Document

LONDON RENT ASSESSMENT PANEL

LEASEHOLD VALUATION TRIBUNAL

Case References: LON/OOAK/LSC/2010/0114 & 0041

Premises at: 25 The Grangeway, London N21 2HD

APPLICATIONS UNDER SECTION 27A SECTION 20ZA and SECTION 20C of the LANDLORD AND TENANT ACT 1985 (‘the 1985 Act’)

Applicants	Ms Denise Paice and Mr S Manser (leaseholders)
Representation	Ms N McNeill and Ms Catherine Collins (College of Law)
Respondents	Mr M Peatchey and Mrs D Peatchey (landlords)
Representation	Mr G Chambers, solicitor (Gisby Harrison, solicitors) with Mr H Webb, surveyor (WSW Limited, surveyors)
Hearing Date	15 and 16 June 2010
Inspection Date	15 June 2010
The Tribunal	James Driscoll, solicitor (Lawyer Chair), Luis Jarero BSc FRICS and Clifford Piarroux JP CQSW
Decision Date	15 July 2010
The Decision summarised	Each of the two leaseholders must pay the sum of £6,414 as a service charge in relation to the fitting of a new roof. This represents the figure of £7,148 which they have each agreed to pay with a deduction of £1,000 each for the poor quality of some of the work. This sum is exclusive of VAT. The landlord’s application for an order dispensing with the consultation requirements in section 20 of the Act and in the regulations made under that provision is refused.

Introduction

1. There are two applications. They relate to the subject premises which is a building consisting of a shop on the ground floor and two flats on the first and second floors of the building. The flats are held on long leases. The owners of the freehold are the landlords under these leases who run a butcher’s business on the ground floor. We will call the parties the leaseholders and the landlords respectively. Under the flat leases each leaseholder must pay one-third of works to the roof of the building and one half of any works to upper proportion of the structure. The remainder is paid by the landlord.

2. We are asked to make a determination of charges made by the landlords as service charges for major works which were carried out by fitting a new roof to the building in 2009. There are a number of complaints by the leaseholders that some of the works were either faulty or were not completed. However, the most important and complex of the issues that divides the parties is whether the landlord carried out the statutory consultation procedures required by section 20 of the Act and in the regulations made under that section (the Service Charge Consultation (England) Regulations 2003). According to the leaseholders they failed to consult properly; the landlords deny this and argue in the alternative that any breach of the statutory procedure should be excused by the tribunal exercising its discretion to dispense with these procedures in part of altogether (that is under section 20ZA of the Act).

3. It is necessary to summarise the course of the two applications to the tribunal. First in time were the leaseholders who applied on 15 February 2010 for a determination of the reasonableness and liability to pay the charges under section 27A of the Act. Directions were given for this application at an oral pre-trial review which was held on 10 March 2010. The parties appeared at this hearing. The landlords were represented by their solicitors.

4. Next came an application by the landlord for a dispensation from the consultation requirements under section 20ZA of the Act. Directions were given by the tribunal on 29 April 2010 supplemental to the directions given in the earlier pre-trial review. The latter included a direction that the two applications be heard together.

5. Two bundles of documents were prepared by the parties. These included the parties’ statements of case, copies of their leases and copies of documents relating to the building works. Also included was copy correspondence and emails passing between the parties.

The Hearing

6. We carried out an inspection of the premises on the morning of 15 June 2010. Also present were the leaseholders and the landlord’s solicitor. We inspected the front of the building and the side and rear of the building. The premises comprise two flats on the first and second floors above a ground floor shop. Access to the residential units is from the rear via a metal staircase. The front of the building is gabled and is mainly pebble-dash rendered with wooden shingles between both sets of windows. The rear elevation is similarly rendered. The building is brick built under a clay tiled roof.

7. Ms Paice, Mr Peatchey and his surveyor all gave evidence. They were cross-examined, asked questions by the tribunal and re-examined. It soon emerged that the parties agreed on some the basic facts in the history of this matter. What follows are our findings of the essential facts of this matter.

8. Early in 2009 it became apparent that works were needed to the roof. The landlord sought advice from his solicitors and his surveyor. The surveyor carried out an external inspection of the roof but he relied on a surveyor’s report prepared in February 2008 by a different surveyor. For health and safety reasons he could not inspect the roof itself. This would have involved the erection of scaffolding the expense of which he thought was not warranted. The landlord then obtained estimates for the works and he carried out a consultation exercise himself. (He did not use the correct forms, but the leaseholders decided not to pursue the argument that this vitiated the validity of the process). In the event a company called TSG Building Services Plc were appointed to carry out the works at a cost of £14,828 which when his fees were added came to a total of £18,927.94.

9. Scaffolding was erected early in August 2009. Later that month Mr S Walsh of TSG and the surveyor Mr Webb carried out a close inspection of the roof. It was then apparent that the roof was in a far worse condition that was originally thought. This led to TSG revising their contract price. At this point the landlords started to consider whether it might be more economic to replace the roof which would be no more expensive that repairs works. This bare summary is as about as far as the parties agree on the essential facts.

10. Ms Paice gave evidence and she started by describing the events that led to the first consultation on the roof works. She said that the poor condition of the roof had been an issue since 2008. In undertaking the consultation exercise the landlord used the wrong form of notice. She was later informed that TSG had been appointed to do the works under a contract price of £14,828.00. On 23 August 2009 she was notified that the costs of the work would increase to £35,424.33. She informed the landlord by email that she did not agree on the works continuing at this price. She was given a copy of advice from Mr B Eastern, a Chartered Architect who was asked by Mr Webb to advise whether the works to the property constituted items that could be charged to the lessees under the lease. Mr Eastman confirmed that the works were necessary.

