London Borough Of Southwark v Leaseholders Of The London Borough Of Southwark [2011] UKUT 438 (LC)

IN THE MATTER OF AN APPEAL AGAINST A DECISION

UT Neutral citation number: [2011] UKUT 438 (LC)

Case No LRX/86/2010

Venue OF A LEASEHOLD VALUATION TRIBUNAL FOR THE, LONDON RENT ASSESSMENT PANEL, BETWEEN LONDON BOROUGH OF SOUTHWARK Appellants, and, LEASEHOLDERS OF THE LONDON BOROUGH OF SOUTHWARK Respondents, Re: All Leasehold Properties in the, London Borough of Southwark, Before: The President, Sitting at 43-45 Bedford Square, London, WC1B 3AS, Philip Rainey QC and Simon Butler instructed by Director of Communities, Law and Governance, London Borough of Southwark, for the appellants, Andrew Dymond instructed by Anthony Gold for the Leaseholders Association of Southwark, The following cases are referred to in this decision:, R v Soneji [2006] 1 AC 340, The following further cases were referred to in argument:, Daejan Investments Ltd v Benson [2011] 1 WLR 2330, Eltham Properties Ltd v Kenny LRX/161/2006, Paddington Basin Developments Ltd v West End Quay Management Ltd [2010] 1 WLR 2735, DECISION, Introduction

Between

London Borough Of Southwark

Leaseholders Of The London Borough Of Southwark

Date 17 October 2011

[1]This appeal concerns five major works agreements entered into between the appellants, the London Borough of Southwark, and five contractor companies. Under these agreements each contractor would carry out substantial repair and renewal works to the council’s housing. The agreements are qualifying long-term agreements (QLTAs) within the meaning of section 20 of the Landlord and Tenant Act 1985 and are subject to the consultation requirements contained in that section and the Service Charges (Consultation Requirements) (England) Regulations 2003. Failure to comply with those requirements has the effect of limiting to £250 the amount that any leaseholder must pay for works carried out under such agreement, unless dispensation has been granted by a Leasehold Valuation Tribunal under section 20ZA of the Act. The council’s total annual budget for works to be carried out under the agreements is about £85 million, and properties to which the limitation would apply constitute about one-quarter of the 57,000 properties for which it has repairing obligations. If the limitation were to apply, therefore, the council would be unable to recover many millions of pounds spent on works carried out under the QLTAs.

[2]Under paragraphs 4 and 5 of Schedule 2 to the Regulations the council were required to prepare a proposal for each proposed agreement and to give notice of the proposal to each tenant and any recognised tenants’ association that represents some or all of the tenants. Paragraph 4 prescribes the information that the statement must contain. The council considered that they could not provide the information required, and they therefore applied to the LVT under section 20ZA for dispensation in advance of serving the notices of proposal. The LVT refused to grant dispensation, concluding that there was ample scope for the council to provide much clearer and more information to the leaseholders and that it might therefore in future be able to comply with the consultation requirements. The LVT granted limited permission to appeal on 24 May 2010. On 1 September 2010 I extended the permission so that it became unlimited, and I directed that the appeal should be determined by way of rehearing.

[3]The hearing before the LVT was on 6-11 January 2010, and its decision was given on 22 March 2010. Before the decision was given, on 22 January 2010, the council served notices of proposal on all leaseholders, and on 11 June 2010 (by which time the LVT had given permission to appeal) they entered into the five proposed agreements with the contractors. Each agreement contained a clause making it terminable in the event of the present appeal being decided against the council. Works under the agreements began in November 2010 and have continued.

[4]The respondents to the appeal are the Leaseholders Association of Southwark 2000 (otherwise known as LAS 2000), a company limited by guarantee which was formed to represent the interests of leaseholders in the London Borough of Southwark. There were a number of individual leaseholders who appeared before the LVT but none of these has chosen to respond to the appeal. The three stages of consultation

[5]The consultation requirements relating to QLTAs, for which (as with the present agreements) public notice is required, and to qualifying works (QWs) carried out under QLTAs comprise what for present purposes can be identified as three stages. At the first stage, under Schedule 2 of the Regulations, the landlord is required to give to each tenant and any relevant tenants’ association notice of his intention to enter into the QLTA and to take into account any observations received. The second stage, also under Schedule 2, requires the landlord to prepare a statement of proposal in relation to the QLTA, give notice of it to each tenant and any relevant tenants’ association, take into account any observations received and respond to such observations. The third stage, under Schedule 3, is that at which specific QWs are proposed. The landlord is required to give notice to each tenant and any relevant tenants’ association describing in general terms the work to be carried out and the total cost; and again, he is required to take into account any observations received. Notice of Intention

[6]The council’s Notice of Intention was dated 17 November 2008 and was served on all leaseholders shortly after that. It included the following statements:

