Major Works Proposed on Blocks of Flats

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  • #16
    Sorry for the length of this reply but here is what Jonathan Upton, Barrister at Tanfield Chambers thinks/interprets:

    Phillips v Francis [2012] EWHC 3650 (Ch D)
    Summary: This is an important case on the meaning of “qualifying works” in s.20 and s.20ZA of the 1985 Act. The case decides that the common approach since Martin v Maryland Estates [1999] 2 EGLR 53 of considering whether a particular set of works are “qualifying works” is wrong; there is no ‘triviality threshold’ in relation to qualifying works: all works that are “qualifying works” should be brought into the account for computing the lessee’s contribution. The lessee’s service charge contribution towards all qualifying works is capped at £250 unless the consultation requirements have been complied with in respect of all qualifying works.
    Facts: The case relates to long leases of chalets on a holiday site. The chalets were held to be dwellings within the meaning of s.38 of the 1985 Act so that ss.18-30 applied. The freehold of the holiday site was purchased by the defendants (“the lessors”). In a letter sent to all lessees IN May 2008 the lessors indicated their intention to bring the site up to a first class standard and proceeded to carry out works without consulting in accordance with the Consultation Regulations. The lessees welcomed the plans for improvement but not the increase in service charge liability and sought declarations as to the true construction of the leases and injunctions preventing forfeiture.
    Issues: (1) whether the lessors were entitled to recover both £95,000 as wages for the lessors and a management charge of 5% of the total costs of certain items of expenditure (which included the cost of the lessors’ wages); (2) which items amount individually or collectively as “qualifying works” for the purposes of s.20 and s.20ZA of the 1985 Act.
    At first instance, the judge held that the lessors were entitled to recover both the lessors’ wages and a management charge of 5%. As regards the qualifying works, the judge applied the three stage test derived from the judgment of Walker LJ in Martin v Maryland Estates, namely:
    (1) which of the works fell within the definition of ‘qualifying works’ contained in s.20ZA(2)?
    (2) Did those works constitute one or more ‘sets of qualifying works’?
    (3) Did any of those sets fall below the triviality threshold set by the limit on the
    cost of those works?

    He rejected the lessees’ submission that that the works were one scheme planned in advance, instead finding that there were many disparate pieces of work. As such, no consultation was required.
    On appeal, the lessors sought to uphold the judge’s construction of the lease on the first issue. As to the second issue, the lessors submitted that the mechanics for consultation set out in Part 2 of Schedule 4 to the Consultation Regulations necessarily required a pre-defined set of works. Counsel contended that whether there were one or more sets of qualifying works was a question of fact in respect of which the trial judge was in the best position to judge, having had the benefit of a site visit.
    The appellant lessees argued that the judge’s construction of the lease allowed for double recovery and could not have been what the parties intended. On the second issue, it was submitted that the judge was wrong not to recognise all the qualifying works as being a single set originally designed by the lessors, as stated in the May 2008 letter to lessees. Those works generated individual service charges for lessees greatly in excess of the limit prescribed by the Regulations and, as there had been no compliance with the consultation requirements, the excess over £250 was irrecoverable.
    Held: (1) on a true construction of the lease, a provision allowing the recovery of the pay and expenses of “staff employed” and “fees paid” to agents did not extend to the non-professional management services provided by the Lessors personally; (2) it is wrong to identify one or more sets of qualifying works; there is no ‘triviality threshold’ in relation to qualifying works; all qualifying works should be brought into the account for computing the lessee’s contribution and then applying the statutory cap.
    Comment: The Chancellor’s interpretation of the lease on the first issue requires a gloss to be put on the clear words of the provisions but this can be justified to prevent what appears on the face of it to be an otherwise unfair double recovery.
    The second issue is of far greater general importance and significance. In many cases, a lessee’s contribution to the cost of qualifying works in an accounting period will exceed £250. Landlords have not been required to consult in order to recover the cost of a particular set of qualifying works where a lessee’s contribution to that set of qualifying works does not exceed £250, even if a lessee’s contribution to the total cost of qualifying works in an accounting period will exceed £250. This is now longer the position.
    This decision is curious given that neither party argued that a landlord was required to consult on a distinct set of qualifying works if a lessee’s contribution to the cost of those particular works would not exceed £250: the lessees’ case was that the qualifying works were all part of the same set of works.
    The Chancellor felt able to depart from the Court of Appeal’s decision in Martin v Maryland Estates on the basis that the 1985 Act has since been substantially amended. While this may be correct, the decision has serious and possibly unintended consequences for landlords.

