Summary
1. This Section gives Landlords the legal right to apply to a First Tier Tribunal to dispense with the requirement that they consult with Leaseholders under Section 20 of the Landlord and Tenant Act 1985.
2. Under section 2o of the Landlord and Tenant Act 1985 the obligation to consult arise when a landlord intends to either:
i. Undertake works for which a leaseholder will be required to undertake works for which a leaseholder will be asked to pay £250 or more. Such works are known as ‘Qualifying Works’
Or
ii. They enter into a contract which lasts for over 12 months and will result in costs of £100 or greater for a leaseholder per year. These contracts are known as ‘Qualifying Long Term Agreements’.
Why is This Important to Leaseholders?
1. Under Section 20 of the Landlord and Tenant Act 1985, a Landlord who does not consult with leaseholders in the manner prescribed is limited in the amount that they can charge leaseholders to £250 for Qualifying Works or £100 per year for Qualifying Long Term Agreements.
2. If the First Tier Tribunal grants a Dispensation of the Consultation Requirements to a Landlord, then for the specific set of Qualifying Works, or Qualifying Long Term Agreement, mentioned in their application, these limits on the amount they can charge do not apply.
Why might a Landlord Make an Application to Dispense with the Requirement to Consult?
1. There are lots of reasons why a Landlord might fail to follow the consultation requirements.
2. The most common situation where a landlords might apply for a Dispensation are:
i. Because Emergency Works were required: In some circumstances it might be necessary for a landlord to carry out work immediately and it would put residents in danger, or cause damage to a building, if they delayed work whilst consulting with Leaseholders.
ii. The Landlord Simply Forgot to Consult: This happens very frequently.
iii. The Service or Works cost before than expected: Sometimes the estimated cost of services or works fell below the threshold, however, the costs increased whilst works were on-site, or services were being carried out, triggering the requirement to consult. By then it is too late to follow the Section 20 process.
iv. Because the Landlord Did not Follow the Procedure Correctly: In some cases this is because the landlord did not understand the requirements properly. In other cases, Landlords have difficulties following the correct procedure because of the nature of what it is they are consulting on. This is becoming increasingly common in relation to large public sector organisations which are required to advertise large contracts through the Official Journal of the European Union under EU procurement rules.
How Will A Tribunal Decide on Whether to Dispense With The Consultation Requirements?
1. Section 20ZA of Landlord and Tenant Act 1985 says that a First Tier Tribunal may grant a Dispensation to a Landlord “if satisfied that it is reasonable to dispense with the requirements”. What this means is that it has been left to the Courts and Tribunals to decide when a dispensation should be granted.
2. In 2013 the UK Supreme Court gave definitive guidance on this issue in the case of Daejan Investments Ltd v Benson & Ors [2013] UKSC 14. In short, what was decided was that a Landlord should always be granted a dispensation if they apply for it, but that leaseholders will be compensated for any ‘prejudice’ they experience as a consequence of the Landlord’s failure to consult properly.
3. The Court’s thinking was the requirement to consult is not an ‘end in itself’, and that it does not matter whether Landlords consult with residents so long they suffer no financial loss as a result of not being consulted. The Court took the view that Parliament had not intended to give Leaseholders a right to ‘have a say’ in how their building is managed.
What Does ‘Prejudice’ Mean in this Context?
1. Tribunals and Courts are given discretion to decide what counts as prejudice, as the term is not defined in this context by an Act of Parliament.
2. Following the guidance given in the case of Daejan Investments Ltd v Benson & Ors [2013] UKSC 14, courts and tribunals are now obliged to assess whether prejudice has occurred by considering whether a leaseholders has suffered a financial loss as a consequence of a landlord’s failure to consult.
3. Leaseholders cannot therefore successfully claim to have experienced prejudice simply on the basis that they were not consulted, or that they were not provided with the right information. The failure to consult, or to provide correct information during that process, must result in some kind of financial loss to by suffered by leaseholder in order for prejudice to have occurred, for which compensation by way of a reduction in a service charge should be awarded.
Under what circumstances might a court or tribunal award compensation as a condition of dispensing with the consultation requirements?
1. The guidance given by the Supreme Court in the Daejan case is that it is the responsibility of the leaseholders affected to demonstrate that had they been consulted properly the outcome would have been different and better.
2. One aspect to this is that in order to be awarded compensation a leaseholder must convince a court or tribunal that had they been consulted properly they would have had a realistic prospect of altering some aspect of the way in which a landlord went about providing works or services at their property.
3. Courts and tribunals are not permitted by law to assume that prejudice inevitably occurs whenever a landlord fails to meet the consultation requirements.
Relevant Case Law
See the section of our case law library on Consultation (Section 20)
Click on the link to read more about the Landlord and Tenant Act 1985