Section 20 Of The Landlord & Tenant Act (As Amended)
A recent Judgment handed down by the High Court (on appeal) is likely to have far reaching consequences on landlords, managing agents and lessees of residential premises.
The case of Phillips –v- Francis [2012] EWHC 3650 (Ch D) was a dispute between the landlords and chalet owners of a holiday site in Cornwall in relation to the service charges the landlords were seeking to recover under the terms of the leases.
At a preliminary hearing, the Court held that chalets were "dwellings" and therefore the restrictions on the recovery of service charges imposed by ss18-30 of the Landlord & Tenant Act 1985 (as amended) applied to the leases of the chalets (as it applies to leases of flats).
Following the substantive decision, two issues were subsequently appealed by the leaseholders and Judgment in respect of the appeal was handed down in December 2012 by the Chancellor of the High Court.
Prior to this case, it has been the common approach that Section 20 of the Landlord & Tenant Act 1985 ("the Act") only applied to qualifying works where a lessee would be required to contribute more than £250 through the service charge - in respect of such works, it has always been accepted that a landlord must undertake the formal statutory consultation process as set down by Section 20 of the Act in order to recover the full cost of those works.
However, the effect of the Judgment in Phillips –v- Francis will now result in prudent landlords consulting on all qualifying works, even in circumstances where the individual works will equate to less than £250 per lessee. Qualifying works are defined in Section 20ZA(2) of the Act as "works on a building or other premises".
By way of illustration, if a landlord intends to undertake qualifying works to redecorate the internal parts of the building and a lessee's contribution is £150, previously a landlord would not have needed to consult in respect of those works. However, following Phillips –v- Francis, if a landlord does not consult in respect of such works, the landlord will then be limited to demanding only a further £100 from a lessee in relation to any further qualifying works that may be undertaken in the remainder of that accounting year. If, say, the landlord subsequently wishes (or indeed is required) to undertake additional qualifying works to the roof at a cost of £200 per lessee, the cumulative total of those works and the previous internal redecoration works will equate to £350. Unless the landlord has consulted on both sets of qualifying works, the landlord will be limited to recovering a maximum of £250 from each lessee.
As a result, unless or until this decision is challenged and overturned in a subsequent case, landlords and managing agents would be well advised to ensure that they consult on all qualifying works, regardless of each lessee's contribution.
This decision makes it clear that:
- There is now no scope for works to be identified as different "sets" of qualifying works.
- The cost of all qualifying works carried out in any one accounting year must be added together before the statutory cap of £250 per lessee is applied.
Failure to properly consult could result in landlords being unable to fully recover sums expended through the service charge in respect of qualifying works with recovery limited to a maximum contribution of £250 per lessee for the relevant accounting year. In that event, it will be landlords who will have to pay the (potentially substantial) balance of the cost of the works undertaken.
Consulting on all qualifying works will not only increase costs, but will also impact upon the timescales for such works to be undertaken, as proper statutory consultation will need to be completed before the works commence. This decision may also therefore have an adverse impact upon lessees - it is likely that the potentially significant additional costs of consulting on all qualifying works will ultimately be passed on to lessees, in all or the vast majority of cases, via the service charge provisions in their leases.
As can be seen, the decision in Phillips –v- Francis has serious and far reaching consequences for landlords and managing agents of residential premises. Whilst it may be thought that this decision is good news for lessees, this will not necessarily be the case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.