the time the appeal was heard Southwark had served the notice of proposal and subsequently entered into the QLTAs (albeit with a contractual provision that the agreement was to end if the Upper Tribunal’s decision was that dispensation should not be granted). The Upper Tribunal therefore heard the matter by way of a re-hearing and considered whether dispensation should be granted retrospectively. This made Southwark’s position slightly awkward. If their application for dispensation failed they would either be limited to recovering £250 from each leaseholder or end the QLTAs and start again.

This meant that Southwark’s main argument was that there had been compliance with the Regulations and the application for dispensation was only argued in the alternative. They first argued that paragraph 4(6) had not been complied with because it was not reasonanly practicable to do so. However, during argument this position shifted towards arguing that the paragraph had been complied with (one would have thought owing to the approach adopted by the Respondents – see below). In respect of paragraph 4(7), Southwark contended that the end of the contract was a valid date and did not invalidate the notice. In the alternative, paragraph 4(7) should be dispensed with because the leaseholders would in any event be provided with an estimate, cost or rate within 21 days of Southwark having the information to provide one (as required by paragraph 8 to Schedule 2) and leaseholders would also be provided with information in advance of any actual works being carried out in accordance with Schedule 3 of the Regulations.

For their part, the Respondents agreed with Southwark’s contention that, first, it was not possible for Southwark to comply with paragraphs 4(4) & (5) as the information was not available at the date of the notice and, second, that paragraphs 4(6) & (7) had been complied with. The Respondents made clear that the application before the LVT for dispensation had only ever been opposed as it was premature and the Respondents were keen for Southwark to provide sufficient information so as to comply with the consultation requirements rather than to be granted a blanket dispensation. As Southwark had subsequently provided this information the Respondents’ position had been vindicated and there was now no need for dispensation.

In the end, rather unsurprisingly given the submissions of both parties, the Upper Tribunal found that there had been compliance with paragraph 4(6); all that a landlord was required to do was provide the costs and rates applicable to those works which would be covered by the QLTA. It could not have been Parliament’s intention that a landlord should provide details of every cost or rate non-standard items that may arise in the course of an agreement because then no landlord would ever be able to comply with the paragraph. Southwark had done this. While paragraph 4(7) did not therefore fall to be considered , the Upper Tribunal accepted that where a date could not be given, it was open to a landlord to provide the end of the contract as being the relevant date. It followed therefore that as there had been compliance the application for dispensation was dismissed.

Comment

This is an odd case. At first blush, when one looks at both parties submissions to the Upper Tribunal, it appears that this case was a spectacular waste of public money; if both sides were arguing the same thing why was the case being brought? However, that would be unduly harsh on Southwark. It is perfectly clear why Southwark adopted this belt and braces approach; millions of pounds were at stake if the consultation exercise was held to be unlawful and dispensation was not granted (Southwark were clearly mindful of what had happened to Waltham Forest LBC last year when their application for retrospective dispensation was not granted). The costs of an LVT case pale into insignificance when one conisders the costs to the council if they had not complied or been granted dispensation.

Yet one can’t help but think that Southwark would have made life a lot easier if they had served the notice of proposals before appearing before the LVT and sought a declaration that they had complied with the requirements with an application for dispensation pleaded in the alternative.