United Kingdom Upper Tribunal (Lands Chamber)

UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2014] UKUT 9 (LC)

LT Case Number: LRX/50/2013

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

LANDLORD AND TENANT – SERVICE CHARGES – failure of consultation – dispensation – section 20ZA, Landlord and Tenant Act 1985 – appeal allowed

 

 

 

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

LEASEHOLD VALUATION TRIBUNAL FOR THE

NORTHERN RENT ASSESSMENT PANEL

 

 

BY

 

OM PROPERTY MANAGEMENT LIMITED Appellant

 

 

Re: Regent Park

Salford,

Lancashire

M50 4TQ

 

 

Before: Martin Rodger QC, Deputy President

 

 

Sitting at 45 Bedford Square, London WC1B 3DB

on

9 January 2014

 

Counsel for the Appellant, Alexander Bastin, instructed by Peverel Property Management Group

© CROWN COPYRIGHT 2014

 

The following cases referred to in this decision:

 

Daejan Investments Limited v Benson and others [2013] UKSC 14

 

Jastrzembski v Westminster City Council [2013] UKUT 284 (LC)

 

London Borough of Camden v Leaseholders of 30-40 Grafton Way LRX/185/2006

 

Peverel Properties Ltd v Hughes [2012] UKUT 258 (LC)

 

Stenau Properties Ltd v Leak [2010] UKUT 478 (LC)

 

DECISION

Introduction

1.           In Daejan Investments Ltd v Benson and others [2013] UKSC 14 (“Benson”) the Supreme Court fundamentally revised the proper approach to the grant of dispensation from compliance with statutory service charge consultation requirements.  This appeal is from a decision of the Leasehold Valuation Tribunal for the Northern Rent Assessment Panel (“the LVT”) in which it faithfully applied the law in relation to dispensation under section 20ZA of the Landlord and Tenant Act 1985 (“the 1985 Act) as it had been explained by the Court of Appeal and by this Tribunal.  On 6 February 2013 the LVT refused to grant dispensation to the appellant, Om Property Management Limited, but on 6 March 2013 Benson swept away the jurisprudence on which the LVT’s decision was based. 

2.           Permission to appeal the LVT’s decision was granted by the Tribunal on 30 July 2013.  The matter was directed to be dealt with by of a re-hearing and, in the event, the leaseholders decided not to respond to the appeal.

3.           The appellant’s application for a dispensation under section 20ZA of the 1985 Act was precipitated by an earlier decision of the LVT made on 10 March 2011.  The earlier decision related to an application by Mr Stephen Hughes and 101 others, all long leaseholders of flats at Regent Park in Salford, brought under section 27A of the 1985 Act for a determination of their liability to pay service charges to the appellant in respect of major works carried out at Regent Park costing £347,106.  In its original decision the LVT found four discrete failures to comply with the statutory consultation requirements; it also found that some of the work had not been carried out to a reasonable standard.  Because of the failures of consultation the LVT decided that the contribution by each leaseholder to the cost of the major works was limited by section 20(1) of the 1985 Act to £250.  As a result, the appellant was entitled to recover only £42,500 of its total expenditure on the works.

4.           The appellant sought permission to appeal the LVT’s original decision in relation to all four failures of consultation which had been identified, but succeeded in obtaining permission in relation to only two of the four.  In a decision of the Tribunal (Judge Huskinson) made on 23 July 2012, the appeal was allowed.  That still left the original decision of the LVT in relation to the other two deficiencies intact and the leaseholders’ total contributions remained limited to £42,500.  In anticipation of that decision the appellant had already applied to the LVT on 9 July 2012 for an order dispensing with the consultation requirements under section 20ZA and it was that application which was refused by the LVT in its decision of 6 February 2013 which is the subject of this appeal.

 

 

The statutory context

5.           Section 19(1) of the 1985 Act limits the costs payable for services or works by the tenant of a dwelling by providing that relevant costs incurred by a landlord “shall be taken into account in determining the amount of a service charge…(a) only to the extent that they are reasonably incurred, and (b)… only if the services or works are of a reasonable standard.”