“The Council is proposing to enter into a long-term agreement with a number of contractors to carry out any major works required to properties across the borough over the next five years, with an option to extend the agreements for a further five years. Before going out to tender the Council is required to consult all leaseholders in properties where the Council has maintenance responsibility. The purpose of this Notice is to provide you with details of the scope of the contract and the reasons why the Council intends to enter into it, to enable you to make observations. Please note that you will only be affected by this agreement if your block is included in the major works contract which is carried out in the future by one of the contractors appointed in this agreement. What is this agreement? The Council is responsible for the repair and maintenance of the very large portfolio of council properties with a capital programme of about £85 million per annum. In order to make the most cost-effective use of the resources that are available to meet this responsibility, the Council has changed its major works delivery strategy. Following restructuring of the Council’s investment delivery, it is intended that major works across the borough should be delivered through a long-term agreement with five contractors with one contractor delivering major works in each of four geographical areas, and a further contractor carrying out work to houses that do not form part of an estate. It is proposed that the long term agreements will be based on a schedule of rates tender whereby each potential item of work is priced in advance, but with a partnering arrangement which allows for the costs to be negotiated to reflect market conditions and any saving that can be made as a result of the arrangement… The work that could be carried out under this agreement would include any substantial repair and renewal work to the block, including repairs and the renewal of roofs, windows, doors, brickwork and concrete repairs, external decorations, repair and renewal to pipe work and rainwater goods. It may also include some mechanical and electrical work, such as district heating boilers, electrical mains, door entry systems where they are integral to a contract… Currently over thirty contractors work across the borough, largely on individually tendered contracts. The valuation of the contracts carried out across the borough have indicated that these individually tendered contracts do not take full advantage of the economies of scale and bulk purchasing power of such a large programme of work, and face competition from other large projects in both the public and private sector. In addition traditionally tendered contracts do not include an incentive to reduce costs in the course of the contract e.g. to react to changes in market conditions. The Council believe that developing a long-term relationship with a smaller number of contractors will seek to address all these issues. The new approach will help to attract the most competitive bids from contractors and offers an opportunity to work with the contractor to plan work over the longer term to effectively manage contract costs. It also offers an opportunity for contractors to work with both the council and residents in the long term, taking advantage of local knowledge and developing a relationship with residents on the estates where they are working by maintaining a consistent workforce.”

Notice of Proposal: the requirements

[7]Under paragraph 4(1) of the Schedule 2 to the Regulations the landlord is required to prepare, in accordance with the provisions of the paragraph, a proposal in respect of the proposed QLTA. Of particular relevance in relation to the present application are the requirements contained in sub-paragraphs (4), (5), (6) and (7):

“(4) Where, as regards each tenant’s unit of occupation, it is reasonably practicable for the landlord to estimate the relevant contribution to be incurred by the tenant attributable to the relevant matters to which the proposed agreement relates, the proposal shall contain a statement of that contribution. (5) Where – (a) it is not reasonably practicable for the landlord to make the estimate mentioned in sub-paragraph (4); and (b) it is reasonably practicable for the landlord to estimate, as regards the building or other premises to which the proposed agreement relates, the total amount of his expenditure under the proposed agreement, the proposal shall contain a statement of the amount of that estimated expenditure. (6) Where – (a) it is not reasonably practicable for the landlord to make the estimate mentioned in sub-paragraph (4) or (5)(b); and (b) it is reasonably practicable for the landlord to ascertain the current unit cost or hourly or daily rate applicable to the relevant matters to which the proposed agreement relates, the proposals shall contain a statement of that cost or rate. (7) Where it is not reasonably practicable for the landlord to make the estimate mentioned in sub-paragraph (6)(b), the proposal shall contain a statement of the reasons why he cannot comply and the date by which he expects to be able to provide an estimate, cost or rate.”

[8]Paragraph 5(1) provides that the landlord must give notice in writing of the proposal prepared under paragraph 4 to each tenant and, where a recognised tenants’ association represents some or all of the tenants, to the association. Under sub-paragraph (2) the notice must be accompanied by a copy of the proposal or specify the place and hours at which the proposal may be inspected, and it must invite the making of observations in relation to the proposal within a specified period. Under paragraph 6 the landlord is required to have regard to any observations made within that period, and under paragraph 7 he must within 21 days give notice in writing of his response to any observations received.

[9]Paragraph 8 provides:

“8. Where a proposal prepared under paragraph 4 contains such a statement as is mentioned in sub-paragraph (7) of that paragraph, the landlord shall, within 21 days of receiving sufficient information to enable him to estimate the amount, cost or rate referred to in paragraph (4), (5) or (6) of that paragraph, give notice in writing of the estimated amount, cost or rate (as the case may be)– (a) to each tenant; and (b) where a recognised tenant’s association represents some or all of the tenants, to the association.”

The application for dispensation

[10]Section 20ZA(1) provides that, where an application is made to an LVT for a determination to dispense with all or any of the consultation requirements in relation to any QW or QLTA, the tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements. The council applied to the LVT on 24 July 2009 for dispensation from the requirements of paragraph 4(4), (5), (6) and (7). They gave the following reasons for seeking dispensation:

“The council cannot comply with paragraph (4) because individual service charge contributions cannot be ascertained until they have been surveyed and the packages of work drawn up and costed. The council cannot comply with paragraph (5) because the cost of work to individual blocks cannot be ascertained until they have been surveyed and the packages of work drawn up and costed. The council cannot comply with paragraph (6) because the unit costs for works to individual blocks cannot be ascertained until the packages of work have been drawn up. The unit costs will be based on the pricing model, that will take into account any variation to the elements of the individual blocks. The council does not believe that the pricing model itself will be sufficient to comply with the requirements of paragraph (6) but will of course be making the tenders available to leaseholders for viewing as part of the consultation process. The council cannot comply with paragraph (7) because the date by which the estimates will be available will depend on the availability of funding. It is probable that any dates given at the time of the notices of proposal will change, dependent on the availability of funding in future years.”

The Notice of Proposal

[11]On 23 December 2009 the council sent to each leaseholder a draft notice of proposal. They provided a copy to the LVT, and they relied on it in their case before the LVT. The notice of proposal that they subsequently served was in substantially the same form. It contained the explanatory material that had previously been included in the notice of intention, and appended to it were the observations that the council had received in response to that notice. The statement itself began as follows:

“When entering into an agreement like this the Council is required to provide a statement of the tenders and costs, and a summary of leaseholders’ observations. The following information is an abridged version of the statement. The statement itself is a very large document, which includes the priced information received from the contractor, and the proposed programme of work for the first two years of the contracts. The full statement is available for viewing at the Home Ownership Unit, 376 Walworth Road, London SE17 2NG, Monday to Friday between the hours of 10am and 4pm.”

