Christopher Konstanty Jastrzembski v Westminster City Council [2013] UKUT 0284 (LC)

The appellant, Mr Jastrzembski, was the long lessee of Flat 3, Turner House, Erasmus Street, London SW1P 4DZ.

The case came before the LVT as the result of his application for a determination as to the reasonableness of an estimated service charge of £9,199.15 for the cost of major works and as to his liability to pay that estimated service charge.

Westminster had planned to carry out major works to Turner House in 2007 (under reference number M111) and in 2009 (under reference number Q102), and had served section 20 notices accordingly. I think that the works were finally carried out in 2009.

The main issue before the LVT was whether Mr Jastrzembski had received a section 20 notice for the Q102 works in 2009. Unfortunately however the LVT did not determine that question.

Instead, it determined:

• That the 2009 notice was invalid by reason of it “inviting observations to be sent to someone no longer involved” in the works;
• That a section 20 notice that had been served upon the appellant by the respondent in 2007 with respect to works under Westminster’s contract reference M111 was a “perfectly good notice”, and
• That even if the 2007 contract notice was invalid, it would have granted dispensation from the requirement to consult.

The LVT refused permission to appeal. The Lands Chamber granted permission to appeal and for a cross-appeal by the landlord.

The appeal was heard by Her Honour Judge Karen Walden-Smith and Mr Andrew Trott FRICS by way of review. The issues before them were:

(i) Whether there was a procedural irregularity by the LVT raising an issue about the validity of the 2009 notice of its own motion;

(ii) Whether, in any event, the LVT erred in determining the validity of the 2009 notice;

(iii) Whether, if the 2009 notice was invalid, the LVT erred in determining that the 2007 notice was valid;

(iv) Whether the LVT erred in determining that the notice requirements under section 20 should be dispensed with in any event under section 20ZA.

The LVT determined that the 2009 notice was invalid because it had invited observations to be sent to someone who was no longer involved in the project.

That was an issue raised for the first time at the hearing by the LVT itself.

The respondent had, consequently, not been prepared for it.

The Lands Chamber said, in somewhat world-weary tones: “The Lands Chamber of the Upper Tribunal has recently had to deal with a number of cases where the LVT have taken issues which were not between the parties and made determinations where the parties have not been given the opportunity to deal with the issues raised, and have thereby been denied a fair hearing”.

It then, helpfully, reviewed recent cases on the issue:

• His Honour Judge Mole QC said, in Regent Management Ltd v Jones [2010] UKUT 369 (LC) at paragraph 29:

“The LVT is perfectly entitled, as an expert Tribunal, to raise matters of its own volition.  Indeed it is an honourable part of its function, given that part of the purpose of the legislation is to protect tenants from unreasonable charges and the tenants, who may not be experts, may have no more than a vague and unfocussed feeling that they have been charged too much.  But it must do so fairly, so that if it is a new point which the Tribunal raise, which the respondent has not mentioned, the applicant must have a fair opportunity to deal with it.”

Observing that “it is a matter of natural justice to give both parties an opportunity of making submissions and, if necessary, producing evidence necessary in order that the LVT can properly deal with a decision”, the Lands Chamber then referred to:

• HHJ Gerald’s decision at paragraph 15 of Birmingham City Council v Keddie & Hill [2012] UKUT 323 (LC);
• Arrowdell Ltd and Coniston Court (North) Hove Ltd [2007] RVR 39, in which the Lands Tribunal, the former President and Mr N J Rose FRICS, said (at paragraph 23):

“It is entirely appropriate that, as an expert tribunal, a leasehold valuation tribunal should use its knowledge and experience to test, and if necessary to reject, evidence that is before it.  But there are three inescapable requirements.  Firstly, as a tribunal deciding issues between the parties, it must reach its decision on the basis of evidence that is before it.  Secondly, it must not reach a conclusion on the basis of evidence that has not been exposed to the parties for comment.  Thirdly it must give reasons for its decision.”

• Westbourne Ltd v Spink [2008] PCLCS 251 in which HHJ Reid QC said, at paragraph 12:

“…an LVT must not reach a conclusion on the basis of a point or argument which has never been raised by the parties or put to the parties by the Tribunal.”

• The former President in Beitov Properties Ltd v Martin [2012] UKUT 133 (LC) at paragraph 13:

“… it is in my view generally inappropriate for a tribunal to take on behalf of one side in what is a party and party dispute a purely technical point, by which I mean a point that does not go to the merits or justice of the case. …”

Inevitably therefore, the Lands Chamber determined that there had been a breach of natural justice and the LVT’s decision was, for that reason, procedurally irregular.