6.           Section 20 of the 1985 Act, which is supplemented by section 20ZA, provides for mandatory consultation with tenants, and limits the sum recoverable by a landlord to “the appropriate amount” in the event of non-compliance.  The appropriate amount is currently £250 for each tenant, irrespective of the cost of the work or services, but that draconian limit is avoided if the statutory consultation requirements are dispensed with by a leasehold valuation tribunal.  Provision for dispensation is made by section 20ZA(1), as follows:

“Where an application is made to a leasehold valuation tribunal for a determination to dispense with all or any part of the consultation requirements in relation to any qualifying works…, the Tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements.”

7.           The consultation requirements referred to in section 20(1) are now found in the Service Charges (Consultation Requirements (England) Regulations 2003 (“the 2003 Regulations”) and the requirements applicable to this appeal are those contained in Part 2 of Schedule 4.  These prescribe a two-stage process.  At the first stage, governed by paragraph 8 of Schedule 4, the landlord is required to give each tenant and any recognised residents’ association notice of its intention to carry out qualifying works.  The notice must describe the proposed works or identify a place at which a description may be inspected; it must also explain the landlord’s reasons for considering the works to be necessary, invite written observations in relation to the proposed works and identify the place and period within which such observations must be received; finally the notice must invite proposals for contractors to be invited to tender for the works.  Further provisions in relation to inspection are made in paragraph 9, notably in this case that inspection must be free of charge. 

8.           If, following a notice given at the first stage of the consultation, written observations in relation to the proposed works are made within the relevant period, paragraph 10 of Schedule 4 stipulates that the landlord is required to have regard to them.

9.           The second stage of the consultation process relates to estimates and responses to observations and is laid down by paragraph 11 of Schedule 4 (formerly numbered as paragraph 4 of Part 2).  Paragraph 11(5) requires the landlord to obtain estimates for carrying out the proposed work and supply a statement,  referred to as “the paragraph (b) statement”, free of charge, setting out the following information:

“(i)  as regards at least two of the estimates, the amount specified in the estimate as the estimated cost of the proposed works; and

(ii)  where the landlord has received observations to which (in accordance with paragraph [10]) he is required to have regard, a summary of the observations and his response to them; …”

Additionally, by paragraph 11(5)(c) the landlord is required to make all of the estimates available for inspection.   

10.        By paragraph 11(9) the paragraph (b) statement must be supplied to, and the estimates made available for inspection by, each tenant and by the secretary of any recognised tenants' association.  The landlord is required by paragraph 11(10) to give notice in writing to each tenant and the association specifying the place and hours at which the estimates may be inspected, inviting observations in relation to the estimates and specifying the address to which they may be sent and the relevant period and date by which they must be delivered.

The approach to dispensation following Benson

11.        In Benson Lord Neuberger (with whom Lord Clarke and Lord Sumption agreed) emphasised the importance of consistency in the approach taken by leasehold valuation tribunals to the power to grant dispensation.  At paragraph 40 of his speech he said this:

“Section 20ZA(1) gives little specific guidance as to how an LVT is to exercise its jurisdiction “to dispense with all or any of the [Requirements]” in a particular case.  The only express stipulation is that the LVT must be “satisfied that it is reasonable” to do so.  There is obvious value in identifying the proper approach to the exercise of this jurisdiction, as it is important that decisions on this topic are reasonably consistent and reasonably predictable.  Otherwise there is a real risk that the law will be brought into disrepute, and that landlords and tenants will not be able to receive clear or reliable advice as to how this jurisdiction will be exercised.”

12.        The guidance given by the Supreme Court in Benson made at least four major changes to the approach formally taken by tribunals and courts considering applications under section 20ZA:

(1)    First, it emphasised that the purpose of the consultation requirements is to ensure that tenants are protected from (1) paying for inappropriate works or (2) paying more than would be appropriate, and explained that it therefore followed that the issue which should be focussed on when an application for dispensation is received “must be the extent, if any, to which the tenants were prejudice in either respect by the failure of the landlord to comply with the Requirements” (Lord Neuberger at paragraph 44). 

