“an amount payable by a tenant of a dwelling as part of or in addition to the rent— (a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management, and (b) the whole or part of which varies or may vary according to the relevant costs”
“(a) only to the extent that they are reasonably incurred, and (b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard”
“limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either— (a) complied with in relation to the works or agreement, or (b) dispensed with in relation to the works or agreement by (or on appeal from) the appropriate tribunal”
“Stage 1: Notice of intention to do the works Notice must be given to each tenant and any tenants’ association, describing the works, or saying where and when a description may be inspected, stating the reasons for the works, specifying where and when observations and nominations for possible contractors should be sent, allowing at least 30 days. The landlord must have regard to those observations. Stage 2: Estimates The landlord must seek estimates for the works, including from any nominee identified by any tenants or the association. Stage 3: Notices about estimates The landlord must issue a statement to tenants and the association, with two or more estimates, a summary of the observations, and its responses. Any nominee’s estimate must be included. The statement must say where and when estimates may be inspected, and where and by when observations can be sent, allowing at least 30 days. The landlord must have regard to such observations. Stage 4: Notification of reasons Unless the chosen contractor is a nominee or submitted the lowest estimate, the landlord must, within 21 days of contracting, give a statement to each tenant and the association of its reasons, or specifying where and when such a statement may be inspected.”
“44. Given that the purpose of the requirements is to ensure that the tenants are protected from (i) paying for inappropriate works or (ii) paying more than would be appropriate, it seems to me that the issue on which the LVT [i.e. the leasehold valuation tribunal] should focus when entertaining an application by a landlord under section 20ZA(1) must be the extent, if any, to which the tenants were prejudiced in either respect by the failure of the landlord to comply with the requirements. “44. Given that the purpose of the requirements is to ensure that the tenants are protected from (i) paying for inappropriate works or (ii) paying more than would be appropriate, it seems to me that the issue on which the LVT [i.e. the leasehold valuation tribunal] should focus when entertaining an application by a landlord under section 20ZA(1) must be the extent, if any, to which the tenants were prejudiced in either respect by the failure of the landlord to comply with the requirements. 45. Thus, in a case where it was common ground that the extent, quality and cost of the works were in no way affected by the landlord's failure to comply with the requirements, I find it hard to see why the dispensation should not be granted (at least in the absence of some very good reason): in such a case the tenants would be in precisely the position that the legislation intended them to be—ie as if the requirements had been complied with.”
“67. … [G]iven that the landlord will have failed to comply with the requirements, the landlord can scarcely complain if the LVT views the tenants’ arguments sympathetically, for instance by resolving in their favour any doubts as to whether the works would have cost less (or, for instance, that some of the works would not have been carried out or would have been carried out in a different way), if the tenants had been given a proper opportunity to make their points. As Lord Sumption JSC said during the argument, if the tenants show that, because of the landlord’s non-compliance with the requirements, they were unable to make a reasonable point which, if adopted, would have been likely to have reduced the costs of the works or to have resulted in some other advantage, the LVT would be likely to proceed on the assumption that the point would have been accepted by the landlord. Further, the more egregious the landlord’s failure, the more readily an LVT would be likely to accept that the tenants had suffered prejudice. 68. The LVT should be sympathetic to the tenants not merely because the landlord is in default of its statutory duty to the tenants, and the LVT is deciding whether to grant the landlord a dispensation. Such an approach is also justified because the LVT is having to undertake the exercise of reconstructing what would have happened, and it is because of the landlord’s failure to comply with its duty to the tenants that it is having to do so. For the same reasons, the LVT should not be too ready to deprive the tenants of the costs of investigating relevant prejudice, or seeking to establish that they would suffer such prejudice. This does not mean that LVT should uncritically accept any suggested prejudice, however far-fetched, or that the tenants and their advisers should have carte blanche as to recovering their costs of investigating, or seeking to establish, prejudice. But, once the tenants have shown a credible case for prejudice, the LVT should look to the landlord to rebut it. And, save where the expenditure is self-evidently unreasonable, it would be for the landlord to show that any costs incurred by the tenants were unreasonably incurred before it could avoid being required to repay as a term of dispensing with the requirements.”
