At the end of last year, the High Court handed down judgment in the case of Phillips and Others –v- Francis [2012] EWHC 3650. The case represents a radical rethink of the s.20 consultation procedure for qualifying works and will have unforeseen consequences for residential landlords and managing agents. It is now understood that the landlord in the Phillips case is not intending to appeal the decision, meaning that it will be law until another case is decided on the point, or the Government intervenes, and landlords and managing agents will need to take stock of the implications that the decision will have on their day-to-day block management.
The Phillips case concerned a holiday site in Cornwall, comprising of over 150 chalets let on 999 year leases. The new landlord of the site intended to undertake a major works programme to renovate the site, charging the costs back to the lessees as service charges under the terms of the leases. Many issues were in dispute, but most importantly the application of the s.20 consultation requirements.
At first instance, the Court endorsed the traditional approach set out in the case of Martin –v- Maryland (1999) and decided that the works in question were not ‘one set’ of works. As the costs of the individual works were not over £250 per lessee, there was no need to consult under s.20.
The lessees appealed, and the Chancellor of the High Court, Rt Hon Sir Andrew Morritt CVO, allowed the appeal.
The Chancellor scrutinised the s.20 framework carefully and held that there was no need to identify different ‘sets’ of qualifying works. He found instead, all qualifying works in any one accounting period should be taken into account for the purposes of s.20. If the total of the works to be carried out in one year exceeds the £250 threshold, s.20 must be complied with, unless the landlord is prepared to bear the excess cost himself.
The effect of the decision is a radical departure from the traditionally held view that s.20 consultation applies mostly to major works. It seems to suggest that all works, including day-to-day repairs and maintenance, must be taken into account.
This will no doubt have profound consequences and practical difficulties for landlords and managing agents, who will need to plan carefully and envisage any possible works that may be required in any given year, to determine if consultation is required. It also creates difficulties for lessees, who will have to wait in some cases for minor repairs whilst the consultation requirements are complied with, if such works will take the total for the year to over £250.
Until another decision is decided on the issue, the Phillips case is the latest on when s.20 consultation is required. As this is a High Court decision, the only Court with power to overturn the decision is the Court of Appeal. We understand that ARMA is currently in discussions with the Department for Communities and Local Government and other interested bodies about the implications of the decision, however it remains to be seen whether Government intervention will transpire. What is clear, is that further intervention on the issue is needed and residential landlords and managing agents will need some time for adjustment in order to comply with the decision.
The full judgment can be downloaded via this link.
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