(2)    Secondly it disapproved of any difference of approach to cases involving substantial or serious breaches of the consultation requirements and to those where only technical, minor or excusable breaches had been committed (Lord Neuberger at paragraphs 46-49).  Such distinctions could often lead to uncertainty and sometimes to inappropriate outcomes.  In considering whether it was reasonable to grant dispensation the focus should be on the existence of real prejudice to the tenants flowing from the landlord’s breach of the consultation requirements. 

(3)    Thirdly, and as a consequence of its disapproval of the distinction between serious and trivial breaches, it disavowed the previous practice of inferring the existence of prejudice in cases involving a serious failure to consult.  In all cases the burden of identifying some relevant prejudice falls on the tenants seeking to resist the application for dispensation (paragraph 67). 

(4)    Finally, it rejected the submission that on an application under Section 20ZA the LVT was faced with a “binary choice” i.e. that it could either grant dispensation or refuse it but could make no other order.  On the contrary the jurisdiction under Section 20ZA(1) included a previously unrecognised power “to grant a dispensation on such terms as the LVT thinks fit, provided, of course, that any such terms are appropriate in their nature and their effect” (paragraph 54).

13.        The Tribunal’s first relevant decision after Benson was Jastrzembski v Westminster City Council [2013] UKUT 284 in which, at paragraph 51 Judge Walden-Smith and Mr Andrew Trott FRICS summarised the matters which now ought to be taken into account in the light of the Supreme Court’s decision as follows:

“(1) Whether, and if so to what extent, the tenant would relevantly suffer if unconditional dispensation was granted.  The word relevantly in this context refers to a disadvantage that the tenant would not have suffered if the consultation requirements had been fully complied with but which they will suffer if an unconditional dispensation were granted;

(2) The factual burden is on the tenant to identify any relevant prejudice which it claims he will or might have suffered;

(3) Once the tenant has shown a creditable case for prejudice, the LVT should look to the landlord to rebut it, failing which it should, in the absence of a good reason to the contrary, require the landlord to reduce the amount claimed as service charges to compensate the tenants fully for that prejudice;

(4) It is not sensible or convenient to distinguish between a serious failing and a technical, minor or excusable oversight, save in relation to the prejudice it causes.  The gravity of the landlord’s failure to comply, the degree of its capability, the nature of the landlord and the financial consequences of its failure to comply are not relevant considerations for the Tribunal per sae; their relevance will depend upon the prejudice which each such factor causes.

(5) That the Tribunal could grant dispensation on such terms as it thought fit, providing that they were appropriate in their nature and effect, including terms as to costs.”

14.        When considering an application under Section 20ZA the Tribunal’s summary of the proper approach in Jastrzembski provides a helpful guide, but the warning given by Lord Neuberger at paragraph 41 of Benson must not be forgotten:

“However, the very fact that Section 20ZA(1) is expressed as it is means that it would be inappropriate to interpret it as imposing any fetter on the LVT’s exercise of the jurisdiction beyond what can be gathered from the 1985 Act itself, and any other relevant admissible material.  Further the circumstances in which a Section 20ZA(1) application is made could be almost infantly various, so any principles that can be derived should not be regarded as representing rigid rules.”

Neither Benson nor Jastrzembski substitutes or modifies the statutory direction that “the Tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements.”

The facts

15.        A full account of the facts relevant to this appeal can be found in the Tribunal’s decision on the appellant’s first appeal: Peverel Properties Ltd v Hughes [2012] UKUT 258 (LC). They can be briefly summarised as follows.

16.        Regent Park, Salford, is a residential development comprising five apartment buildings containing a total of 173 flats each of which is let on a long lease for a term of 125 years commencing in 1984.  The freehold of Regent Park is owned by Peverel Properties Ltd and the appellant is party to the lease of each of the flats as the management company. In 2006 the appellant decided to carry out a major programme of remedial works to Regent Park and on 18 September 2006 an initial notice complying with the requirements of paragraph 8 of Schedule 4 to the 2003 Regulations were served on all leaseholders.  That notice invited observations on the scope of work, as summarised in the notice, and it prompted four written responses.  Most of the responses were concerned with the means by which the major works were to be paid for, but one leaseholder, Mr Sin, asked two further questions.  They were, first, whether work was to be carried out to the internal common parts of the buildings and whether this would increase the estimated cost of the project.  The response which he received was that such works were intended and that they would not increase the estimated cost.  Secondly Mr Sin asked whether a panel of leaseholders could participate in the assessment of tenders and the awarding of the contracts.  In answer to that request he was informed by the appellant’s managing agent, Mr Arthan, that they could not because there was no formal residents’ association at Regent Park.

