The High Court caused controversy in December 2012 when handing down a judgment in the case of Phillips –v- Francis [2012] EWHC 3650 (Ch D) which had far reaching effects for landlords and tenants alike.
As all managing agents, landlords and long lessee tenants will be aware most leases allow recovery of service charges by the landlord, to include charges in respect of major works. In all but the simplest of cases, landlords are obliged by section 20 of the Act to go through a consultation procedure, and to demand payments in accordance with the statutory scheme laid down within it in order to recover the full costs of the works.
In Philips and Francis, the court considered whether the restrictions imposed on landlords in respect of recovery of service charges under the Act also applied to the tenant owners of chalets on a Cornwall holiday site. The court concluded that the leases of these chalets did fall within the legislation in the same way as leases of flats did. An appeal to the High Court was lodged by the leaseholders on a number of grounds.
Having determined at first instance that the chalets were not excluded from the requirements of the Act, one issue which arose was whether works which had been done by the landlord required the landlord to consult in accordance with section 20 of the Landlord and Tenant Act 1985. In doing so, the court also considered whether separate sets of qualifying works done within a single accounting year would amount to the qualifying works for that accounting period, or whether each could be treated separately.
Prior to Philips v Francis, it had always been the case that the section 20 consultation only applied to qualifying works where each lessee was required to contribute a figure in excess of £250. Therefore, for small amounts of work at low cost the landlord or its managing agent did not have to go through the procedure.
The court concluded in Philips v Francis that qualifying works could not be grouped into different sets, and that the cost of all qualifying works carried out in any one accounting period would be added together before the statutory cap of £250 per lessee applied.
Without realising it, it appears therefore that the Court has removed the requirements of the Act and replaced them with a requirement to consult on all works. Accordingly landlords would be well advised to take advice on the proper procedure to be followed or face the risk of only recovering the statutory cap in respect of works undertaken. Tenants should also check the consultation has been carried out properly, as the changes are likely to result in significant extra costs to long lessee tenants, who will have to fund the increased consultations through the provisions for service charges in their leases.
At Benchmark Solicitors we can advise landlords and tenants on these complex Landlord and Tenant Act provisions.
Louise Delgado, Solicitor – 3 September 2013