Service Charge Consultation: Redressing the balance

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Phillips & Goddard v Francis [2014] EWCA Civ 1395

Most residential landlords, or their managing agents at least, will be aware that where the landlord intends to carry out works to a premises, he is first obliged to comply with the statutory consultation process under the Landlord and Tenant Act 1985 if those works will result in the tenant having to pay more than £250 in service charge.  A failure to comply means the landlord is limited to recovering £250 from each tenant.

For a long time it was assumed that this requirement applied to each separate set of qualifying works carried out by the landlord during a service charge year; rather than the aggregate of all works carried out across the year.

However, in 2012, in a surprising decision, the High Court held that the £250 was a single threshold, applicable to each tenant, to be applied to the aggregate of all landlord’s works carried out over a single service charge year.

The ruling caused dismay for landlords and their agents since it was simply unworkable in practice. Landlords were faced with the position that, where they intended to undertake multiple maintenance jobs over the service charge year (not unusual in any respect) that meant in total each tenant would pay £250 or more in service charge for the year, they would have to comply with the consultation process.

The obvious problem with this is that where works are of a general maintenance nature, a landlord is unlikely to know the exact nature of these, or how much they are going to cost in advance so as to allow it to comply with the consultation response. Often a landlord won’t know the cost until after the works are done and it is too late to consult. It also means that landlords would have to consult with tenants over almost every little maintenance job – a completely impractical position – and that an emergency job could tip the landlord over the threshold.

These issues have now been rectified by the Court of Appeal which has overruled the High Court on this point by finding that a landlord is only required to consult where each single set of qualifying works will lead to the tenant paying more than £250.

The decision still leaves landlords having to determine what constitutes an ‘individual’ set of works, but the Court of Appeal felt this could be deal with by adopting a common sense approach in each set of circumstances. Relevant factors will include:

– The physical location of works in relation to each other;

– If the works are carried out under the same contract;

– Whether the works are carried out at the same time; and

– The character of the works and whether they are connected to each other.

The result of this decision is that the balance has shifted in the landlord’s favour in that they are now back in the pre-2012 position with regards to service charge consultation requirements, but with the assistance of the guidance given by the Court of Appeal in determining what qualifies as a single set of qualifying works.