The potential cost of dispensation from s.20 consultation
31st March 2023
31st March 2023
Those landlords, management companies, managing agents and leaseholders used to dealing with leasehold property will be all too aware of the need and process for consultation under section 20 Landlord and Tenant Act 1985 (“s.20”) ahead of contracting for major works (“qualifying works”, as defined by s.20). The sanction for non-compliance with the consultation required under s.20 is that the leaseholder’s liability for the costs of the works is limited to the statutory maximum of £250, no matter the actual cost of the works over that limit, leaving the landlord (or management company, as the case may be) to pick up the difference from their own purse. A reminder of the statutory process can be found here.
You may also be aware that there is an alternative to consultation in the form of a request to the First Tier Tribunal (“FTT”) under s.20ZA of the LTA 1985 for dispensation from the consultation process (see here). This is often used either retrospectively where, for what ever reason, the landlord has contracted for works without first fully complying with s.20 or where the works are sufficiently urgent that there is insufficient time, or where there are circumstances rendering it impractical, to run or fully comply with s.20 consultation. In either case, the FTT has discretion as to whether the request for dispensation should be granted and, even then, it has the ability to impose conditions on such a grant. The latter is what occurred in the case of Grey GR Limited Partnership -v- The Leaseholders in respect of their block of 73 flats over 15 storeys at Vista Tower in Stevenage.
Those eagle eyed readers of this article will note that this landlord and this block were the subject of great trumpeting by the Government at the end of last year as the first case brought by the Recovery Strategy Unit under the Department for Levelling Up, Housing and Communities’ powers to force the landlord to address the block’s fire safety defects - see here - following two years of delays.
The basic facts
Vista Tower was one of the many building in England fitted with combustible cladding which needed to be removed. A waking watch was therefore in place following the Grenfell disaster and in order to minimise the costs to the leaseholders the landlord had looked to fit a fire alarm, negating the need for the waking watch. There was also the cladding issue to address at around a cost of £10m. The costs for these works were a service charge expense payable by the leaseholders.
The landlord had applied for funding from the Building Safety Fund (“BSF”) to cover some of the costs of the works, and which required the landlord to comply with various requirements and deadlines. As a result the landlord contended that what was required of it was not compatible with the s.20 consultation requirements and so it made a pre-emptive application for dispensation.
The leaseholders were not concerned so much by the dispensation application but more with how they were to be protected in relation to the, at that time, uncertainty as to the final scope of the cladding works along with the appropriateness and quality of the whole of the project to be undertaken.
Whether or not dispensation should be granted really boils down to whether the leaseholders, for whom s.20 consultation is designed to protect, would be prejudiced by the failure to follow the usual consultation process. Taking account of the fact that the installation of the fire alarm would give rise to a significant saving insofar as it negated the continuing and high cost of the waking watch and that it was plainly in the leaseholders’ interest for the cladding works to be funding as much as possible from the BSF, the FTT considered that obtaining those savings should be prioritised over the need to comply with s.20 and so dispensation was granted.
However, concerns were raised over the lack of certainty as to the scope of the works and funding available for the same from the BSF, the quality and relevance of the works to be undertaken and, following dispensation, a potential lack of ability for the leaseholders to question steps to be taken in progressing the works and the works themselves. As a result, and herein lies the rub for the landlord, the FTT imposed a number of conditions upon the landlord in granting dispensation, as follows:-
The landlord was to pay a contribution toward the legal costs incurred by the leaseholders in respect of the dispensation application;
The landlord was to provide a capped indemnity of £20,000 (plus VAT) to enable the leaseholders to obtain such expert advice as would assist them in making observations on the works and to prevent any likely prejudice arising from the landlord’s inability to consult in the usual s.20 process;
The landlord was to conduct an informal form of consultation with the leaseholders to include provision of full information and reports relating to the application to the BSF and other matters relating to the fire safety defects.
So what is the relevance of this decision?
The main points to take away from this decision is that the FTT will take, quite rightly, a pragmatic view when asked to grant dispensation but it can, and it will, impose conditions to such a grant so as to protect the leaseholders from any prejudice arising therefrom. The leaseholders in this case did not all oppose the request for dispensation but did raise issues to be addressed in its grant. The FTT has been alive to that in its order.
Whilst the sensible outcome of this dispensation application was that it should be granted because ultimately that was in the leaseholders’ best interests, the leaseholders were able to satisfy the FTT that, in granting dispensation absent conditions, the leaseholders would have been left open to prejudice arising from the potential for the landlord not to act properly, or due to the lack of certainty of many factors arising from the landlord’s inability to consult. The conditions imposed seek to address that, but they are of course onerous and expensive for the landlord.
It goes to show that where dispensation is a necessary route for a particular landlord, that landlord must consider in making such application that, firstly, dispensation is not a given and remains entirely within the discretion of the FTT and, secondly, that unless what the landlord proposes is clear, irrespective of the reasons behind the application, the FTT can impose conditions that may result in onerous obligations and/or costs for the landlord to endure.
Our advice is, of course, that any landlord facing potential compliance issues with s.20 should seek and obtain competent advice before contracting for and proceeding with works absent full compliance with consultation and/or issuing an application for dispensation.
If you have any queries whatsoever, do get in touch with a member of the team on 01435 897297 or email@example.com.
This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above. The Legal Update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.
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