[12]The statement summarised the work that could be carried out under the agreement in the way that the Notice of Intention had done, and it gave details of the tender process, identifying the five contractors who had been successful in the tender process and the areas of the borough to which each contract related. Under the heading “Details of costs” the statement said:

“Under the terms of your lease you are required to pay your due proportion of the cost, carry out repairs, maintenance and renewal to your block and estate. You will only be charged if such works are carried out, and prior to the contractor for your area being given any such order, you will receive a further consultation notice giving you details of the works and costs and giving you the opportunity to make comments on the proposals.”

[13]The notice went on to say that the council as landlord were required under section 20 to notify each tenant of the estimated service charge for the contract, or the total cost to the block or other premises for the contract, or the current unit, hourly or daily rate for the works, or the date by which the council expected to be able to provide this information (ie the requirements under paragraph 4(4), (5), (6) and (7)). It said that the council did not believe that it had sufficient information to comply with any of these requirements, and so it had applied to the LVT for dispensation from that aspect of the consultation.

[14]As far as the estimated service charge and the total block costs were concerned (requirements (4) and (5)), this was said: “The council will not be able to provide you with either an estimated service charge or total costs to your block for works which may take place under this contract until your block has been surveyed and the works specified and costed.

[15]In relation to unit rates (requirement (6)(b)), this was said:

“The full statement includes the pricing models and schedules of rates from which the cost of any work to your block or estate will be constructed. While these prices will not be increased until 31 st March 2012, the Council hopes to be able to negotiate some reductions during this period. The prices will be subject to an annual appraisal starting in the financial year 2012/13. The contracts include a mechanism for increasing the prices by buildings inflation, following which each element will be negotiated to try to obtain a reduced cost. As the inflationary increase and subsequent negotiated price will not be known until the annual review, the unit rates that are currently available may not be the same as those used to construct your service charge even if your block or estate is included in the first phase of the contract. The Council does not believe that this is sufficient to comply with the legislation.”

[16]In relation to requirement (7) the notice said:

“With regard to the date by which the information will be available, at this stage, the Council only has available a proposed two year programme. This is included in the full Paragraph 4 statement available for viewing at 376 Walworth Road. The blocks and estates affected are identified below. If your block is included on the programme, then the latest time that the council expects to be able to provide you with the cost information for your block is the end of the financial year that the work is programmed for. However, the Council will provide you with the relevant pricing information, including an estimated service charge, as soon as it becomes available, and prior to any order being given to the contractor, or work being started on your block. If your block is not included in the two year programme then the only date that we can give you by when we expect to be able to provide you with cost information is 31 March 2020. If your block is programmed for work under these contracts at any time, then the relevant pricing information will be provided prior to any order being given to the contractor and before any work is being started. However, at this stage the council cannot tell you when work is likely to take place and so can only confirm that if your block is programmed for work you will receive the cost information prior to 31 March 2020. Again, the council does not believe that this is sufficient to comply with the legislation, and have asked the Leasehold Valuation Tribunal for dispensation on this requirement.”

Factual matters

[17]The council lodged five witness statements. They were from David Lewis, the council’s Head of Maintenance and Compliance; Martin Green, the Head of Home Ownership Services in the council’s Home Ownership Unit; Louise Turff, the Service Charge Construction Manager in the Home Ownership Unit; Shaun Regan, the Finance and Performance Manager in the council’s Housing Finance team; and Carla Blair, the Capital Works Manager in the Home Ownership Unit. Mr Lewis, Mr Green and Miss Turff were called and were cross-examined. There was little disagreement between the parties on the factual matters on which they gave evidence, and following the hearing an agreed statement of facts was prepared and agreed between the parties. What follows is derived from this agreed statement.

[18]The council own and manage some 42,000 tenanted properties. They also manage a further 13,500 leasehold properties, as freeholder, and 1,500 properties sold freehold with service charge covenants. This housing stock represents a huge social resource for the borough. While the council have significant resources to invest in the stock, the investment need far exceeds them. The council therefore had to look at ways in which they could ensure that planned maintenance schemes were carried out to a high standard whilst providing value for money. They consider that partnering procurement is a key strategy in achieving these objectives.

[19]Before the partnering procurement approach was adopted, the council commissioned Deloittes, one of the leading consultancies, to carry out an appraisal of the options available to improve major works procurement and delivery. Their views and recommendations helped to inform the new major works strategy. Previously, contracts were individually tendered on a scheme-by-scheme basis, which is highly inflexible. Each individual scheme had to be programmed 18 to 24 months in advance. The long delays in bringing schemes to fruition and the protracted process involved in specifying and managing individual scheme processes were highly inefficient and built a high level of inflexibility into the programme. In addition the specification of individual schemes, with a wide range of design options, both increased the management costs of the individual schemes and created longer term maintenance problems for the council, because of the problems in sorting a wide variety of components. There was also no joining up of arrangements between contracts, even with the same contractor, so as to speed delivery, reduce costs or introduce added value benefits, such as community chests or apprenticeships. Resident satisfaction with schemes was relatively low.

[20]The conclusion of the options appraisal was that performance could be substantially improved by moving to a new way of procuring and delivering contracts. The council was also encouraged to enter into partnering agreements to carry out major works to its housing stock across the borough as recommended in the Egan Report on Rethinking Construction (1998), which had been commissioned by the Government. The council’s new strategy was to move to borough wide partnering contracts for up to 10 years (an initial 5 years with an option to extend). It was agreed by the council’s executive in October 2008.

