MCP Solicitors News
Landlords Beware! Service Charge Consultation Requirements For Leases
The Commonhold and Leasehold Reform Act 2002 (CLRA 2002) introduced new requirements for landlords to consult with residential long leaseholders before carrying out works above a certain value, or entering into any long-term agreement for the provision of services. The purpose behind the consultation process is to involve the leaseholders in the landlord's proposals.
A landlord must, amongst other requirements:
- Give notice of its intention to individual leaseholders and to any recognised tenants' association (RTA), explaining why the proposed works are necessary and inviting written observations.
- Seek estimates. Both the leaseholders and the RTA have a right to nominate alternative contractors and the landlord is obliged to ask for an estimate from such nominees.
- Give reasons for selecting the successful contractor.
However, the landlord's ability to recover the costs of the works is limited if it fails to carry out the consultation procedures fully and in the correct manner. The tenants' contributions are limited to £250 each if the consultation requirements are not complied with and the LVT does not dispense with the requirements.
A Recent Case
The landlord was the freeholder of a block of shops and flats. It gave notice to the long leaseholders of the flats (the tenants) and the RTA of its intention to carry out major works amounting to £270,000. The tenants and the RTA applied to the LVT for a determination as to the reasonableness of the proposed charges. The LVT held that certain aspects of the Consultation Regulations had not been complied with. The landlord applied for a dispensation from compliance. The LVT refused the application stating that the landlord's failure to comply with the requirements had caused substantial prejudice to the tenants. This meant that the liability of the five tenants would be limited to £250 each. However, the LVT held that the disproportionate financial consequences for the landlord of a refusal to make an order for dispensation could not be taken into account.
The landlord appealed. The appeal was dismissed.
Comment
This decision is a clear warning to landlords to ensure that they comply fully with the detailed service charge consultation requirements. This is particularly important where the works are major, as non-compliance can result in a drastic reduction in the amount that the landlord can recover from the tenants.
The Tribunal suggested that landlords "would be well-advised" to avoid devising their own versions of the various notices required under the consultation procedures.
Commercial landlords should also be particularly careful in view of the Tribunal's comments that a more rigorous approach may be applied to such landlords.
For more information contact Andrew Davies
