Back in May 2010, we covered the case of Philips v Francis (QBD, Truro District Registry) on whether or not holiday chalets let on long leases were “dwellings” within the meaning of the Landlord and Tenant Act 1985, and, hence, the service charges payable by owners of the chalets were subject to terms of the 1985 Act. The High Court held that they were (see here).
The case is still on-going, and the most recent judgment was handed down in December 2012 – Philips v Francis (No.2) [2012] EWHC 3650 (Ch). And, like the first one, it promises to be quite important (although you do feel for the parties involved here – the service charges in question are for the 2009 year!)
In short, when Mr & Mrs Francis acquired the freehold reversion, they decided that the estate needed considerable work in order to bring it up to a “first class standard”. This, in turn, led to a more than doubling of the service charges demanded in 2009. The leaseholders objected and issued proceedings seeking, inter alia, declarations about the scope of the service charge provisions in the lease.
By the time of the present appeal, two issus remained live. First, the demands included over £100,000 in respect of wages paid to Mr & Mrs Philips and management charges. Secondly, whether there were any “qualifying works” within the meaning of s.20, Landlord and Tenant Act 1985 (if there were, then it was common ground that there had been no statutory consultation as required by s.20, 1985 Act, such that the service charges were capped at £250 per leaseholder).
Management charges
The lease provided for the recovery of costs of the
…[m]anagement of the Estate and its appurtenances including where applicable the charges wages pensions contributions insurance and provision of uniforms and working clothes of any staff employed by the Lessee and the provision of telephones (if any) and also the cost of providing tools appliances cleaning and other materials bins receptacles together with any amounts of fees paid to architects agents surveyors and solicitors employed by the Lessor in regard to the management of the Estate
That, said the High Court, was apt to cover only monies paid to third party agents performing professional duties and did not extend to wages paid by the freeholders to themselves in respect of their management activities.
Qualifying works
This is the more important issue. The effect of s.20, 1985 Act and the regulations made thereunder is that, if a landlord carries out work to which any leaseholder will be asked to contribute more than £250 in an accounting period, then he must either consult the leaseholders in the prescribed manner or obtain dispensation from the LVT. If this is not done, then the recoverable costs are capped at £250 per leaseholder.
The issue in the present case was whether the proposed works were one set of qualifying works or whether they could be broken down into sub-components. If they were one set, then the total costs were capped at £250 per leaseholder, whereas, if they were separate, then some did not require consultation at all and, in any even, more money would be recoverable. The trial judge found that they were separate items and that it was not until relatively late in the day that any sort of unified project emerged. The reality was that one job had simply led to another.
The High Court disagreed. The idea of looking at “sets” of qualifying works came from the case of Martin v Marylands Estates [1999] EWCA Civ 3049. But that case was about the previous version of the consultation requirements. Under those old provisions, the focus had been on the cost of the works. The new approach was on the cost to the leaseholders. Further, the old consultation requirements were just about price, whereas the new approach included a requirement to consult once the intention to proceed had been formed. There was no reason to look for “sets” of qualifying works. The correct approach was to look at each of “the works” and decide if consultation was required.