Here it is – the decision that we have been waiting for since the hearing on 04 December 2012.
I am sure that by now most of my readers will know the outcome of the case, but I will not spoil the suspense for anyone who does not yet know the result. Suffice it to say that the appeal was decided by a majority of three to two. Lords Neuberger, Clarke and Sumption formed the majority. Lords Clarke and Sumption agreed with Lord Neuberger’s judgment and said nothing more. Lords Hope and Wilson each wrote dissenting judgments.
After some deliberation – and much wrestling with a paper copy of the judgment on the Tube – I have decided to publish my report and analysis of the case over three posts.
This first post sets the scene, reflecting the opening pages of Lord Neuberger’s judgment. It takes the reader through the background facts and decisions in the LVT, the Upper Tribunal (Lands Chamber) and the Court of Appeal.
The second post is a summary of the issues canvassed in each judgment by their Lordships in the Supreme Court.
The third and final post will be a full post of the section I normally entitle “Observations” at the end of each case report. It will contain my analysis and views of the rights (and wrongs) of all three judgments, and the likely impact of the decision on the residential service charge world.
My aim, in dividing the case up this way, is to keep each post manageable in length, to keep the introductory background information separate from the substantive issues of principle, and, finally, to allow myself sufficient space to evaluate the competing judgments without metaphorically falling off the bottom of the page.
Sections 18-20ZA of the Landlord and Tenant Act 1985 are relevant to the recovery of residential service charges:
The Service Charges (Consultation Requirements) Regulations 2003/1987 contain the statutory consultation procedures, and set the section 20 limit at £250 per lessee in respect of qualifying works if the landlord does not comply with the consultation requirements.
The relevant consultation procedure in this case was contained in Part II of Schedule 4 to the Regulations. The parties had agreed a summary of the procedure for the benefit of the Supreme Court. I reproduce it below:
The building: Queen’s Mansions, Muswell Hill, London, containing shops on the ground floor and seven flats on the upper floors. Five of the seven flats were let on long leases;
The landlord: Daejan Investments Limited, part of the Freshwater group of companies;
The managing agent: Highdorn Co Ltd, part of the Freshwater group of companies, trading as Freshwater Property Management;
The residents’ association: Queen’s Mansions Residents’ Association (“QMRA”);
The QMRA chairperson: Ms Marks, partner of one of the long lessees;
The works contract administrator: Robert Edwards Associates (“REA”).
Early 2005: major works are needed to the building;
February 2005: the managing agent informs lessees of the landlord’s intention to carry out works;
Late February 2005: the managing agent sends a specification to the residents’ association;
Subsequently, at Ms Marks’s request, REA are appointed as contract administrator;
06 July 2005: a stage 1 notice of intention is sent to the residents’ association and the lessees;
30 August 2005: A fresh specification is sent to the residents’ association and the lessees;
Subsequently, tenders are sought and received from four contractors;
06 February 2006: the contract administrator sends a tender report to the lessees – most competitive tenders are from Rosewood and Mitre. Rosewood is more expensive, but the contract period is shorter. Only the specification from Mitre is sent to the lessees;
Throughout 2006: Ms Marks asks to see the other specifications. The landlord is indicating a preference for Mitre;
14 July 2006: Ms Marks makes detailed comments about the works, stating however that her comments are provisional until she has seen the priced tenders.
14 June 2006: Stage 3 notices served on the residents’ association and the lessees;
28 July 2006: Stage 3 notices served on the residents’ association and the lessees. Both this and the 14 June notice state when the priced estimates can be inspected. Neither notice contains the required summary of observations received in response to the landlord’s stage 1 notice, and the estimates were not available for inspection until –
31 July 2006: the priced estimates are made available for inspection by the landlord;
08 & 10 August 2006: the residents’ association and the lessees are informed that the contract has been awarded to Mitre. The information is wrong but is never corrected, and at this stage, the lessees have not inspected the estimates. The Regulations provide that lessees should have thirty days to inspect the priced estimates and to make observations about them to the landlord. Effectively therefore the thirty day period is truncated: the landlord has failed to comply with the consultation procedure;
Subsequently, Ms Marks communicates further with the landlord about the proposed works;
11 September 2006: the landlord in fact awards the contract for the proposed works to Mitre.
27 September 2006: the fact of the contract award to Mitre is communicated to the lessees and the residents’ association;
03 October 2006: Mitre start carrying out the works.
14 July 2006: four of the lessees apply to the LVT for a determination of the service charges payable under their leases. The issue of compliance with the consultation requirements arises;
February – November 2007: eight days of hearings before the LVT;
11 March 2008: the LVT gives its decision: the landlord has failed to comply with the consultation requirements. The lessees’ contribution to works costing in the region of £280,000 is limited to £250.00;
Subsequently, there is a one day hearing of the landlord’s application for dispensation from the requirement to consult;
08 August 2008: the LVT gives its decision: no dispensation;
27 November 2009: the Lands Chamber gives its decision: no dispensation;
28 January 2011: the Court of Appeal hands down judgment: no dispensation;
Key elements of the LVT’s decision were:
Daejan’s offer of £50,000 to compensate the lessees for any prejudice was rejected because:
The Lands Chamber determined that the failure to give the lessees opportunity to comment meaningfully on the estimates had for all practical purposes curtailed the consultation process.
Key elements of this decision were:
Gross LJ expressed the view of the court on the three main issues before the Court of Appeal:
He continued that:
Lord Neuberger identified three questions of principle that needed to be answered, before deciding how to resolve the appeal:
Click here to read his answers to those questions. Cliffhanger anyone?