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Lifting the cap - A case note on Lambeth LBC v Kelly [2022] UKUT 00290 (LC) 30 November 2022

Statutory consultation requirements may be dispensed with after a determination under s.27A of the Landlord and Tenant Act 1985 (“the 1985 Act”) that service charges are payable only to the extent of the statutory cap.

Section 27A of the 1985 Act allows an application to be made to the FTT for a determination (among other things) of “whether a service charge is payable”.

Lambeth LBC (“the Council”), the owner and landlord of the three subject flats, did some works to fix a possible roof leak costing £7,882.41. The consultation requirements in s.20 of the 1985 Act were triggered but were not complied with. On 29 July 2021, the FTT so held and determined under s.27A of the 1985 Act that the sum payable by Mrs Danvers-Russell, a lessee of one of the flats, was accordingly limited to £250.

The Council argued in its statement of response in the FTT that it had sufficiently served notice under s.20, but asked that if, contrary to its primary case, it was found (as it duly was) that the Council had failed to comply with s.20, the FTT should grant dispensation from the consultation requirements pursuant to s.20ZA of the 1985 Act.

The FTT indicated that if the Council wanted to pursue a dispensation application, it would have to complete an application form and pay the required tribunal fee. It also said that as an application for dispensation could affect other lessees, it must be served upon them and such an application could not appropriately be added to the Council’s response. In response to this, the Council stated that it did not currently intend to make a separate application for dispensation but “upon determination of this matter, the council shall consider promptly making any further application for dispensation, as necessary.”

On 24 August 2021, the Council applied under s.20ZA of the 1985 Act for retrospective unconditional dispensation from the consultation requirements, naming all three leaseholders as respondents. Mrs Danvers-Russell was the only leaseholder to substantively respond to the application

The FTT refused to dispense with the consultation requirements on two grounds. First, it decided that the application was too late and should have been made in response to Mrs Danvers-Russell’s s.27A application. Secondly, it considered that it would not be reasonable to grant dispensation where Mrs Danvers-Russell had been prejudiced by the failure to consult her in the form of being unable to budget for the expense of the works and being unable (absent consultation) to make a case that there had been prejudice.

On 17 November 2022, Judge Siobhan McGrath, sitting in the Upper Tribunal (Lands Chamber) allowed an appeal against the FTT’s decision on the grounds that:

(1)The FTT had jurisdiction to dispense under s.20ZA even after a determination under s.27A had been made. Although it is sometimes possible for an application for dispensation to be decided within a s.27A hearing, this is not a requirement because:

(a) There was nothing in the 1985 Act to support the conclusion that a s.20ZA application cannot be made after a s.27A application has been determined.

(b) Although rule 9(3) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 confers a power to strike out a matter where “the proceedings or case are between the same parties and arise out of facts which are similar or substantially the same as those contained in a proceedings or case which has been decided by the Tribunal”, the FTT did not decide the case on this basis and it would not have been appropriate for it to have done so where the Tribunal had not indicated to the Council that a failure to apply at the same time as the s.27A proceedings would operate as a bar to a future application.

(c) Nor had the FTT purported to decide all issues which might arise under ss.18-30 of the 1985 Act.

(d) Section 20 operates by capping tenant contributions. That cap may be lifted by the FTT, perhaps on conditions (in which case it is a matter for the landlord whether or not to accept the conditions or to accept the cap). Dispensation applications may involve the same background facts as dealt with in s.27A proceedings, but the issues for determination are not the same and might require different evidence or submissions, in particular in relation to prejudice.

(e) It is common practice in the FTT for applications under s.20ZA to be made after s.27A proceedings. Here, the Council responded to a s.27A application by a single leaseholder. An application for dispensation involving other leaseholders would have involved delay and expense and may have proved unnecessary (which would not have been known until determination of the s.27A application).

(2) Mrs Danvers-Russell having failed to establish that she would suffer any “relevant” prejudice, unconditional dispensation should be granted from the consultation requirements:

(a) The exercise of the FTT’s power to dispense is governed by determination of whether “it is reasonable” to dispense. Daejan Investments Ltd v Benson [2013] UKSC 14 does however give “a direction of travel for the exercise of that discretion and a clear steer that where a FTT is unable to identify relevant prejudice, dispensation should be granted.”

(b) As Lord Neuberger explained in Daejan at [67]: “while the legal burden of proof would be, and would remain throughout, on the landlord, the factual burden of identifying some relevant prejudice that they would or might have suffered would be on the tenants”.

(c) Mrs Danvers-Russell, in response to the appeal, had disagreed with the FTT’s finding that she was unable to budget for the cost and no reliance was placed by her on the appeal upon any inability to budget as causing prejudice.

(d) Even if the works at the property had been ineffective, there was no evidence that any leaseholder suffered financial or other prejudice as a result. Consideration of such evidence could not take place on an appeal by way of review, and would be more appropriately considered in a s.27A application.

(e) There was a wholesale failure to provide the leaseholders adequate information in advance of the cost being incurred as the s.20 notices were not served on them before the works began. However:

“there is no evidence of actual prejudice. The prejudice identified as a consequence of being unable to budget is disregarded and what is left is in my view insufficient. Even accepting that Mrs Danvers-Russell was hampered in demonstrating prejudice by delay, I consider that it was still incumbent upon her to show some type of loss. For example, if she had shown that she had been asked to pay additional service charges because the works needed to be re-done or that additional unnecessary works had caused her inconvenience then that might have amounted to relevant prejudice. Even then, it might have been reasonable to give the council dispensation but on conditions.”

The Upper Tribunal’s decision confirms that although a s.27A determination may be made to the effect that, at a particular date, the service charges payable by way of contributions to particular works are limited to £250 due to the application of a statutory cap for failure to comply with the consultation requirements, this does not preclude a later application to dispense with the requirements, and the cap.

The conclusion that s.20ZA applications may in principle be made after s.27A determinations (as was acknowledged to be common practice) will be welcome to landlords. Indeed, leaseholders other than those making a s.27A application may also be relieved not to have to be dragged into precipitous, potentially unnecessary s.20ZA proceedings.

The decision is also a salutary reminder for tenants seeking to resist the dispensation of consultation requirements that it is incumbent upon them to adduce evidence of prejudice suffered by them as a result of the failure of the landlord to comply with the consultation requirements, either in paying for inappropriate works or paying more than would be appropriate. They will need to identify what difference would have resulted had the landlord complied with the consultation requirements.

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