17.        Although there was no formal recognised residents’ association at Regent Park, there was an informal association which attracted only a limited membership and which had neither been recognised by the landlord nor sought a certificate from the local rent assessment panel so as to attract formal statutory recognition under section 29 of the 1985 Act.  Despite its limited membership the appellant’s managing agents were keen to engage with the informal association and, indeed, encouraged it to seek sufficient support to justify recognition.  Miss Horne of the managing agents met members of the association during 2006 in order to discuss the major works. 

18.        Following the responses to the initial notice the appellant put the contract for the major works out to tender and received responses from four contractors.  The lowest tender sum was £239,000 from H H Smith & Sons; the second was almost 50% higher at £354,000 while the third tender figure was £373,000; the final tender of £415,000 was almost 75% higher than the H H Smith & Sons’ tender. 

19.        On 9 February 2007 Mr Arthan sent a paragraph (b) consultation notice to each leaseholder.  That notice listed the tender sums and the contractors who had submitted them and specified a location, the caretaker’s office, at which a report on the tenders could be viewed.  The notice also stated that a copy of the report could be made available on written request.  A copy of the estimates themselves was also said to be available on written request but because of the large size of the documents, a charge would be applied to cover the photocopying and postage costs.  In its original decision the LVT found that not all of the tenders were in fact available for inspection.  At paragraph 50(4) it said:

“The obligation on the landlord under paragraph 11(5)(c) and 11(10)(a) of Schedule 4, Part 2 of the [2003 Regulations] is to make all the estimates (emphasis applied) available for inspection and to specify in writing the place and hours at which the estimates may be inspected.  The respondent compiled with this requirement fully as far as the first two estimates were concerned but it appears not at all as far as the fourth estimate was concerned and only partially, in the sense that only a summary was provided in relation to the third estimate.  Thus the Regulations were not complied with and the Tribunal finds that this is also sufficient to invalidate the notice.”

20.        The paragraph (b) notice also informed the leaseholders that a copy of the written responses received during the first consultation period would be made available on written request.  No reference was made to the contents of the responses and in paragraph 50(3) of its original decision the LVT found that they ought to have been summarised.  The LVT held:

“The letters received from lessees were all sent in response to the stage 1 notice and indeed Mr Sin’s letter of 25 September 2006 begins “Can you please clarify issues in relation to proposed works.”  The Tribunal finds that the responses were observations within paragraph 10 of Schedule 4 Part 2 of the [2003 Regulations] and thus should have been summarised in the stage 2 statement.  Failure to do so therefore invalided the notice.”

21.        The report on tender, which was made available, recommended that the contract be placed with H H Smith & Sons, and this was duly done after the expiry of the consultation period.  At that stage it was estimated that, taking into account the successful tender and professional fees, the total costs of the major works would be £322,000.

22.        The programme of major works did not proceed smoothly.  The LVT found that the original programme was subject to major additions and omissions and that the works were not well done.  When the final contract certificate was issued after remedial work had been undertaken the total costs of the works actually undertaken was £347,106.61 including professional fees.

23.        In its paragraph (b) consultation notice the appellant had indicated that a contribution of £85,000 would be taken from the Regent Park reserve fund to contribute towards the total project cost of £322,000 but that the balance of £237,000 was to be collected on account before the work was undertaken.  The actual cost of the works was included in the service charge accounts for the years ending 30 June 2008 and 30 June 2009.  Those costs were referred by the 101 leaseholders to the LVT resulting in its original decision of 10 March 2011.  In that decision, the LVT found that the consultation requirements had not been complied with in four respects, but as it was informed that the appellant intended at a later date to seek a dispensation under section 20ZA, it very helpfully went on to consider the extent to which the cost of the works had been reasonably incurred and whether the works themselves were of reasonable quality.  After a very thorough consideration of those issues the LVT reduced the final contract sum (excluding fees) by £60,674.33 and found that the amount recoverable by way of service charge was £200,591.85 plus VAT.  This reduction had a corresponding impact on the project administration fees which were also reduced by £4,443. 

