Strict compliance with Section 20 consultation process is paramount


18 November 2021

In Collingwood v Carillon House Eastbourne Ltd [2021] UKUT 246 (LC), the Upper Tribunal unequivocally held that strict compliance with the requirements contained in the Service Charges (Consultation Requirements) (England) Regulations 2003 is needed if landlords want to recover more than £250 from leaseholders.

In this case, the landlord’s managing agent sent a Notice of Intention to all leaseholders at Carillon House, a large house converted into seven flats, each let on a 125-year lease. The Notice concerned external major works and was held to be compliant with Schedule 4 of the Regulations as it correctly invited leaseholders to nominate their own contractors if they so wished. One of the appellant leaseholders nominated his own company (AREL). At this point, the landlord appointed new managing agents who then sent out the Notice of Estimates without mentioning AREL or seeking an estimate from AREL.

Immediately, the appellant leaseholder raised this as an issue and it became apparent at this stage that the new managing agents were not informed of AREL’s nomination. In their attempt to rectify this, instead of starting the consultation process afresh, they sought a quote from AREL, which was promptly provided but lacked price specification breakdowns and other tender paperwork.

In yet another surprising twist of events, the managing agents then wrote to leaseholders, advising that their surveyor did not recommend AREL, despite it being the lowest estimate, and instead recommended one of the companies from the Notice of Estimate. In the end, it transpired that the successful tenderer was another different company, which carried out the works.

Unsurprisingly, two leaseholders applied to the First Tier Tribunal (FTT) for a determination of reasonableness and payability of service charges demanded in respect of the external works, arguing that the landlord failed to carry out a compliant consultation process, specifically that it failed to obtain a quote from the nominated contractor and therefore failed to give a correct Notice of Estimates at Stage 3. At no point during the FTT case did the landlord apply for dispensation with the consultation requirements.

In its decision, the FTT held as follows:

"Whilst there may have been some issues regarding the consultation process and the timescales over which it was conducted, the Tribunal notes nevertheless, that the landlord had endeavored to carry out some consultation and evidently when some resistance was expressed by the lessees regarding the amount of the estimates, the landlord did obtain further quotes.

"On the basis that the work carried out is accepted as not being wholly excessive, and in the absence of any specific challenge by the applicants to the actual costs, The Tribunal finds no evidence that the interests of the applicants may have been materially prejudiced by any shortcomings which may have occurred through the Section 20 consultation process.”

In making their appeal, the leaseholders argued that the consultation process is sequential and that getting an estimate from the tenant’s nominated contractors must surely come before issuing the Notice of Estimate as it would not make sense to go about it the other way round. They further argued that the FTT’s decision was ambiguous and illogical: in reaching their decision, the FTT either found that there had been a failure to comply with the consultation requirements but granted dispensation when it had no jurisdiction to do so or it failed to deal with the question of compliance with the consultation process altogether.

The respondent unsuccessfully sought to argue that the Regulations are not prescriptive on how consultation should be carried out and that the consultation process is “woolly”.

The Upper Tribunal decidedly sided with the appellant’s argument in that the consultation requirements are both strict and sequential – “there is no room in the clear wording of the provisions for flexibility in their interpretation, and no legal precedent for a flexible interpretation. They are anything but woolly”.

The Upper Tribunal further went on to consider that:

“I agree with [the appellant] that in the absence of an application for dispensation the FTT could not give one, and I agree with [the respondent] that the FTT did not in fact purport to give one. My reading of the FTT’s decision is that it found there was no breach of the consultation requirements, which it could not rationally have done on the evidence before it, and that it did so because it felt the failings were minor (describing them as “shortcomings”) and did not prejudice the tenants - which was irrelevant. The FTT appears to have taken the view that the landlord did its best and that its efforts were good enough; but that finding was not open to it in the context of clear rules which leave no scope for any doctrine of substantial compliance.”

The appeal was upheld and the leaseholder were ordered to pay only the minimum statutory sum of £250 towards their apportionment of the major works.

Commentary

This case reinforces the importance of getting the consultation process right. The Regulations provide strict and sequential rules on how consultation should be carried out and any landlord that falls foul of these requirements must either restart the consultation process or apply for dispensation. This decision is even more important in cases where landlords notice errors or non-compliance with the consultation requirements early on – it would have been a lot easier and more costs effective for the respondent to restart their consultation process given that the works were not urgently needed. 

In addition, this decision highlights the clear jurisdiction of the FTT and how it cannot overstep its boundaries. The FTT was asked to consider whether the sums demanded were payable and reasonable, therefore the answer to whether the landlord carried out a compliant consultation process should have been a yes or no one. It was not open to the FTT to go any further than that.

For more information on s20 consultation process, please contact Clive Adams or another member of the Social Housing Team.

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at November 2021.

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