    As I interpret this decision, landlords now have to consult on all qualifying works (even if a lessee’s contribution to a distinct, identifiable set of works does not exceed £250) if a lessee’s contribution to the total cost of qualifying works in an accounting period exceeds £250. If the landlord does not consult on all qualifying works, however small the cost of a particular set of qualifying works, the lessee’s contribution to the total cost of qualifying works in the accounting period will be capped at £250.
    By example, a landlord decorates the internal common parts. Such works are ‘qualifying works’ (within the meaning of s.20ZA(2)) but each tenant’s contribution is only £150. Later in the same accounting period, the landlord fixes a leak in the roof. Such works are again ‘qualifying works’ and each tenant’s contribution is £200. The tenant’s contribution to qualifying works in the accounting period is £350. Unless the landlord consults on both the decorating works and the roof work, the tenant’s contribution is capped at £250.
    In many cases, a landlord may not intend to carry out qualifying works to such an extent that a lessee’s contribution to qualifying works in the accounting period will exceed £250. This being the case, the landlord may not consult on qualifying works undertaken early in the accounting period. If further (perhaps unforeseen) qualifying works are carried out later in the accounting period so that the tenant’s contribution to qualifying works in the accounting period exceeds £250, the landlord will not be able to recover more than £250 for the tenant. A prudent landlord must now consult on all qualifying works (even if a lessee’s contribution to a distinct, identifiable set of works does not exceed £250) in order to fully recover his expenditure through the service charge.
    This will be an enormous burden on landlords and managing agents, both in terms of cost and time. If landlords are now required to consult on all qualifying works, however small, the cost of such consultation will ultimately be passed on to lessees. This is not in anybody’s interests. It cannot be what Parliament intended.

    Comment


    • #17
      If that what was intended in the decision then it is a possible and very broad interpretation of the Act. What it means that that it is not decorations and then roof work but any expense which is a qualifying work. That pretty much covers any subsequent expenditure so that in effect the only way round it is to do a section 20 on most items in a budget or tie those up in LTA's.

      Moreover it means that in many cases its not doing the roof you cannot change a light bulb without Section 20.

      I will re read the regulations and the decision.

      There has been burbling about this for the last week or so but what it means is that it could switch to all inclusive/comprehensive contracts and a major do everything appraoch in one contract towards year end, and then do nothing until the end of next year.

      And think about the Public Sector it will grind to a halt.

      That's not contrary to parliament's intention it means that buildings are in many cases de facto unmanageable.

      While I think about it, there is wealth of case-load going back to the 1974 Act making the distinction on works which would alert the dunderhead on the HC to distinction.

      Perhaps its Entropy- the EC makes a sensible decisions which has to be balanced out by a completely gibbering one. Someone is over ready for the retirement home.
      Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

      Comment


      • #18
        Couldn't agree more.

        It is an interesting case and interpretation.

        I feel like making an application to dispense with S20 as an emergency to change a lightbulb and see what the LVT has to say.

        As an interim I shall be undertaking S20 for all planned or premaintenance that could reasonably be expected to be included within qualifying works (ie redecorations, non urgent repairs and replacements and suchlike) whether or not they exceed £250 for any one leaseholder or not.

        Perhaps the Chancellor has shares in Royal Mail and needs more stamps to be sold?

        Comment


        • #19
          But qualifying works can be most services....

          The intention of the 74 Act, the 85 Act and the amendments were to deal with one off projects and that was quickly clarified, as initially there was a view that as most things in a service charge were QW, then any budget would have to be (largely) quoted and section 20'd. In the same way abuse was also quickly identified and stopped.

          In practice you could be budgeting 6 months in advance, rather than 2 months and only someone on, or in need of, medication could reach such an absurd conclusion, especially in the light of nearly 27 years of application.

          But when it comes to reactive repairs or issues, there is no way around it, you have to consult. What happens with insurance excesses.

          There is quite a buzz now and everyone is sitting tight at present until advice is issue or received. As leases vary, expect clients to get big bills and SC payers meeting them. The institutional landlords might not re-bill but what about the poor RMCS etc?


          What a complete moron.
          Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

          Comment


          • #20
            http://www.newsontheblock.com/servic...ltations.thtml

            Heres another take on this.