[21]The council’s desired strategic outcomes of the new procurement strategy were expressed to be to:(i) introduce a longer term contract for procurement of major works programmes;

(ii) maximise investment outcomes by achieving best value in contracting arrangements;

(iii) maximise the positive impact of stock investment for residents and address the ongoing concerns expressed by residents about the quality and costs of major works;

(iv) increase residents’ satisfaction with major works projects;

(v) provide an effective vehicle for delivering an effective asset management strategy;

(vi) reduce the number of major works contractors operating on estates to a minimum of 4 and maximum of 8;

(vii) introduce better controls for the supply chain and minimise the number of components used across the housing stock;

(viii) improve the perceptions of leaseholders as to the quality and value for money of major works; and

(ix) reduce the level and cost of internal resources committed to tendering.

[22]Having considered the options the council concluded that the appropriate strategy was to enter into partnering agreements with five different contractors. Four of the agreements would relate to council estates in four separate areas of the borough ((1) Borough, Bankside and Woolwich; (2) Bermondsey and Rotherhithe; (3) Camberwell and Peckham; and (4) Nunhead, Peckham Rye and Dulwich). The fifth agreement would cover properties across the whole of the borough not situated on any estate (referred to as street properties).

[23]Procurement of these new major works contracts commenced in December 2008. The Invitation to Tender was issued at the beginning of July 2009 for return at the end of August. Prices were evaluated using four main elements, namely, lowest price to deliver work to a pilot project (an actual live scheme needing refurbishment in each area); lowest price for term composite items (similar to a schedule of rates) and preliminaries; lowest percentage profit and lowest percentage for central office overheads.

[24]Most partnering contracts use varying forms of schedules of rates and indeed the council have used them in two earlier partnering projects. The problem encountered with both previous projects, however, was that the rates were not sufficiently extensive to ensure on-going value for money. For this reason the use of pilot projects, where a contractor prices an actual scheme requiring works, ensured extensive coverage of schedules and rates, which are expected to attract discounts because works are packaged as a scheme rather than single items. In addition, composite rates were included to capture additional rates not covered in the pilot but which are expected to be encountered on other packages in the area. Contractors were also asked to provide rates for supplying multiple items and to set out how they will apply discounts to future orders. The overriding aim of this approach was to capture all costs and drive down prices (and costs to leaseholders) through capitalising on economies of scale. Pricing documents were separated into internal and external works, so that the costs to leaseholders could be easily and transparently assessed.

[25]The result of this was the production of extensive and detailed schedules of rates, and these were included in the full paragraph 4 statement. An example of the schedule of rates (for Area 3) was included in the appeal bundle. Despite its extent and detail the schedule of rates does not cover unforeseen works or specialist works, for example a roof level fire exit. Non-standard items would arise. The schedules are as full as possible, but they do not cover every single item, and it would be difficult to have a full schedule of rates. The council consider that the schedule of rates does not cover all unit costs or hourly or daily rates as required by regulation 4(6)(b). As Mr Lewis put it in his oral evidence, the schedule of rates is “comprehensive but not exhaustive”.

[26]The council consider that they have taken all reasonable steps to ensure harmonisation across the main contractors to ensure economies of scale to reduce prices. They intend to use their buying power to reduce prices. For example where contractors work for other local authorities, the council will use advantages from bulk buying to obtain the best possible prices.

[27]The price framework consists of the rates secured from the pilot projects, the rates secured for the term composite items (all additional schedule of rates), profit allowance and central office overheads. It is expected that prices will remain without indexation until March 2012. This effectively means that prices will not increase over the first two years but have the potential to decrease. Where non-standard or unpriced items of work are identified, the council use a range of mechanisms to ensure value for money. These include obtaining three competitive quotes from other suppliers, using benchmark marketing data from partnering contracts elsewhere in London and using comparison data between existing contractors in the partnership.

[28]The indexation to be used over the life of the contract is Building Maintenance Information (BMI), applicable from April 2012. It is the intention of the council to harmonise prices after the first two years as a way to achieve consistency, best value and a mechanism to drive down prices. After the first two years an annual review of prices will take place to examine how prices can be further harmonised and reduced. BMI will give a default position in the absence of any other agreements throughout the life of the contract. This will allow comparison with any reduced costs achieved through harmonisation. Contractors unwilling to participate in harmonisation will only receive 50% of BMI in a given year. This effectively serves as a disincentive not to participate. In addition contractors will be required to provide up-to-date information of prices offered by them in successfully tendered contracts for other organisations. This will allow an ongoing comparison of prices to ensure competitiveness and best value.

[29]The notices of proposal that were served on all lessees on 22 January 2010 were accompanied by an abridged paragraph 4 statement giving abridged details of the tender process and the blocks included in the council’s two year programme of works. The full paragraph 4 statements were kept at the offices of the home ownership unit at 376 Walworth Road until the observation period was closed. The statements consisted of all priced information from the tenders, including the price specifications for the planned pilot schemes and the full schedules of rates from each contractor, details of the tender process, details of the observations raised and responses sent from the notice of intention and details of the council’s proposed two year programme of works containing the date by when the council expected to provide estimated service charge information to the individual leaseholders concerned.

[30]The total budget estimate for the capital programme for the borough is currently £100,000,000 per annum. However the programme itself is indicative only and work will be carried out on the basis of need and available funding. Under the partnering agreements individual works packages will be constructed by the council and the contractor following surveys of individual blocks to identify the precise extent of the work required. These will then be priced by the contractor using the pricing model provided in the tender documentation.

