Last month leaseholders of Waltham Forest Housing received letters about a First Tier Tribunal case. (This is where disputes between leaseholders and freeholders are heard). It explained the Council was seeking dispensation, or exemption from a rule, following the outcome of a case brought in November 2016 by nine leaseholders. The Tribunal’s decision in full can be found here.
Leaseholders were asked if they wanted to join with those nine in challenging the dispensation. Most leaseholders didn’t understand the background or the implications of either joinng or not joining so we managed to get Stuart Merrison of Bishop & Sewell to put it into context.
The original First Tier Tribunal Property Chamber decision arising out of Leaseholders’ application to the Tribunal concerned their liability to pay service charges demanded by the Council. That claim related to a number of works undertaken by the Council’s contractors which had been applied to the service charge account and charged out in the usual way to relevant Leaseholders. The applicant Leaseholders raised various issues concerning breach of the statutory rules relating to service charges, the observance of which is a prerequisite to a Landlord being able to recover substantial service charge expenditure from Leaseholders. The Tribunal, in that instance, determined that the Council had complied in part with the statutory rules, but ruled that “in the absence of dispensation, the Council may not recover more than £100 from each of the applicants in any service charge year under any one of the Breyer, Apollo, Aston and Osborne QLTAs. The decision of the Tribunal provides greater detail of those companies and the works they undertook.
By way of explanation, a QLTA is a Qualifying Long Term Agreement, which is an agreement entered into by or on behalf of the Landlord for a term of more than 12 months and which broadly relates to any matter falling within the basic definition of a service charge.
The intention to enter into a QLTA, and also works carried out under a QLTA, are subject to appropriate written consultation by a Landlord with Leaseholders. Imposed on that written consultation are strict time limits incorporating periods for Leaseholders to make their observations on the Landlord’s proposals. If the consultation rules are not complied with, then a Landlord will be limited to recovery of only £100 from relevant Leaseholders of its expenditure relating to the QLTA during the service charge period.
This is what happened in January 2017 when the Council was unable to recover the full costs of works undertaken by the named contractors as they had importantly not complied with specific time limits imposed by the regulations. The Council, during that hearing had argued that they had substantially complied with the rules but the Tribunal ruled that “substantial compliance with the consultation requirements does not negate the need for dispensation.”
As a consequence, the Council has now applied to the Tribunal for the Tribunal to hear their application to dispense with the need to comply with the relevant statutory requirements and therefore that they be able to charge the full cost of the works to relevant Leaseholders.
That application will be heard on the 19th September 2017. The Council has indicated that their case will be based on the leading case of Daejan Investments Limited v Benson (2013) and will likely argue that there has been no prejudice caused by the Council’s non-compliance with the rules and that even if there has been prejudice, leaseholders can be compensated for that prejudice, maybe by making a reduction in sums charged to Leaseholders.
The case of Daejan, when it was handed down in 2013 provided a sound basis on which Landlords were able to counteract what had been until that time a strict application of the statutory rules by the Tribunal. It is now a frequently cited case by Landlords who are now able to claim with some authority that although there may have been a formal breach of the rules, no prejudice has been caused to Leaseholders.
The current directions of the Tribunal in respect of the hearing in September state that “any other persons likely to be affected who wish to be joined in these proceedings must, by 9th June 2017 apply to the Tribunal in writing (with a copy to the applicant) explaining whether they wish to be joined as an applicant or a respondent”.
It seems that one benefit of joining may be to provide evidence to the Tribunal of the prejudice that has been caused to Leaseholders. It does seem likely though that arguments will, in any event, be put forward by the current respondents to the Council’s claim for dispensation.
Stuart Merrison is a specialist property litigation solicitor at Bishop & Sewell LLP, a firm of solicitors based in Central London.