The LVT’s decision of 6 February 2013

24.        Having succeeded in its first appeal to the Tribunal, which established that two of the four failures of consultation found by the original LVT were not been made out, the appellant sought dispensation under Section 20ZA of the 1985 Act in respect of the remaining failures.  Those were the omission to provide access to all of the estimates which had been received, rather than simply the two highest estimates (see paragraph 19 above) and the failure to summarise in the paragraph (b) statement the responses of the leaseholders who had written in reply to the initial notice of consultation and the appellant’s responses to them (see paragraph 20 above).

25.        The parties’ submissions to the LVT were made by reference to the law on dispensation as it was understood before the decision of the Supreme Court in Benson.  The leading authority was the Court of Appeal’s decision in Benson in which it had held that the failure to consult was in itself sufficiently prejudicial to leaseholders to justify a refusal of dispensation.

26.        As far as the failure to make available all of the estimates was concerned the LVT identified the nature and consequence of the defect in consultation in paragraph 42 of its decision when it said:

“In the present case they [the leaseholders] had no opportunity to see the third and fourth estimates (save by writing for them at a cost).  They were thus deprived of the opportunity to see all the estimates in order to make comparisons and then observations.”

The Tribunal went on in paragraph 43:

“The Tribunal concludes that this failure is a substantial breach and that it is unnecessary therefore to consider whether actual prejudice was suffered by the lessees….  The third tender was of course close in amount to that of the second and it would have been particularly helpful to the lessees to have had the opportunity of comparing the two tenders.  Mrs Bastin’s submission that the fourth estimate was so high as to be an unlikely contender, and one which the leaseholders were unlikely to have favoured is also quite speculative and irrelevant in view of the Tribunal’s finding that failure to make all of estimates available for inspection by the lessees at no cost was a substantial breach.”

27.        It is apparent from these passages from the LVT’s decision that it regarded the deficiency in consultation as sufficiently serious to enable it to infer the existence of prejudice without the need for there to be evidence of actual prejudice.

28.        As regards the appellant’s failure to summarise the observations received in response to the initial consultation notice, and its responses to them, the LVT found that this too was a sufficiently serious breach to enable prejudice to be inferred.  At paragraph 47 of its decision the Tribunal agreed with the appellant’s submission that responses which concerned only the arrangements for paying for the works were not “observations … in relation to the proposed works” to which paragraph 10 of schedule 4 to the 2003 Regulations required the appellant to have regard.  In contrast, however, it found that the two observations made by Mr Sin concerning the extent of the works to the interior of the common parts and questioning the opportunity for leaseholders to participate in selecting the successful tenderer did relate to the proposed works.  In paragraph 51 of its decision the LVT agreed with the leaseholder’s counsel that the total failure of the appellant to include a summary of Mr Sin’s letters and the agent’s response to them in the second consultation notice “was a serious omission which prejudiced the lessees.” 

29.        The prejudice that the LVT had in mind was then explained in the following paragraphs:

“52.  With regard to the internal works, Mr Bastin submitted that the lessees were not prejudiced.  But this depends of course on a particular view as to what constitutes prejudice.  The implication is that if the works were not done the tenants did not have to pay.  However these works were obviously a matter of concern not just to Mr Sin but to other lessees.  A lot of time was spent in the Section 27A proceedings looking at the matter of the unsightly internal disrepair, the remedy of which was clearly of concern to many lessees.  Had they been able to see a summary of the exchange, they would have been able to feel confident that the landlord intended in this project to deal comprehensively with the external and internal common area disrepair.  They would also, as Miss Gibbons submitted, had been able to have confidence in the consultation process and the decisions reached as a result of the process because they would have seen that the landlord was attending to matters raised by a respondent lessee.  The lessees might also have been concerned to check the estimates themselves and have discovered that the works were not in fact to be included…

53.  With regard to the summary of observations and responses breach, as the respondent has submitted close on 60% of the leaseholders at Regent Park were non-resident and thus a significant number of lessees will not have been aware of the informal residents’ committee and were thus deprived of the ability to be involved with it so as to pool resources and decide on what steps, if any, they might want to take.”