[31]The council cannot comply with requirement (4) because individual service charge contributions cannot be ascertained until the individual blocks have been surveyed and the packages of work have been worked up and assessed. They cannot comply with requirement (5) because the cost of work to individual blocks cannot be ascertained until they have been surveyed and the packages of work drawn up and costed. The council believe that despite the schedule of rates being available for inspection in accordance with paragraph 5 of schedule 2, it was not reasonably practicable fully to provide the information required by requirement (6) because the unit costs for works to individual blocks cannot be ascertained until the packages of work have been drawn up. The unit cost will be based on the pricing model, but will take into account any variation to the elements of the individual blocks. The council do not believe that the pricing model itself was sufficient to comply with requirement (6). Further the pricing model is not a complete set of prices – for example, it does not cover unforeseen items and it does not cover non-standard or unique items which may only arise in respect of one particular property or block. The council therefore do not believe that the pricing model could be considered to cover all relevant matters to which the partnering agreement relates, which it believes to be an absolute requirement for compliance with requirement (6).

[32]The council believe that they could not and did not comply with the date requirement (7) because the date by which estimates will be available will depend on the availability of funding. It is probable that any dates given at the time of the notices of proposals will change, dependent on the availability of funding in future years. The council are concerned that if a date was given based on an indicative programme only, that it would not be reliable for leaseholders, and in turn it would lead to a challenge on the validity of the notice alleging that the council did not really expect to be able to supply information by the date given. Given the high amount of service charge likely to be invoiced for works carried out on these contracts it is reasonable for the council to seek dispensation for this element of the regulations, in order to protect their fiduciary interests, as anticipated by the Government during the consultation on the Regulations.

[33]In respect of those blocks included in the initial two year programme the notice of proposal gave as an expected date the end of the relevant financial year. In respect of those blocks not included in the initial two year programme the notice of proposal gave as an expected date the end of the term of the partnering agreements (assuming an extension to ten years), namely 31 March 2020. In order to ameliorate the effect of their inability to supply any more accurate data at the Notice of Proposal stage, the council will be writing to leaseholders on an annual basis to inform them of where their blocks and estates currently appear in the indicative five year programme, so that they will be aware of when they are likely to receive their Schedule 3 Notices of Intention.

[34]The council will be obliged to serve the required Schedule 3 Notices of Intention as and when necessary through the course of the partnering contracts. The Schedule 3 notices will include details of the estimated service charge and provide the leaseholders with the 30 day observation period required by the Regulations. The council will also be obliged to give notice in writing in accordance with paragraph 8 of Schedule 2 once it is able to give estimated amounts, costs or rates.

[35]At the hearing of the appeal LAS 2000 stated firstly that it considered that it was reasonably practicable for the council to comply with requirement (6) in that the tendering exercise has provided them with a detailed schedule of rates, which enables the council to identify “the current unit cost”; and secondly that it was reasonably practicable for the council to comply with requirement (7) since the agreements are of certain duration and, even though there is uncertainty as to the availability of funding for works, the council can specify the date of the end of the contracts. The LVT decision

[36]The case for the council before the LVT was that it was not reasonably practicable to provide the information to meet requirements (4), (5)(b) and (6)(b). The council provided details of two projects, “Lot 2 – St Saviour and Silverlock 3 – Part 3 Pilot Projects Internal Works” and “Lot 2 – Bermondsey and Rotherhithe – Part 4 composite items”. At the hearing they said that they had decided not to proceed with the latter project. Ms Turff said that the council did not consider that the pilot scheme information complied with requirements (4) or (5) since the estimate might change and packages might be reconstituted. The basis of the LVT’s refusal of dispensation appears from the following paragraphs of its decision:

“122. Although the Tribunal recognises that as referred to in the decision by HHJ Huskinson in Auger v Camden LVC LRX/81 the information obtained through a tendering process should be sufficient to enable a landlord to comply with paragraph 4(6), that position has not yet been reached in this case. 123. The Tribunal does not agree with LAS 2000 that the Council already has available information which could comply with the provisions paragraph 4(4) (5) or (6), and considers that such a conclusion would be premature on the facts. 124. The Tribunal considered whether in respect of some properties to which works are contemplated in 2010-11 the Council might be able to comply with paragraph 4(4), (5) or (6) but considers that the evidence presented is too vague and plans insufficiently certain. 125. The Tribunal considered that the Council has not met the requirements of paragraph 4(7). It was noted the Council only sought dispensation from the requirements as to cost and rate. Ms Turf said that the Council can give a date for the purposes of paragraph 4(7) for the blocks in the proposed two year programme. For the rest, the date that can be given is 31 st March 2020. However, the general picture presented was that there may still be still some doubt about the content and timing of the two year programme. Further, the Tribunal does not consider the date 31 st March 2020, effectively the date at the end of contract, constitutes a ‘date by which he expects to be able to provide an estimate, cost or rate’ under paragraph 4(7)’ as it is outside the range of a reasonable and sensible date within the purposes of the paragraph… 129. In reaching our conclusions the Tribunal had regard to the underlying purpose of the requirements in the Regulations to provide this information i.e. to give leaseholders better and more information than they might have expected pre-CLARA on matters likely to have significant consequences for their finances and or everyday lives. The Tribunal has had regard to the large number of leaseholders who would, in effect, have little chance of succeeding in challenging the reasonableness of costs under section 19 of the Act at a later date. 130. The Tribunal has had regard to the consequences for the leaseholders if they do not get the information, i.e. the possibility of a prolonged period of uncertainty. The lack of consultation, knowledge of proposed costs, knowledge of when works are to proceed, may seriously affect the ability of the leaseholders to plan their expenditure or sell their properties. 131. The Tribunal recognises that long-term agreements pose particular problems compliance with the consultation requirements and that its ability to grant dispensation may well have been held up by those promoting the legislation as a way of dealing with the problem. However, (a) dispensation should be resorted to when all other reasonable efforts to comply have failed. In this case the Council has knowingly adopted an approach which was always going to fail to comply; (b) whether or not it is reasonable to dispense should depend on scale and proportionality. It is one thing to dispense with a long term agreement affecting a limited number of leaseholder’s properties for a limited category of works. In the current case the decision has the potential to affect leasehold properties across the borough for a wide variety of categories of work for possibly ten years. The Council referred to the legislation ‘empowering tenants’, whereas if the Tribunal was to grant the blanket dispensation requested, the leaseholders’ position to influence events, which is already weak, would be substantially restricted or rendered non-existent. 132. There are undoubtedly advantages in using the regime of partnering agreements. However the Council contends that it cannot comply with the Consultation Regulations due to the nature of the partnering agreement. The supplementary provisions at paragraph 8 of Schedule 2 appear to envisage the supplying of information when available, which is consistent with the Tribunal’s view of paragraph 4 of Schedule 2, with its series of alternative options all pointing towards the achieving of a transparent but flexible consultation regime which will actually work with and compliment partnering agreements. 133. Overall, the Tribunal was persuaded that the granting of dispensation at this point would cause diminution or significant diminution in the protection afforded to the leaseholders by the Consultation Regulations. Based on the evidence presented, there is ample scope for the Council to provide much clearer and more informative information to the leaseholders. Mr Lewis in his evidence referred to the large amount of detail available, and this was supported by the documentation and accepted by Mr Dymond on behalf of LAS 2000. The Council may in future be able to comply with the Consultation Requirements, and seek to rely on dispensation in all the circumstances of this case, seeking an easy solution to avoid the challenges set by Parliament for all landlords to comply with. 134. Having considered the evidence as a whole, the Tribunal finds that it is not reasonable in all the circumstances of this case to grant the dispensation sought including that in respect of the TV aerials. 135. In the circumstances, the Tribunal makes no order for dispensation under section 20ZA of the Act.”