Part 2 of Schedule 4 to the Consultation Regulations applied to the major works in question. Regulation 1 of Part 2 provides that a landlord’s notice of intention under section 20 of the 1985 Act:

(2) … shall –

(a) describe, in general terms, the works proposed to be carried out or specify the place and hours at which a description of the proposed works may be inspected;

(b)  state the landlord’s reasons for considering it necessary to carry out the proposed works;

(c)  invite the making, in writing, of observations in relation to the proposed works; and

(d) specify –

(i) the address to which such observations may be sent;

(ii) that they must be delivered within the relevant period; and

(iii) the date on which the relevant period ends.

(3)     The notice shall also invite each tenant and the association (if any) to propose, within the relevant period, the name of a person from whom the landlord should try to obtain an estimate for the carrying out of the proposed works.

The Lands Chamber concluded that:

• Whilst an address for observations must be included in the notice, there is no requirement as to whose address that must be;
• The regulations did not permit the interpretation given to it by the LVT, nor
• Did the LVT have any evidence before it to suggest that any observations made by the lessees, would not reach the respondent.

The LVT was therefore wrong in its view of the validity of the 2009 notice.

Procedural irregularity

The issue of the validity of the 2007 notice for the purpose of the 2009 works was not part of the lessee’s or the landlord’s case.

What is good for the goose being good for the gander, the Lands Chamber held that the lessee could not have been expected to deal with the argument that the 2007 notice was a valid notice for the purpose of the 2009 works, because he was not given the opportunity to call any other evidence to meet that argument. The Lands Chamber formed the clear impression that the lessee would have called evidence, had he been given the opportunity.

Whatever the merits of that evidence, the Lands Chamber concluded that the lessee’s right to contest these points was removed and his right to natural justice interfered with. In case it was wrong on that point, it moved on to determine whether the 2007 notice was a “perfectly good notice” as the LVT had opined.

The validity of the 2007 notice

The landlord supported the LVT’s conclusion that the 2007 notice was valid.  The lessee did not, for three reasons. The notice:

• Referred to contract reference M111, not reference Q102,
• Was for the wrong properties and
• Was two years out of date.

The wrong contract reference?

The Lands Chamber accepted that the change in the reference number of the contract did not, in itself, invalidate the notice. What needed to be determined was whether the 2007 notice satisfied regulation 1 of Part 2 of Schedule 4 to the Consultation Regulations.

The wrong properties?

The landlord argued that the 2007 notice complied with the requirement to describe the works in general terms because it described them as “Redecoration and repair of the exterior and the common parts”.

The problem however was that the 2007 contract was for seven blocks, as opposed to four in 2009. In the context of the two year gap, the Lands Chamber determined that the 2009 works were not described in the 2007 notice.

Out of date notice?

The landlord argued that any contractor nominated for the 2007 works would have been invited to tender for the 2009 works.

The Lands Chamber rather hurrumphed at the idea: the landlord adduced no evidence in support of its argument, and, given the time that passed between the two notices, especially with the change in the economic situation between 2007 and 2009, it could not accept that the same contractors would necessarily have been asked to tender.

It accepted that there is no specified time limit for the service of the notice, but nonetheless was of the opinion that there needed to be “some consideration as to what is an appropriate time”, because otherwise, a landlord could in principle serve a notice 10 or 20 years before the works were due to be carried out.

The Consultation Regulations allow for a 30 day period after service of the notice of intention for lessees to provide observations or suggestions for contractors.

The Lands Chamber considered that that time frame gave a useful indication that the works should be undertaken within months rather than years: the longer the period between the service of the notice of intention and the works, the more changes could have taken place which will impact the way in which a tenant might view the works.

It therefore concluded that:

• The two year gap between notice and works, and
• The removal of three blocks from the contract

meant that the LVT had failed to properly balance the material factors and that its determination that the 2007 notice was valid for the purpose of the 2009 works was wrong.

The Lands Chamber moved on to consider whether the requirement to serve a section 20 notice of intention can properly be dispensed with by virtue of the provisions of section 20ZA of the 1985 Act.

Section 20ZA required the LVT to determine whether it was “reasonable” to dispense with the requirement to serve a notice.  If so, then the landlord would not need to establish that the 2009 notice was served.

The LVT found that they would have granted dispensation because the way that the landlord had communicated with the lessees about the major works had been open and transparent. It was also satisfied that the lessee had suffered no prejudice as he had never said that he wished to nominate a contractor nor challenged the need for the respondent to carry out the works in accordance with its obligations under the lease.