“[C]onsider a case where a landlord carried out works costing, say,£1m , and failed to comply with the requirements to a small extent (eg in accidentally not having regard to an observation), and the tenants establish that the works might well have cost, at the most,£25,000 more as a result of the failure. It would seem grossly disproportionate to refuse the landlord a dispensation, but, equally, it would seem rather unfair on the tenants to grant a dispensation without reducing the recoverable sum by£25,000 . In some cases, such a reduction could be achieved by the tenants invoking section 19(1)(b), but there is no necessary equivalence between a reduction which might have been achieved if the requirements had been strictly adhered to and a deduction which would be granted under section 19(1)(b) ….”
“If a landlord fails to comply with the requirements in connection with qualifying works, then it must get a dispensation under section 20(1)(b) if it is to recover service charges in respect of those works in a sum greater than the statutory minimum. In so far as the tenants will suffer relevant prejudice as a result of the landlord’s failure, the LVT should, at least in the absence of some good reason to the contrary, effectively require the landlord to reduce the amount claimed as service charges to compensate the tenants fully for that prejudice. That outcome seems fair on the face of it, as the tenants will be in the same position as if the requirements have been satisfied, and they will not be getting something of a windfall.”
“that concern is, I believe, answered by the significant disadvantages which a landlord would face if it fails to comply with the requirements. I have in mind that the landlord would have (i) to pay its own costs of making and pursuing an application to the LVT for a section 20(1)(b) dispensation, (ii) to pay the tenants’ reasonable costs in connection of investigating and challenging that application, (iii) to accord the tenants a reduction to compensate fully for any relevant prejudice, knowing that the LVT will adopt a sympathetic (albeit not unrealistically sympathetic) attitude to the tenants on that issue.”
“Q5. The balconies and walkways need repairing. Are you going to replace the asphalt? Two consultants have said that there are liquid coatings available that carry the same guarantee as new asphalt and are far cheaper to install. Where the asphalt is damaged, we may need to remove some of it. In other areas there are ‘bubbles’ in it that will also need to be removed. We intend using the liquid coating which comes with a guarantee of least 30 years.”
“Following the works undertaken, the Applicant is satisfied that it has the evidence to justify that the replacement of the balcony asphalt was justified. The Applicant will be seeking the costs of that element of the works in the Final Account, anticipated within a few months of the date of this application. Therefore, the Applicant is seeking dispensation unders.20ZA Landlord and Tenant Act 1985 from the formal consultation requirements in readiness of the final account.”
“The only issue for the Tribunal at this time is whether or not it is reasonable to dispense with the statutory consultation requirements. This application does not concern the issue of whether any service charge costs will be reasonable or payable.”
“The Respondents submit that the possibility that they would have obtained expert assistance on the scope of the works is a realistic one.”
“16. The only information of what was the remaining scope of works I had to rely on were the two Section 20 Notices [i.e. the notice of intention and paragraph (b) statement]. Neither contained the item of replacing the asphalt on all residents’ balconies. It was reasonable for me to assume at that point that no such work was intended and that it had been removed from the original tender document together with other ‘nice to have’ items. As a result, I did not object to this item, neither did I have any reason to enquire into it any further. 17. Had I known that it was indeed [Aster’s] intention to fully replace the asphalt on all balconies, I would have compared the prices of this item between the blocks and would have discovered that the cost of the same element in Atholl Ct, for example, is only a fraction of what was planned for Saxon. This would have given me sufficient grounds to question the proposed full replacement versus other options, such as targeted repairs that were employed in Atholl. 18. Additionally, not being a construction professional, I would have commissioned, as I’m sure many other lessees would, an independent surveyor’s report on the available options and the extent of the damage in relation to the balconies’ asphalt. It would have found, as subsequently happened, that a repair is a cheaper and viable alternative. I would also have had an expert to analyse the patterns of water staining inside the flats, and it would have been found, as it was later, that hardly any can be credibly explained from water ingress originating through the floor of the balcony above, as was concluded in this Tribunal’s hearing during the hearing on 20-22 February 2018 . 19. Further, I would have insisted on seeing [Aster’s] evidence of the necessity of this work and would have found that both of their advisers, Wellings, the surveyors, and the specialist masonry consultants, Bershe-Rolt, recommended repairs to the asphalt rather than complete replacement …. 20. With the above evidence, it would have been likely that a discussion of appropriate alternative options with [Aster] would have resulted in agreeing an alternative approach and a substantial cost reduction ….”
