Leaseholders' choice of contractor must be included in Statement of Estimates (Section 20 consultations)
31st March 2022
31st March 2022
The Upper Tribunal, in the case of Collingwood v Carillon House Eastbourne Ltd  UKUT 246 (LC), has confirmed that it is necessary to comply strictly with the consultation process ahead of the appointment of a contractor for major works. In default, the leaseholders’ liability for the cost of works will be capped at £250, and perhaps even when there is no significant prejudice to Leaseholders caused by the non-compliance.
There were two issues in the appeal.
Whether section 20 Landlord and Tenant Act 1985 consultation requirements had been complied with; and
Whether the Landlord’s costs of running as a limited company was a recoverable cost through the service charge.
In this Legal Update we focus on the first point only.
The Appellants were three Leaseholders who each held 125 year leases of flats within a large house converted into seven residential flats. All leases are on similar or identical terms. The Respondent, Carillon House Eastbourne Limited was the Landlord of the building (and is a company whose shareholder are made up of the other four leaseholders in the building).
Consultation with Leaseholders was required under section 20 of the Landlord and Tenant Act 1985 where qualifying works were proposed to be undertaken which would result in any Leaseholder’s service charge contribution exceeding £250. In compliance with those consultation requirements the Landlord, via its then agent, Park Lane, served Notice of Intention in November 2017 and sought nominations from leaseholders of contractors that they wished the Landlord to approach to tender for the works. One leaseholder, Mr Naish, the sole director of ‘Affordable Roofing Eastbourne Limited’ (“AREL”) nominated AREL as a contractor for the works. This nomination was made within the relevant period required under the Notice of Intention.
The management of the Building then changed to a new managing agent, Hunters, who took up the baton in relation to the then incomplete consultation process. This they did by serving, around 8 months later in June 2018, a Statement of Estimates listing two contractor’s estimates, neither of whom were AREL. It would later be confirmed that whilst the nomination of AREL had not been put forward to the Landlord’s then managing agent, an invitation to estimate had not been made to AREL and the details of the nomination not passed on to the new agent.
On receipt of the Statement of Estimates, Mr Naish understandable questioned why AREL had not been invited to tender and the Landlord responded by inviting AREL to belatedly provide an estimate.
The estimate provided by AREL, at £18k, was the lower quote of those obtained, and by some margin too. However, despite this, AREL were not recommended by the Landlord’s surveyor because they had not provided all of the relevant paperwork and, it would later be said, that they had provided the estimate outside of the consultation process. There then followed some correspondence and a fourth and additional tender sought from MR Roberts contractors who were eventually awarded and completed the job at a cost of £36k.
The main issue before the Tribunal was whether there was a failure to comply with the consultation requirements when the landlord’s agent neglected to obtain a tender from AREL when nominated and whether, therefore, the Statement of Estimates served, absent reference to AREL, was defective as a result.
The FTT considered that despite some procedural mishaps the quote from AREL eventually received had been considered and rejected for failure to fully deal with the items upon which it was asked to tender. The FTT therefore found for the landlord that the consultation process had been followed and the full sums were due from the leaseholders in their respective proportions. The leaseholder’s, including Mr Naish, appealed to the Upper Tribunal (“UT”).
The Upper Tribunal decision
The UT found in favour of the Leaseholders.
The requirements of Section 20 were strict and sequential. The Service Charges (Consultation Requirements) (England) Regulations 2003 (“Consultation Regulations”) were to be strictly followed, and that there is no room in the clear wording of the regulations for flexibility in their interpretation. The UT found that any contractor nominated must have its quote included in the Statement of Estimates supplied to Leaseholders. Failure to do so was a failure to comply with the Regulations, regardless of any reason the Landlord’s managing agent may have put forward to justify it not being included in the notice.
The charge to the Leaseholders was accordingly capped at £250, as opposed to the £5,342.53 that had been demanded of each of them. The Landlord was liable for any shortfall! One assumes that there then followed a rather awkward conversation between the Landlord and Hunters/Park Gate as to who was to blame for the issue.
This decision emphasises the importance of complying strictly with the section 20 consultation regulations in respect of qualifying major works. Where issues arise the consultation process should be re-started and concluded fully and correctly or dispensation sought where time is of the essence.
Mistakes occur for all sorts of reasons and when they do it is imperative to consider their potential impact. In this case the previous agent did not get AREL to tender and then neglected to pass on their details to the new agent - a mistake or combination of mistakes. The UT commented, quite correctly, that the new agent was well placed, in the June of 2018 when they became aware of the error, to just start the process again and, had they done so, the UT considered that the application now before it would probably not have been made. Running the consultation again from June 2018 would have cost around a month or two in time and would have saved, for the Landlord certainly, a considerable sum of money.
The moral is therefore that if something occurs which is not or may not be quite right stop, take stock and get advice and then follow that advice before progressing. Consider carefully the financial and time consequences of continuing regardless.
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