The case for the appellants

[37]For the council Mr Philip Rainey QC noted that there was no disagreement between the parties with the LVT’s conclusion that it was not reasonably practicable for the council to comply with requirements (4) and (5)(b). The contention of LAS was that it was reasonably practicable for the council to have complied with requirements (6)(b) and (7) and that (6)(b) had in fact been complied with. Although initially Mr Rainey submitted that compliance with requirement (6)(b) was not reasonably practicable – because the schedule of rates was not exhaustive since unforeseen and non-standard items were not included – ultimately he asked for a finding that there had been compliance. Alternatively he asked for a finding that the council had complied with the requirement as far as it was possible to do so.

[38]Mr Rainey submitted that where the application for dispensation was prospective the relevant date for the assessment of the operation of the “reasonably practicable” test was the date of the hearing (assuming that the landlord was then in a position to serve the Notice of Proposal shortly after the determination); and accordingly it was an error of law (or irrelevant to the reasonably practicable test) to find that the landlord might be able to provide information in future under paragraphs 4(4) to 4(6) by delaying entry into the QLTA.

[39]In relation to sub-paragraph (7) Mr Rainey submitted the contract end date was a valid date. Alternatively he contended that a failure to provide an expected date as required by the sub-paragraph would not invalidate the notice. It was not a guaranteed date, and the information to be provided under paragraph 8 was not calculated by reference to any date stated under sub-paragraph (7). The requirement was thus not of such importance that failure to comply with it would give rise to invalidity. He relied on R v Soneji

[2006] 1 AC 340

. If, however, the effect of a failure to provide an expected date did give rise to invalidity, dispensation should be granted since the leaseholders’ rights to further information under paragraph 8 would remain unaffected, as would their right to further consultation under Schedule 3 when their properties were included in a programme of works. The case for the respondent

[40]For LAS 2000 Mr Andrew Dymond said that the Association worked closely with the council. It was accepted that it was not possible for them to comply with sub-paragraphs (4) and (5), but the view was taken that there was compliance with sub-paragraph (6). The council had done as much as it possibly could. It was preferable if leaseholders could be told by the council that the statutory provisions had been complied with rather than that they had not, because it would then be much more likely that there would be a high level of response to the Notices of Proposal.

[41]In relation to sub-paragraph (6) Mr Dymond said that no building contract could provide a schedule of rates which was exhaustive or which would never be the subject of variation. The fact that the schedule of rates was not perfect did not mean that it would not comply with sub-paragraph (6). The intention of sub-paragraphs (4) to (6) was not to provide tenants with information which was guaranteed to be correct in all future circumstances. The intention was to provide a degree of transparency; to provide estimates which enable the tenants to consider their possible future service charge liabilities. The council had made considerable efforts to make the proposal statement as comprehensive as possible, but no schedule of rates could ever be exhaustive. LAS’s argument before the LVT had been that the application for dispensation was premature because by the time of the proposal sufficient figures would be available to enable the council to comply with sub-paragraph (6). That position had been reached. There was compliance with sub-paragraph (6) and therefore no need for dispensation.

[42]If it was necessary to consider sub-paragraph (7), LAS’s contention was that there had been compliance with its requirements. The notice of proposal listed the properties that were to be included in the first two years’ programme under the partnering agreements, and in respect of those properties the “date by which” the council “expects to be able to provide an estimate, cost or rate” was the end of the programme. For other properties it was sufficient to specify the date of the end of the contract, which would not be a meaningless date. Specification of the date would provide the trigger for the landlord to comply with his obligations under paragraph 8. Discussion

[43]I begin with some general observations on the provisions of the Act and the Regulations:(a) The requirements in sub-paragraphs (4), (5), (6) and (7) form a cascading sequence. If it is not reasonably practicable to make the estimate required by sub-paragraph (4), (5) must be complied with; if it is not reasonably practicable to make the estimates required by sub-paragraph (4) or (5)(b), (6) must be complied with; and if it is not reasonably practicable to make the estimate required by sub-paragraph (6)(b), (7) must be complied with.