“32. It is common ground in this case that neither of the statutory Stage 1 or 2 Notices mentioned any works to the balcony asphalt, let alone wholesale replacement. Although there was some other extra-statutory information provided with the Stage 1 Notice in March 2016, this just mentioned the possibility that some asphalt might be replaced. The fact that there were only four observations from lessees in response to the stage 1 Notice does not establish that lessees would not have made observations on the asphalt works had they known about them. Nine months later, in December 2016, there was nothing in the Stage 2 Notice to alert the lessees to any change in the scope of the works. To have realised, within the limited Stage 2 consultation period, that costly replacement of all balcony asphalt was now intended, lessees would have had to arrange to inspect, read and understand the 180 page Specification, a highly complex document which the Tribunal does not consider would be readily understood by a lay person. 33. The represented lessees say that had they been aware of Aster’s intention to replace all the balcony asphalt, they might have enlisted expert advice on the scope of the works. Miss Motovilova, who did take the trouble to inspect the specification – albeit by standing up at a counter at Aster’s premises – did not understand from this that asphalt replacement was intended, and specifically asserts that if she had known it was Aster’s intention, she would have commissioned an independent surveyor’s report on the available options and asked to see the advice Aster had received. She suggests this might have resulted in a cheaper alternative approach of targeted repairs. Miss Motovilova’s position as to what she would have done is given some support by the fact that Miss Motovilova did indeed make extensive observations in response to the Stage 2 Notices …. 34. Viewing the respondents’ arguments sympathetically, as sanctioned by Daejan, the Tribunal finds this makes out a credible case of relevant prejudice, namely that the lessees will be asked to pay for inappropriate works. In the section 27A proceedings, by which time the lessees did have the benefit of expert advice, the expert evidence then available led the Tribunal to conclude that replacement of the balcony asphalt was unnecessary. It is therefore possible that Aster might have reached the same conclusion before works commenced if the lessees had had the opportunity to challenge the proposed works.”
“39. So while there is now some evidence before the Tribunal in support of the appropriateness of the works, the Tribunal does not accept it as conclusive, and the lessees have not had the opportunity to challenge it. It is not good enough for Aster to contend that such evidence is for another day … , by implication in future proceedings under section 27A. By that time the costs of the works will in all likelihood have been demanded from the lessees. If every lessor making a section 20ZA application could neutralise a plea of inappropriate (or excessively costly) works by saying that there is no prejudice because the lessees can always challenge the service charge under section 19 in a section 27A application, unconditional dispensation would be the norm. That is clearly not what the Supreme Court intended. Conversely, refusing dispensation altogether when prejudice is established could provide lessees with a windfall. Lord Neuberger made it clear that the correct approach is to consider whether the prejudice can be remedied by imposing appropriate terms of dispensation. At para 69 he said that lessees ‘are likely to have their costs of consulting a surveyor and/or solicitor paid by the landlord’. … 42, … In this case, without the lessees having had the opportunity to consider and respond to Mr Greenhalgh’s evidence, the Tribunal remains uncertain whether the lessees are being asked to pay for inappropriate works.”
