Local Authorities have a history of falling foul of the complex
statutory consultation requirements relating to major works paid
for by lessees through their service charges. The Service Charges
(Consultation) (England) Regulations 2003 provide that if a
landlord proposes to carry out works that would cost individual
tenants more than £250, the landlord must formally consult
all of those expected to contribute. If a landlord fails to
consult, or is not given dispensation from the Leasehold Valuation
Tribunal, he will be unable to recover more than the statutory
limit of £250 from each tenant. Similar provisions apply
where the landlord intends to enter into a long term qualifying
agreement for the provision of services, save that the costs cap in
such cases is £100. The consequences of failure to comply
with the Regulations can be dramatic.
In Camden LBC -v- The Leaseholders of 37 Flats at 30-40 Grafton
Way (2008) – The Council claimed £504,000 by
way of service charges from the leaseholders but the Leasehold
Valuation Tribunal held that it could recover only £9,250,
being £250 per flat. Camden had failed to provide details of
the estimates obtained for the works and allow tenants to make
observations. The Lands Tribunal agreed this was a gross error
which had fundamentally prejudiced the tenants and that
dispensation should not be given. Accordingly it refused
Camden's appeal.
In the recent case of Newham LBC -v- Mr Hannan, Mrs Nessa and
Others (28 September 2011) the Council secured a notable
victory. Due to the value of the contract which involved works
costing several million pounds to a number of tower blocks, the
Council had to comply not only with the 2003 Regulations but also
the rules on public procurement of contracts. Although the Council
completed the four stage consultation process it carried out the
first two stages in the wrong order. It published notice of the
works in the Official Journal of the European Union (advertising
the contract to potential contractors) before rather than after
notifying the service charge paying leaseholders that it intended
to carry out the works. The Council sought dispensation from the
Leasehold Valuation Tribunal but this was refused.
On appeal the Upper Tribunal confirmed that an important
consideration in determining whether dispensation should be given
was the degree of prejudice caused by the breach: what opportunity
the tenant has lost, and has its loss caused the tenant significant
prejudice. The Upper Tribunal bore firmly in mind that this case
was quite different from a tenant's usual right to nominate a
contractor. Where the Public Procurement Regulations applied the
tenant had no such right, only the ability to identify and then
encourage a Public Procurement-compliant contractor to respond to
an advertisement which, in reality, a tenant will rarely if ever
utilise. On the question as to what opportunity did the tenants
lose by the Official Journal advertisement predating the notice of
intention the Upper Tribunal held "nothing". Not one
tenant had raised any question relating to the Official Journal
advertisement or at any time made any observation or expressed a
desire to be involved in the selection of the contractor. The Upper
Tribunal concluded that while the breach was not a mere
technicality the opportunity afforded to the tenants was very
narrow in scope and as a matter of fact caused no prejudice. The
Upper Tribunal therefore allowed the appeal and granted
dispensation, no doubt to the relief of the Local Authority and, by
extension, its Council Tax payers.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 04/11/2011.