(b) If it is reasonably practicable to make an estimate of part of the tenant’s contribution (see (4)) but not all of it, the proposal does not have to state any estimate. The same goes for the estimate of expenditure under (5) and the ascertainment of the unit cost or hourly or daily rate under (6). It follows that if it is not reasonably practicable to provide what is required by (4), (5) or 6 the Notice of Proposal need only say why it is not and state the date when the landlord expects to be able to provide an estimate, cost or rate (see (7)).

(d) When in due course the landlord does have information enabling him to provide an estimate, cost or rate, paragraph 8 requires him to give notice in writing of this within 21 days. The giving of such notice does not, however, give rise to any consequences. The Notice of Proposal (containing the statement under (7)) will have been given, and the tenant’s opportunity to make observations on it, provided for by paragraph 5, and the landlord’s duty to have regard to such observations (under paragraph 6) and to respond to them (under paragraph 7) will all have arisen and the time for observations will almost certainly have expired. The landlord may indeed have entered into the QLTA. The paragraph 8 notice creates no new opportunity to make observations nor any duty on the part of the landlord to take any observations into account or respond to them.

(e) An application for a determination of dispensation under section 20ZA(1) can be made before a Notice of Proposal is given as well as afterwards: see the decision of the Lands Tribunal (HH Judge Huskinson) in Auger v London Borough of Camden (LRX/81/2007, 14 March 2008, unreported).

(f) On a prospective application for dispensation if it will be reasonably practicable for the landlord to comply with (4), (5) or (6) when he intends to give Notice of Proposal, it is inconceivable that the requirement to do so could properly be dispensed with. The question of dispensation could only arise in relation to (7).

(g) The distinction between the Notice of Proposal, to be served on all tenants under paragraph 5, and the proposal itself, the preparation of which is the subject of the requirements in paragraph 4, must be borne in mind. It is implicit that the proposal must have been prepared before the Notice of Proposal is served. The Notice of Proposal does not need to be accompanied by a copy of the proposal, provided it specifies where and when the proposal may be inspected. And it is relation to the proposal and not the notice that dispensation is being sought.

[44]The application before the LVT was for prospective dispensation. Since the decision of the LVT, however, the Notices of Proposal, which were before the LVT in draft form, have been given. There is no dispute that the application should now be treated as one for retrospective dispensation, in respect (necessarily, it seems to me) of the proposal as it existed when the notices were given. The appeal, which was by way of rehearing, was conducted on that basis. I will deal with the issues that arise on the basis of the cases as presented at the hearing. Before I do so, however, I must consider the LVT’s decision and the reasons that it gave for refusing the relief, bearing in mind, of course, that the approach to be adopted in determining an application for prospective relief will not necessarily be the same where the application is for retrospective dispensation.

[45]The council’s application as made and as pursued before the LVT was for dispensation from all the requirements in sub-paragraphs (4), (5), (6) and (7). That was surprising, because their contention was that it was not reasonably practicable to comply with any of requirements (4), (5) and (6) and not possible to comply with requirement (7). If it was not reasonably practicable to provide the information required by (4), (5) and (6), there was no failure to comply with those requirements and dispensation was therefore not needed. The LVT refused to grant what it referred to in paragraph 131 of its decision as “the blanket dispensation requested”. Its reason for doing so, however, was not that dispensation was not required, although it had found at paragraph 123 that it would be “premature on the facts” to conclude that the council already had available information which could comply with (4), (5) and (6). Its reason, it appears, was there was “ample scope for the Council to provide much clearer and more informative information to the leaseholders” and that it “may in future be able to comply with the requirements”.

[46]It is unclear what the LVT had in mind when referring at various points to the “information” and to compliance with the requirements. Was it the statement of each tenant’s contribution (requirement (4))? or the estimated total amount of expenditure on each building or other premises (requirement (5))? or the statement of the current unit costs or hourly or daily rates applicable to the matters to which the proposal was to relate (requirement (6))? They were, of course, alternative and not cumulative requirements. It could scarcely be expected that the detail required by (4) or (5) (of the contribution of every tenant or the expenditure on every building) could be given before these huge QLTAs were entered into. Inevitably such details would only be established as arrangements were in due course made for individual packages of work to be carried out under the agreements. It was realistically only (6) that fell to be considered.

[47]The issues that the LVT needed to address, therefore, were whether on the facts it was reasonably practicable to provide the (6)(b) information; and, if it was not, whether it would satisfy (7); and, if it would not satisfy (7), whether dispensation should be granted in respect of those elements of (7) that were not satisfied. It concluded that compliance with (6) had “not yet been reached” but this conclusion was unexplained. It concluded that (7) would not be complied with because the end date of the contract would not constitute the date contemplated by the provision (a reason that was, in my view correct: I refer to it further below). It addressed dispensation in general, however, and not specifically in relation to (7), and its view that there was ample scope for the council to provide “much clearer and more informative information” was unspecific and was not explained in terms of the requirements of paragraph 4. Moreover it appeared to confuse what has to be contained in the proposal and what has to go into the Notice of Proposal and to assume that the latter must do more than state where and when the proposal can be inspected (one of the alternatives provided for by paragraph 5(2). A proposal for these huge QLTAs that satisfied the requirements of (6) (current unit cost or hourly or daily rates applicable to the extensive and varied works) would inevitably contain a very large number of pages with a very large amount of detail. There is no requirement to make it “clearer”, for example by summarising it, even if it were possible to do this. The information is that contained in the detailed schedules. Thus, it seems to me, the LVT’s reasoning was inadequate. It should be said, however, that it cannot have been assisted in its task by the council’s application for dispensation from all the requirements in sub-paragraphs (4), (5), (6) and (7), which was inappropriate and confusing; and its failure to distinguish between the Notice of Proposal and the proposal itself was, I suspect, one that was present in the cases presented by the parties.