“Taking into account all the evidence and submissions, and the guidance of Daejan, the Tribunal is satisfied that it is reasonable to grant dispensation to Aster but only on terms that will remove possible prejudice to the lessees. The terms will be as follows: (i) Aster is to pay the reasonable costs of an expert nominated by the lessees to consider and advise them on the necessity of replacing all the balcony asphalt at the main blocks. Had Aster’s evidence from Mr Greenhalgh been provided with the application, the lessees would have had the opportunity to obtain expert evidence and the Tribunal would have imposed the same condition, regardless of whether the advice obtained supported the claim of prejudice. This is because it is reasonable for the lessor to pay the lessees’ costs of investigating prejudice. There is no reason why the condition should not be applied to prospective advice that the lessees, through no fault of their own, have not yet had an opportunity to obtain. (ii) Aster is to pay the respondent’s reasonable costs of this application, to be summarily assessed if not agreed. (iii) The costs of the application should not be recoverable by Aster from the lessees through the service charge.”
“Although it is correct that there are no other extant proceedings, it is clear that the lessees will in due course be asked to pay for balcony works in a very substantial amount. If the lessees have the benefit of expert advice this should assist in resolving any dispute, hopefully avoiding the need for further proceedings (likely to be far more costly than the expert report). It is fair and reasonable to require [Aster] to pay for the report as a condition of dispensation.”
“The landlord had failed to consult the lessees adequately and then carried out the works to the balconies with the intention of recovering its costs through the service charge. It presented the lessees with a fait accompli. The lessees had not had the opportunity to consult their expert on the works that had been done in circumstances where the FTT had already found, in the course of section 27A proceedings, that complete replacement of the balcony asphalt was unnecessary. There was, to say the least, a ‘credible case of prejudice’, and that prejudice could most effectively be remedied by the lessees instructing their expert to conduct a survey of the balconies throughout the main blocks. That would place the lessees in the position they would have been in if there had been proper consultation, and in a position to decide whether and if so how the landlord could be challenged in its attempt to charge the works to them”; ii) In paragraph 65: “In Daejan, the Supreme Court at [68] emphasised the importance of being sympathetic to the tenants not merely because the landlord is in default of its statutory duty but also because the FTT ‘is having to undertake the exercise of reconstructing what would have happened, and it is because of the landlord’s failure to comply with its duty to the tenants that it is having to do so.’ It was open to the FTT to find (relying in particular on the evidence of Ms Motovilova … ) that, had the scale and extent of the balcony works been properly communicated to the lessees at Stage 1, it would have been likely to have elicited a reference by the lessees to an expert. The landlord’s default had therefore led to a ‘credible’ case of prejudice, the lessees having been unable, in the course of the consultation exercise, to take the necessary steps to satisfy themselves that the works intended were necessary and appropriate”; iii) In paragraphs 74 and 75: “74. The FTT sought to do justice by imposing as a condition of dispensation that the landlord pay the reasonable costs of obtaining a surveyor’s report. The purpose of a surveyor’s report would be to show whether the works proposed by the landlord were (in simple terms) unnecessary or inappropriate. The imposition of this condition is understandable as the FTT looked back, with the benefit of hindsight, to the issues ventilated in the section 27A application concerning the on-account demands, and as it looked ahead to the likely issues in a future section 27A application concerning service charge demands for completed works. The FTT properly applied itself, in my judgment, to the particular circumstances, and to the overall context, of the case with which it was concerned. 75. The FTT has a wide discretion in terms of the conditions that may be stipulated, and there is no suggestion in Daejan or subsequent cases that the FTT is limited to imposing a requirement on the landlord to pay a specific sum to the tenants. In Daejan, at [54], the Supreme Court stated that the LVT (now FTT) ‘has power to grant a dispensation on such terms as it thinks fit - provided, of course, that any such terms are appropriate in their nature and effect.’ It expressly contemplated the imposition of a condition requiring the landlord to recompense the tenants for the costs of an expert surveyor: see Lord Neuberger at [69] ….”
“Say one lessee is a retired surveyor, and had they been told that proposed qualifying works included item alpha, they would have pointed out why item alpha need not be done, which would have omitted£100,000 from the major works package. None of the other lessees would have made that point because none had that personal expertise. The Appellant seems to think that only the retired surveyor would have£5,000 knocked off his bill as a condition of dispensation. This is wrong. All 20 lessees suffered the same prejudice; all are entitled to the benefit of the same condition that their service charge be reduced by£100,000 (pro-rated).”