Aster Communities v Chapman & Ors (LANDLORD AND TENANT : SERVICE CHARGES) (2020) UKUT 177 (LC)
A quick note on this one. Where a landlord is looking to do works that would cost residential leaseholders more than £250 each under the service charge, they have to follow the section 20 Landlord and Tenant Act 1985 consultation requirements. If they don’t, then they can only recover £250 from each leaseholder, unless they apply to the First Tier Tribunal for dispensation from s.20.
Ever since Daejan Properties Ltd v Benson (2013) UKSC 14 (our note), this has been pretty straight forward for the landlord. They may have to pay the leaseholders reasonable costs of testing the application for dispensation, but there is a presumption that dispensation will be given unless the leaseholders could establish some actual prejudice (ie, that the consultation would have likely resulted in a change to the scope, quality or costs of the proposed works).
This appeal to the Upper Tribunal concerned asphalt works to balconies on a block. This had not been part of a section 20 consultation on other works being carried out at the same time. Aster applied for dispensation. At the FTT, the leaseholders argued
(1) that the landlord Aster had provided no new evidence to justify the replacement of the balcony asphalt and that without such evidence the strength of the landlord’s application could not be properly assessed: in particular, there was nothing which could be referred by the lessees to an expert;
(2) that the lessees had been prejudiced by being unable to object to the scope of the works at the time that different options were under consideration, at which time they were likely to have obtained expert assistance. When an expert (Mr Pincott) was consulted in the course of the section 27A proceedings, he was of the view that the sampling that had taken place provided justification for asphalt replacement to no more than two flats.
Aster provided a statement from its surveyor that the asphalting was necessary because there was evidence of damp penetration into the flats below the balconies in 95% of flats tested. This statement had not been available in previous FTT hearings on the reasonableness of the charges, or before the application for dispensation.
The FTT granted dispensation on condition that:
“(i) Aster is to pay the reasonable costs of an expert nominated by the lessees to consider and advise them on the necessity of replacing all the balcony asphalt at the main blocks.
“(ii) Aster is to pay the respondent’s [sic] reasonable costs of this application, to be summarily assessed if not agreed.
(iii) The costs of the application should not be recoverable by Aster from the lessees through the service charge.”
Aster appealed by way of review.
Aster argued that the burden was on the leaseholders to have instructed an expert to show prejudice to them, and only then was it on Aster to produce evidence to rebut that.
The UT disagreed.
I do not agree with the landlord’s submissions in this regard. It seems to me that to have expected the lessees to instruct an expert in order to conduct a survey and to comment upon the necessity of the works to the balconies as a precursor to the current application would have been unrealistic. The landlord had failed to consult the lessees adequately and then carried out the works to the balconies with the intention of recovering its costs through the service charge. It presented the lessees with a fait accompli. The lessees had not had the opportunity to consult their expert on the works that had been done in circumstances where the FTT had already found, in the course of section 27A proceedings, that complete replacement of the balcony asphalt was unnecessary. There was, to say the least, a “credible case of prejudice”, and that prejudice could most effectively be remedied by the lessees instructing their expert to conduct a survey of the balconies throughout the main blocks. That would place the lessees in the position they would have been in if there had been proper consultation, and in a position to decide whether and if so how the landlord could be challenged in its attempt to charge the works to them.
The difficulty with the landlord’s argument is that it fails to distinguish the discharge of a factual burden with the obligation to adduce evidence. It is possible for the factual burden to be discharged by a party without that party calling any evidence at all. In this case, the FTT had already heard evidence, in the course of the earlier section 27A proceedings, which it took into account as well as the evidence of Mr Greenhalgh adduced by the landlord in the course of the application to dispense. In my judgment, the FTT was entitled, having done so, to find that the factual burden of establishing prejudice had been discharged without the lessees themselves calling expert evidence.
Aster’s other arguments didn’t get anywhere either.
The landlord contends that the appropriateness of the works is not an issue in the current application to dispense with the consultation requirements. It may become an issue in a future application by the lessees for a determination that the service charge claimed by the landlord is excessive, in the sense that the landlord seeks to recover costs (that is, the actual costs of asphalting the flat balconies) which were not reasonably incurred. But as it is not an issue as far as the application to dispense is concerned, the landlord contends that the FTT was wrong to require the landlord to recompense the lessees for instructing an expert to advise.
The difficulty with this submission of the landlord is that it does not take into account the wider context of the application being made. An application to dispense with consultation requirements does not take place in a vacuum. If the FTT takes a view of the application without regard to what has happened previously as between the landlord and the tenants, and what is likely to happen in the foreseeable future, it is difficult to see how it can properly consider what if any prejudice has been suffered.
There is one further point. If the tenants were obliged in every case to show that the works proposed were inappropriate (or too expensive) as a prerequisite to the FTT refusing the landlord’s application for unconditional dispensation, it would entirely frustrate the process of dispensation. In effect, the FTT would be answering the question it is asked in every section 27A application at the stage of dispensation. I agree with what was said in this regard by the FTT at :
“If every lessor making a section 20ZA application could neutralise a plea of inappropriate (or excessively costly) works by saying that there is no prejudice because the lessees can always challenge the service charge under section 19 in a section 27A application, unconditional dispensation would be the norm.”
The FTT had had good reasons for imposing the conditions that it did. There was nothing in Daejan that qualified the circumstances in which reimbursement of a surveyors costs to the leaseholders could be ordered.
This is helpful for leaseholders. There has been a sense since Daejan that dispensation was increasingly a formality, given the difficulties in establishing actual prejudice, but this decision means that in a situation where there is a dispute over the necessity or extent of works, even where the leaseholders don’t have initial expert evidence on this, the Tribunal may order the costs of expert investigation to be paid by the freeholder, at least in circumstances where the landlord had not established clearly the necessity/scope of works.