            Thee are lots of calls going on behind the scenes right now to try and address this.

            My money is on an early amendment to the SI.

            There is literally no practical and unassailable way around the unforseen, except inaction.
            Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

            Comment


            • #21
              I read that article yesterday. Shocking isn't it! Will watch with interest.

              Comment


              • #22
                So now we can argue that we only have liability for £250 of our £4000 SC... :-)

                I do agree it is absurd to consult on minor things (e.g. changing a light bulb), but in our case we have the management splitting things up so they don't have to consult. I believe this costs us more because they use their favoured people when they might use better and cheaper, plus the splitting of the jobs in itself can run up extra expense.

                Legislating for all occurrences is clearly a nightmare... maybe the politicians do deserve a 30%+ increase in pay, though I think it should be tied to performance :-)
                I am not a solicitor, I am a lessee/shareholder in conflict with the management. Please seek your own legal advice before relying on my comments in this forum!

                Comment


                • #23
                  The original decisions under appeal looked at the conclusion that the appeal took, and pronounced that it would be commercially unavailable and unmanageable to interpret the Act in that way.

                  What is telling is that the Chancellor failed at look at section 20 in the round, ie the remainder of that Act that any and all charges still have to be fair reasonable and that there are protections in place. Recent decisions make it clear that it is not simply the cost and method but the manner, so that piecemeal jobs over a year that have a considerable financial impact can be challenged on their own merits without any need or reference to £250.

                  That allows for the case in point where more substantial works that ought to be in one job should have been and then therefore subject to the section 20 consultation procedures,AS WELL AS the overriding section 19.

                  He also made a contextual and wilful and erroneous misinterpretation of limiting contributions as being fundamentally different to the older £50/£100- trigger. £250 is still a trigger and the £250 a separate but interdependent cap.

                  It is therefore preposterous that the Supreme Court has sat on Daejan at the same time the High Court is ruling this pile of poo.

                  The wording makes it clear that you can do the works under £250, or consult and what you cannot do, you do next year.
                  So while on one hand saying costs in one year that avoid the threshold can now do so by spreading them year to year.....
                  In addition such a construction conforms more closely to the ongoing works of repair and maintenance likely to be necessary on an estate in multiple occupation. They are unlikely to be identified as parts of a complete set of works which can be costed at the outset. In the normal way they will be carried out as and when required. The need for some limitation on an obligation to contribute is at least as necessary with sporadic works of that nature as with a redevelopment plan conceived and carried out as a whole.
                  Is nonsense as what that then means that he believes minor unrelated ( in nture and timing) works can be still be done, but then in 37 says
                  Accordingly, all of them should be brought into the account for computing the contribution and then applying the limit. It may be that they should be spread over more than one year thereby introducing another limit. With that exception, the provisions relating to this service charge do not require any identification of 'sets of qualifying works' or the avoidance of 'excessive fragmentation'.
                  So how do you address the unforeseen,he failed to reconcile if you incur £245 and need to incur more, then you consult but then that puts the initial £245 in jeopardy. The reverse is true, other wise you need two trances- oh but that's what LTA 1985 does already....

                  Section 20 works in tandem with section 19, and hence the consistent interpretation with pre 2002 CLRA amendments.


                  In the words of the Pub Landlord he didn't think it through.


                  While those who exploit the situation are duly punished, the majority will in fact suffer, needed works will simply not be done, and for the RMCs RTM and RTE's insolvency is now very real. The bigger landlords and one of mine is thinking of transferring FH's offshore beyond prosecution, as they know that residents if properly adversed will find themselves financially exposed and will fear to take it on.
                  Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                  Comment


                  • #24
                    You should have taken The Chancellor down the boozer for a chat about his decision!

                    Comment


                    • #25
                      More comment and reading

                      http://nearlylegal.co.uk/blog/2012/12/this-seems-to-be-taking-a-while/

                      Comment


                      • #26
                        he should have the letter on his desk this morning. I hope that he lives in flat ( though if he does it's likley that "we" are paying.

                        I hope that he gets a Section 20 for a light bulb- and has to fumble around in the dark for 3 months.
                        Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                        Comment


                        • #27
                          Just heard that there might well be an appeal by the Freeholder in this case (a friend of my dogs second cousin's baby sitter told me)

                          Comment


                          • #28
                            So could be another six or nine months at least on this one I suspect!

                            Comment

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