30.        At paragraph 56 of its decision the LVT concluded as follows:

“The Tribunal agrees with the respondent that even if the breaches were not so substantial as to lead to an assumption of prejudice there is evidence of actual prejudice, as outlined above, and having considered the submissions made by all parties the Tribunal is not satisfied… that it is reasonable to dispense with the consultation requirement …”

31.        It is not clear whether the reference in paragraph 56 of the decision to “the breaches” is intended to relate both to the appellant’s failure to summarise the observations of Mr Sin and the response to them, and to the failure to provide access to two of the unsuccessful tenders, or whether it relates only to the former of those deficiencies.  The impression given by paragraphs 39-43 of the decision is that the LVT found no evidence of actual prejudice from the failure to provide access to the two highest estimates, but nonetheless regarded the departure from the consultation requirements in that regard to be sufficiently serious to enable prejudice to be inferred (see in particular paragraph 43).  In contrast, the Tribunal does appear to have made a positive finding of actual prejudice in relation to the failure to summarise observations and responses (in paragraphs 52 and 53).

32.        It is quite clear that the LVT’s decision was heavily (and quite properly) influenced by the existing jurisprudence on Section 20ZA.  In particular its finding that the failure to summarise Mr Sin’s observations and the response to them had an adverse effect on the confidence which leaseholders might have invested in the consultation process was a reflection of the Tribunal’s decision in Stenau Properties Ltd v Leak [2010] UKUT 478 (LC); its assessment of the breaches as serious, and therefore as giving rise to an assumption of prejudice, had its origin to the same decision of the Tribunal.  The LVT referred both to Stenau and to an earlier decision of the Lands Tribunal, in London Borough of Camden v Leaseholders of 30-40 Grafton Way LRX/185/2006.  In Benson Lord Neuberger suggested that that the 30-40 Grafton Way case may have been rightly decided but, if so, it was for the wrong reasons (paragraph 76).  The LVT cannot be criticised for contentiously applying the law as it was understood at the time of its decision.  It nonetheless goes without saying that, permission to appeal having been granted in light of the decision of the Supreme Court in Benson, it is the law as it is now understood which must be applied in determining the appeal.

The appeal

33.        In support of the appeal Mr Bastin submitted that there was no evidence before the LVT, or before the Tribunal on the re-hearing, capable of supporting the conclusion that relevant prejudice of the type identified by the Supreme Court in Benson had been suffered by any leaseholder.  Even if relevant prejudice had been sustained the appellants were prepared to offer compensation to put the leaseholders in the same position as they would have been in if the consultation process had been implemented flawlessly.  In particular the appellant was prepared to reimburse legal expenses incurred by the respondents before the LVT as a condition of the Tribunal exercising its discretion now to grant the necessary dispensation. 

34.        The leaseholders who had been respondents to the section 20ZA application before the LVT elected not to respond to the appeal.  The lead respondent, Mr Hughes, wrote to the Tribunal on 12 September 2013 indicating that it was their intention not to participate in the appeal.  Nonetheless he reminded the Tribunal by paying service charges “on-account” the leaseholders had already contributed a sum considerably greater than the sum determined by the LVT to be the reasonable amount payable by them in respect of the major works in any event.  Mr Hughes stated that the gross sum of £86,568 was owed by the appellant to leaseholders and he suggested that that sum should be repaid as a condition of dispensation.  Unfortunately Mr Hughes did not provide any explanation of how the figure of £86,568 was made up, or whether it related to all leaseholders or only to the leaseholders who had participated in the original section 27A proceedings.  I was informed by Mr Bastin, the appellant’s counsel, that the appellant calculated the excess sum paid by the 101 leaseholders who had participated in the original proceedings was being £43,421, but again he was not able to provide any detail of that figure.