The Lands Chamber pulled out its copy of the Supreme Court’s judgment in Daejan Investments Ltd v Benson & Ors [2013] 1 WLR 854 and reminded itself of the new world of dispensation that we all now live in:

• The question was whether, and if so to what extent, the tenant would relevantly suffer if an unconditional dispensation was granted.  The word relevantly in this context referred to a disadvantage that the tenant would not have suffered if the consultation requirements had been fully complied with, but which they would suffer if an unconditional dispensation were granted;
• The factual burden is on the tenant to identify any relevant prejudice which he claims he would or might have suffered;
• Once the tenant has shown a credible case for prejudice, the LVT should look to the landlord to rebut it, failing which it should, in the absence of good reason to the contrary, require the landlord to reduce the amount claimed as service charges to compensate the tenants fully for that prejudice;
• It is not sensible or convenient to distinguish between a serious failing and a technical, minor or excusable oversight, save in relation to the prejudice it causes.  The gravity of the landlord’s failure to comply, the degree of its culpability, the nature of the landlord and the financial consequences of its failure to comply are not relevant considerations for the tribunal per se; their relevance will depend upon the prejudice which each such factor causes.
• The tribunal could grant dispensation on such terms as it thought fit, providing that they were appropriate in their nature and effect, including terms as to costs.

The landlord argued that on receipt of the 2007 notice, the lessee made no observations, nor did he nominate a contractor for the works.

The lessee responded that he did comment on the 2007 works: he had campaigned successfully against them, and would have done the same had he received the 2009 notice.

The Lands Chamber did not agree with the lessee:

• He knew that major works were planned to be carried out on Turner House;
• He attended a consultation meeting on 23 July 2009 where he made observations on the proposed works and was given an opportunity to sit on the contract evaluation panel to consider which contractor should be chosen. These were the very matters that the initial notice was designed to deal with;
• There was no evidence that he would have made other, and further, observations had he been in receipt of the 2009 notice;
• By letter dated 19 May 2010, when he finally received the notice of intention, he raised a number of issues, to which the landlord responded, but he did not raise any query about the scope of or need for the works.

“In the circumstances, we cannot find that the [lessee] suffered relevant prejudice as is set out in Daejan as he was not under a disadvantage that he would not have suffered had the consultation requirements been fully complied with. The [lessee] was, in our judgment, in the same position he would have been in had the consultation requirements been fully complied with”.

HHJ Walden Smith and Mr Trott summarised their decision as follows:

“Our conclusions are, therefore, that:

“(i) There was a procedural irregularity by reason of the LVT raising a point about the validity of the 2009 notice which had not been raised by either party;

“(ii) The 2009 notice was not invalidated by the fact of the name for observations to be sent to being the name of someone no longer involved in the contract;

“(iii) The 2007 notice was not a valid notice for the purpose of the 2009 contract; but

“(iv) In all the circumstances of this matter, there was no relevant prejudice to the lessee. The LVT did not therefore err in determining that that 2009 notice be dispensed with pursuant to the provisions of section 20ZA of the 1985 Act”.

The consequence of those conclusions was that the lessee’s appeal succeeded on the 2007 notice point (conclusion (iii)), but failed on the dispensation point (conclusion (iv)).  The landlord’s appeal succeeded on both points (conclusions (i) and (ii)).

I suspect however that although honours were even in terms of number of conclusions in the parties’ favour, the overall outcome was a major works bill for the lessee.

It did not take long for Daejan to be considered in the Lands Chamber. After everything that has been written and surmised about the Supreme Court’s judgment, not least by me, here, here and here, we now have an example of the judgment in action.

I am however going pass over the Daejan elements of the case, just as I am going to nod to the frolics of the LVT and move on. The issue which caught my eye in this case was whether a section 20 notice has an expiry date.

I am not sure that I agree with the Lands Chamber that the description of the works was so radically altered by the reduction of their scope as to make the 2007 notice fail for the 2009 works. The regulations under consideration in this case require the description of the works to be but “general”, and in my time, I have seen some very general descriptions.

I am equally unsure why the passage of time and the alteration in the economic climate should make any difference to a lessee’s observations on works. If they are recoverable under the terms of the lease, the fact that we may be heading for hades in a handcart – or booming like a bittern – is arguably irrelevant to the decision to carry out the works.

That said, a lessee’s decision as to whether to nominate a contractor – and which contractor to nominate – may be significantly affected by the scope of the works.

The prevailing economic conditions may also dictate whether a lessee would contest the recoverability of the works, and we have of course the Lands Chamber’s decision in Garside v (1) RFYC Ltd, (2) Maunder Taylor [2011] UKUT 367(LC), which imports affordability into the reasonableness of incurring costs and the amount thereof.

Disputes turning on the use-by date of a section 20 notice will be highly fact-sensitive, I suspect.