Reinforcing requirement for tenants to evidence actual relevant prejudice

In the recent decision of Wynne v Yates and Livingstone [2021] UKUT278 (LC) the Upper Tribunal reinforced the principle established by Daejan v. Benson that “while the legal burden of proof [of entitlement to a dispensation] would be, and would remain throughout, on the landlord, the factual burden of identifying some relevant prejudice that they would or might have suffered would be on the tenants”.

Facts 

Mr Wynne was the freehold owner of a four-storey mid-terrace Victorian house that had been converted into two maisonettes. He also owned the leasehold interest for the maisonette comprised of the ground and lower ground floors, while the respondents bought a lease of the maisonette comprising the upper floors.

The respondents’ lease made arrangements for service charges as followed:

• The landlord is to maintain the building, the tenants are to pay 50% of landlord’s expenditure in complying with its obligations.
• The tenants are to make interim payment on 24 June and 25 December on account of the landlord’s expenditure over the next six months.
• Each year after 29 September, the landlord is to produce notice of actual expenditure for the previous year and anything owed to be paid by the tenant within 14 days.

In summer 2019, work commenced on the external redecoration of the building. It was accepted that the work would costs each leaseholders more than £250 and therefore engaged the s20 consultation requirements, which the landlord complied with and as a result engaged Mr R to do the work.

Although Mr R completed the work at the front of the building, he was not able to do the work at the rear of the building, which left Mr Wynne in no other option than to engage different contractors in the closing weeks on 2019 and January 2020 to finish the job. It is in respect of the costs of these works that the respondents allege that no s20 compliant consultation process was carried out, therefore their individual contribution should be limited to £250.

Beside the external redecoration costs, there were in dispute several interim service charges demanded since June 2018 that the respondents had not paid on the basis that the sums were unreasonable.

The leaseholders issued an application in the First Tier Tribunal (FTT) for a determination of payability and reasonable of service charges (regarding external works and unpaid interim demands) and subsequently, following a CMC hearing, Mr Wynne also made an application seeking to dispense with s20 consultation requirements. His arguments before the FTT were that there was no need to consult about the new contractors, that in any event he had done his best to discuss matters with the respondents, and that having been placed in a difficult position by Mr R, he had done his best to get the necessary and urgent work done.

The FTT’s decision was as follows:

“We decline to grant dispensation. The Tribunal believes that [Mr Wynne] could have consulted with [the leaseholders], even some form of informal consultation would have been expected. No proper explanation has been provided as to why.

“In any event even if we are wrong, we determine that the reasonable costs of such works should not exceed the quotation of Mr R. He provided a fixed price quote which [Mr Wynne] chose to accept. It is clear from the presentation of the quote that it is less professional than others included within the bundle and at a significantly lower price. This was a decision {Mr Wynne] took and in our determination, taking account of the all the facts of the case it is reasonable to limit the costs to that figure.”

The grounds for appeal were threefold: the FTT’s insufficient reasoning for refusing to grant dispensation, the FTT’s failure to set out the consequences of their refusal to grant dispensation and the FTT’s failure to provide an explanation for reaching their decision that the interim demands were unreasonable.

On appeal, the Upper Tribunal criticised the FTT in reaching their decision. It held that the FTT’s decision to refuse dispensation and deem the interim demands unreasonable was irrational and was set aside because: 

“The FTT found that there was prejudice to the tenants but did not say what it was, and nothing in the evidence given to the FTT indicated that the tenants might have suffered any prejudice. They gave no evidence that there was a possibility that they could have suggested a way to get the work done more efficiently or more quickly or more economically. In the absence of any such suggestion there was no reason not to grant a dispensation.

“Why the FTT regarded that estimate as conclusive as to the reasonable cost of the work is not explained. As I noted above, the consultation requirement is distinct from the reasonableness requirement and an accepted estimate is not necessarily reasonable, nor is a cost that exceeds such an estimate necessarily unreasonable. The FTT gave no explanation of why any charge in excess of Mr R’ figure was unreasonable beyond the fact that the appellant had accepted Mr R’ quote. The FTT’s decision was irrational and cannot stand.”

It was therefore no surprise that the Upper Tribunal’s substituted decision held that Mr Wynne was not prevented by a failure to consult or to obtain dispensation from charging for the external work at the rear of the building and that the interim demands were payable.

Commentary

The Upper Tribunal’s decision reinforces that well establish principle that dispensation will normally be granted unless the tenant can show that they were prejudiced by the landlord’s failure to consult. A tenant might be able to demonstrate that prejudice by showing, for example, that consultation would have enabled them to suggest a cheaper contractor or a better way of doing the work. Losing the opportunity to participate in the consultation process or having to pay for the work does not constitute relevant prejudice.

Although both the reasonableness requirement and the consultation requirement are imposed on landlords in order to protect tenants, they are not the same. Where a landlord consulted on works by sharing estimates and choosing a contractor in the light of their estimate, it does not follow that the cost of the work will be reasonable and there is nothing preventing the tenant from challenging the corresponding service charge on grounds of unreasonableness. Nor does it mean that nothing will go wrong and that an estimate will never be exceeded. An estimate is simply that – an estimate; if it is exceeded, that in itself does not make the cost unreasonable.

For further information, please contact Clive Adams or another member of Birketts’ Social Housing Team.