Discussion and conclusion

35.        I am satisfied that this is a case in which it is appropriate to grant dispensation.

The estimates breach

36.        The first breach of the consultation provisions found by the LVT in its original decision was the failure of the appellants to provide access to two of the four estimates received.  Despite that failure there was substantial compliance with the requirements of paragraph 11 of Schedule 4 to the 2003 Regulations: the leaseholders were informed of the identity of all four tenderers and the tendered sums; they were offered access to the tender report of the appellants’ surveyors which dealt in some detail with the two lowest tenders and verified the calculations on which they were based; they also had access to the tender documents themselves for the two most competitive tenders and to a three page summary of the third tender from which further comparisons would have been possible; an offer was made to supply copies, albeit at a cost.  There is no evidence before me that any leaseholder took the opportunity to inspect the material which was made available and none requested copies of the tender documents.

37.        The 2003 Regulations require only that two estimates be obtained and Parliament must therefore have regarded a field of two tenderers as allowing a sufficiently competitive market testing of the costs of the proposed works to protect the interests of leaseholders.  I agree with the submission of Mr Bastin that it would be ironic if, because the appellant obtained more than the required minimum number of tenders, but failed to make them all available in full to leaseholders, it should be penalised by being unable to recover a six figure sum. 

38.        Since it is the purpose of any tender process to test the market with a view to obtaining the best value for the paying party, it is difficult to see how the interests of the leaseholders were prejudiced in any way by the failure to provide access to the highest tender in this case.  The lowest tender was very substantially lower than the second, which differed relatively little from the third tender; both the second and third tenders were significantly lower than the fourth.  In those circumstances there was no realistic prospect of the highest tenderer being the successful tenderer and if the appellants had sought to place the contract with the highest tenderer, in circumstances where its own professional advisor was recommending the lowest tender, it is very likely that both the leaseholders and the LVT would have been highly critical of that approach. 

39.        It would have been obvious to the leaseholders from a comparison of the lowest tender and the second tender that there was a substantial financial margin between them.  A slightly greater margin existed between the third tender and the lowest tender and once again I can see no obvious prejudice to the leaseholders in their being provided with only a limited summary (produced by the tenderer itself) of the third tender.  The summary was in the form of the collection pages from the tender document and would have enabled broad comparisons to be made with the two detailed tenders which were made available.  

40.        There is therefore no evidence that the failure to provide full access to the third and fourth tenders contributed in any way to the leaseholders paying for inappropriate works or paying more than would be appropriate for the works which were undertaken.  No actual prejudice was found by the LVT.  Echoing the language of Lord Neuberger in paragraph 45 of Benson there is no evidence that the extent, quality and cost of the works were in any way affected by this defect in consultation, and I therefore find it hard to see why dispensation should not be granted. 

The summary of responses breach

41.        As regards the failure to provide notice to all leaseholders of the responses to the initial consultation notice, once again I can find no evidence of relevant prejudice. 

42.        I agree with the LVT that the two responses which did no more than raise questions about payment by leaseholders for the major works were not “observations… made in relation to the proposed works” within the scope of paragraph 10 of Schedule 4 to the 2003 Regulations such that the appellant was required to have regard to them when deciding on what work to undertake and by whom it should be undertaken.  There was therefore no requirement imposed by paragraph 11(5)(b)(ii) to include a summary of those observations in the paragraph (b) statement. 

43.        Nor do I consider that the prejudice which the LVT found to have been sustained is relevant prejudice for the purpose of the dispensation application.  It is not a free-standing objective of the statutory consultation regime, as explained by the Supreme Court in Benson, to promote confidence amongst tenants that their views are being listened to.  A well-conducted consultation exercise may very well encourage confidence amongst leaseholders in the process itself and in the general management of their building but the nurturing of such confidence is not in itself a statutory objective and there is no provision in the 1985 Act for leaseholders to be relieved of their liability to pay service charges on the grounds of incompetent or inefficient administration which has not caused demonstrable prejudice.

44.        Nor is it part of the statutory purpose to encourage the formation of recognised tenants’ associations or to stimulate communication between tenants.  The only communications which a landlord is required to summarise in its paragraph (b) statement are observations in relation to the proposed works and its responses to them, and no reference at all is required to tangential exchanges on other issues. 