[48]In deciding whether to grant dispensation it would, in my view, undoubtedly be open to an LVT to consider whether, although it would not be reasonably practicable for the landlord to make the estimate or ascertain the cost or rate at the proposed date of the notice, it could nevertheless be expected to be reasonably practicable at a later date; and to refuse dispensation if it appeared unreasonable for the landlord not to postpone the giving of notice to that later date. It appears to have been part of the LVT’s reasoning in refusing dispensation (see above) that, while the council might not have been able at the time of the hearing to comply with any of the requirements, it might in future be able to do so. There was, in my judgment, no error on the LVT’s part in approaching the matter in this way. What it failed to do, however, was to address the question of the time at which it would be reasonable for the council to give the Notice of Proposal, given their intention to enter into the QLTAs, or to identify, even in general terms, the information, as compared with that contained in the paragraph 4 statement, that it considered should be made available.

[49]The issues that now need to be addressed are the same as those that needed to be addressed by the LVT, although they fall to be considered in retrospect, having regard to the proposal that was the subject of the Notices of Proposal given on 22 January 2010. The first question is whether the proposal as prepared complied with requirement (6). The notices said:

“The full statement includes the pricing models and schedules of rates from which the cost of any work to your block or estate will be constructed.”

LAS 2000 agree that the schedules are extensive and detailed, and an example of the schedule of rates for one area, Area 3, was included in the appeal bundle. In suggesting that what was provided nevertheless did not satisfy (6)(b) (thus bringing (7) into play), the council have advanced two different reasons. The reason advanced in the notices of proposal was that, as the inflationary increase and subsequent negotiated price would not be known until the annual review, the unit rates that were currently available might not be the same as those used to construct the service charge. That reason, however was misconceived. What is required under (6)(b) is the current unit cost or hourly or daily rate, so that the possibility of future increases for inflation or of negotiated variations is irrelevant.

[50]The second reason, advanced in the council’s evidence, is that, despite its extent and detail the schedule of rates does not cover unforeseen works or specialist works, for example a roof level fire exit. Non-standard items would arise, so that, while the schedules are as full as possible, they do not cover every single item, and it would be difficult to have a schedule of rates that did this. Sub-paragraph (6)(b) refers to “the current unit cost or hourly or daily rate applicable to the relevant matters to which the proposed agreement relates”. Regulation 2(1) defines “the relevant matters”, in relation to a proposed agreement, to mean the works to be carried out under the agreement. On a literal construction this would suggest that the unit cost or hourly or daily rate applicable to every element of the works must be stated. In relation to such QLTAs as this, however, such a requirement could never be complied with for the reason that non-standard items that were not covered would inevitably arise. To construe the Regulations so that this was their effect, however, would be effectively to defeat their purpose. The landlord would be able to say that it was not reasonably practicable to provide the sub-paragraph (6)(b) information and could then limit himself to specifying a date under (7), notwithstanding that a large amount of detailed information on costs and rates was available. However, given the purpose of the Regulations sub-paragraph 6(b) is in my judgment properly to be construed as relating to the costs and rates applicable to those works for which the proposed QLTA will provide costs and rates. It is this information that the landlord ought to be able to provide and is required to provide. There is no doubt in the present case that this information was provided by the council, and there is therefore no need for dispensation

[51]Sub-paragraph (7) accordingly does not require consideration. I would say that I am inclined to agree with both counsel that, where it is not possible to specify a date that is earlier than the date of the end of the contract, that date is the date “by which” the information will be provided. I do not, however, express a concluded view on this.

[52]I would add that all the arguments put forward by the parties were addressed to the question of compliance with sub-paragraphs (4) to (7) of paragraph 4, which relates to the preparation of a proposal and the statement that the proposal must contain. The requirements relating to the Notice of Proposal to be given to each leaseholder are contained in paragraph 5. Neither party suggested that there had been a failure to comply with this provision, and they were right in my view not to do so. The requirements of paragraph 5(2) are that a copy of the proposal must accompany the notice or alternatively that the notice must specify where and when the proposal may be inspected. The notices, understandably in view of the volume of material contained in the proposal, adopted the latter alternative, but they also contained a substantial amount of explanation that was not required under the paragraph. This additional explanatory material (except to the extent that it suggested that the proposal failed to comply with the requirements of paragraph 4 – see below) can only have assisted leaseholders in understanding the nature of the proposal and its justification.

[53]The council made its application for dispensation in an attempt to achieve assurance that it would not be visited with the ruinous consequences of failing to comply with the Regulations. There is no procedure that enables a landlord who is proposing to enter into a QLTA to put before an LVT its paragraph 4 proposal and to be granted a declaration that the proposal would comply with requirements. It has the choice of pressing ahead and giving notice of the proposal, risking a later finding that it did not comply with the Regulations and (in the absence of retrospective dispensation) the ruinous financial consequences, or applying to the LVT for dispensation and contending that the proposal would in fact fail to comply, hoping that its contention will in the event be rejected or that dispensation will be granted. This is clearly unsatisfactory, and I agree with the concern expressed on the part of LAS 2000 that for the council to claim that the information provided in the proposal statement fails to comply with the Regulations may well affect the number and nature of the observations made by leaseholders. I doubt, however, that there is any alternative procedure available. Mr Rainey suggested that in many cases the most convenient course would be for the landlord to apply under section 27A(3) for a prospective determination of compliance, but I doubt whether that procedure could encompass a case like the present, where no specific description of the works to be carried out to each of the many premises was available.

[54]The result of my conclusion that the proposal statements complied with paragraph 4 is that there is no need for dispensation. The appeal is accordingly dismissed. Dated 19 December 2011 George Bartlett QC, President

Cited in 1 later judgment

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