45.        Assuming that Mr Sin’s request that the residents association be involved in the tender process can properly be regarded as an observation in relation to the works, and therefore that it ought to have been summarised, it is a matter of pure speculation whether a reference to the association would have excited the slightest interest amongst leaseholders who were not already members and who had not so far taken the opportunity to participate in the consultation exercise.  To describe the omission of a summary of Mr Sin’s letter and the response to it as depriving leaseholders of the ability to be involved with the informal association attributes far more influence to the consultation process in this case than the evidence justifies.  More importantly, there is no basis for a conclusion that a failure to summarise Mr Sin’s letter and the response to it had any impact on the scope of the works or their cost. 

46.        For these reasons I am satisfied that it is reasonable to dispense with the consultation requirements in this case.  It is clearly appropriate, as the appellant recognises, that the dispensation be on condition that the leaseholders’ reasonable expenses incurred in connection with the section 20ZA application to the LVT should be reimbursed.  I was informed by Mr Bastin that, this proposal having been made, the leaseholders had informed the appellant that their directly instructed counsel’s fees for the dispensation hearing totalled £6,891.  The appellant, through Mr Bastin, offered to pay this sum (plus VAT if applicable) within 21 days and I will make that payment a condition of dispensation.  If the leaseholders have incurred any significant additional cost they may apply in writing within fourteen days of receipt of this decision (copy to the appellant’s solicitors) and I will consider whether the sum I have indicated ought to be amended.

47.        I have also considered whether it is appropriate to make the dispensation conditional on the reimbursement of sums paid by leaseholders on account of expenditure which was found not to be recoverable through the service charge by the LVT in its original decision of 10 March 2011.  I have regard to the fact that the payments on account were collected in good faith.  Mr Bastin submitted that it would be wrong in principle for the reimbursement of a service charge surplus to be made a condition of dispensation because the position should already be covered by the terms of the lease or alternatively if the leaseholders feel they are entitled to reimbursement by any other route they should be left to make an appropriate claim.  That is not a particularly attractive submission from an applicant seeking a dispensation, but I have come to the conclusion that I have insufficient evidence before me to enable me to fashion a suitable condition for the reimbursement of sums previously overpaid in such a way as to avoid further significant expenditure or dispute in calculating the total and the amounts due to individual leaseholders. 

48.        As a result of this decision to dispense with the consultation requirements to the extent that they were infringed, the appellant will be entitled to include in the service charge accounts for 2008 and 2009 the aggregate of the sums of £200,591.85, £9,829 and £3,757 (plus VAT in each case), those being the three figures identified by the LVT in paragraph 69-71 of Annex B of its original decision as the recoverable costs.  If any leaseholder has already paid on account a greater sum than his or her liability to contribute towards the costs of the major works as found to be payable by the LVT those sums should be dealt with in accordance with the terms of the lease (which I assume requires either that they be reimbursed or, more commonly, credited to future liabilities).

49.        The terms of dispensation are, therefore as follows:

(1)        The appeal is allowed and the decision of the Leasehold Valuation Tribunal of 6 February 2013 is set aside.

(2)        To the extent that the consultation requirements prescribed by the Service Charges (Consultation Requirements) (England) Regulations 2003 were not complied with by the appellant in relation to the qualifying works carried out to Regent Park, Salford, Lancashire N5 4TQ between June 2007 and November 2009, those requirements are dispensed with on condition that:

a.           The appellant pays the sum of £6,891 (plus VAT if applicable) in respect of the cost of instructing counsel incurred by the leaseholders who participated in the proceedings before the Leasehold Valuation Tribunal on the appellant’s application for dispensation, such payment to be made within 21 days of the date of this decision;

b.           The appellant shall not include in the service charge its costs of this appeal or its application for dispensation made to the Leasehold Valuation Tribunal on 5 July 2012. 

(3)        Dispensation shall take effect once Condition 2.a has been satisfied.

(4)        There shall be no order for costs in this appeal to the Tribunal.

(5)        If any leaseholder who was a respondent to the application for dispensation made to the Leasehold Valuation Tribunal on 5 July 2012 wishes to seek reimbursement of a sum greater than that referred to in paragraph 2.a above, they may do so by application to the Tribunal within 14 days of the date of this decision.

 

 

 

Martin Rodger QC, Deputy President

16 January 2014