11. At a meeting held on 16 September 2009 between the parties, the surveyor and Mr Walsh it was not agreed to go ahead with the works and she says that it was agreed that she would get other quotations for the work. She managed to get three quotes but they were all rejected by the landlord acting on advice from Mr Webb. She was given a revised quotation of £28,688.80 on 5 October and she was concerned of the extra cost of the scaffolding as the original works could not go ahead. Her neighbour and fellow leaseholder Mr S Manser mentioned damp to one of the walls to his flat but she does not consider this to amount to such an emergency as to justify an immediate replacement of the roof. She did not agree to the works going ahead and she did not receive the final invoice until 18 January 2010. She has also objected to the appointment of a project manager for the works as she considers that one of the inspectors employed by Enfield Council could have been asked to take this on. She denies that she and Mr Manser did not want another statutory consultation.

12. Ms Paice also has complaints about the quality of the works. She has no criticisms of the works in fitting the new roof though she claims that there were infractions of the health and safety legislation during the course of the works. The pebble dashing and the ‘barge board’ on the front of the building are, she complains, of poor quality. Some works to the rear of the building have still not been completed. She is willing to pay the sum she was properly consulted on under the first consultation. However, as she has not been properly consulted over the roof replacement she is not willing to contribute to these costs. She and Mr Manser also instructed solicitors (Mr Dutch of Harold Benjamin and Co) to correspond with the landlord’s solicitors to express their unwillingness to agree to the new proposed contract.

13. Mr Peatchey gave evidence having signed a witness statement on 10 May 2010. He confirmed that he and his wife are the joint owners of the property and the landlords under the two residential leases. Early in 2008 he sought his solicitor’s advice and a surveyor’s report as he had decided that repairs needed to be carried to the roof. Following that advice he consulted the leaseholders about the proposed works and a preferred contractor was selected. This did not proceed, however, as that contractor failed to contact him to arrange to start the work. He decided to postpone the work until the following year.

14. In February 2009 after engaging Mr Webb to advise, he started another consultation process with the leaseholders as a result of which TSG Building Services Plc were awarded the contract. He notified the leaseholders of this appointment and later advised them of the start date for the works. He describes how the news that following an inspection the roof was in a far worse state that was thought originally, shocked him and his wife. The leaseholders made plain their opposition to the revised contract price. At the September 2009 meeting he claims that both leaseholders agreed that time should not be wasted by entering into another tendering process though they wanted to get their own estimates. As Mr Manser mentioned water ingress into his flat, there was a common agreement that the works should be started soon and should not be postponed until the following year.

15. During the meeting he also suggested that it might be more cost-effective to completely replace the roof. He says that the leaseholders agreed with this. Mr Webb consulted with Mr Walsh of TSG to agree a competitive price for the new roof and notified him of the new price on 29 September 2009 and he in turn notified the leaseholders on 5 October 2009. As to the quotes obtained by the leaseholders he left consideration of that to Mr Webb and his solicitor Mr Chambers. After receiving their advice he decided to proceed with TSG. He says that it would have been pointless to conduct another consultation exercise as a result of their agreement on 16 September 2009. Such a process would have delayed the start date of the work until December 2009. He claims that the leaseholders did not want to go through a second consultation process.

16. Mr Webb gave evidence having signed a witness statement on 14 May 2010. He confirms Mr Peatchey’s account of the background to the 2009 consultation. TSG were engaged at a quote (with his fees at 10% of the final cost of the works) of £14,978 for the works to carry out works of repair to the roof. A JCT minor works contract was entered into on 29 July 2009. A subcontractor put up the scaffolding in August 2009 and following an inspection with Mr Walsh he asked for a revised price and later reported to the landlords that the costs had now risen to £27,165.56 (plus professional fees). As the leaseholders objected to this a meeting was arranged with them, the landlords and Mr Walsh. Prior to the meeting he obtained a second opinion from a Chartered Architect, Mr Eastman who advised, amongst other things, that the best course was to continue with the existing contractor (‘with the support of the two lessees’ (paragraph 13 of his statement). Mr Webb added that he had been advised by Mr Walsh of TSG that they had sought quotes from other roofing contractors but that the quote they had from their existing sub-contractors was the most competitive.

17. His account of the September 2009 meeting is that the leaseholders agreed that there should not be a new consultation exercise, and it was also agreed that they would seek other quotations. However, that unless they were so attractive as to make it economic to cancel the TSG contract that they would stay with this company. Both he and Mr Chambers examined the three quotations they had obtained and rejected them for various reasons. He was also concerned that TSG would claim a loss of profit if the contract was cancelled and concerned also at the additional scaffolding costs. He also denied any knowledge of health and safety issues and defended the quality of work which was done.

18. In answer to our questions, Mr Webb told us that he was shocked when he inspected the roof in August 2009. He confirmed that he has several years experience in advising as a surveyor on roofs and other major structural work to buildings. That roof works often prove more complicated once a full inspection is carried out, it not an uncommon occurrence, he told us. However, he said that it would have been impossible to have had a quick inspection to see the actual state of the roof as temporary scaffolding would have been required. On the contract with TSG he told us that he was aware that they subcontracted the works to a roofing company and a scaffolding company. These works were supervised by TSG and himself. In answer to questions about terminating the contract he maintained that this standard contract could not be terminated without paying TSG damages for loss of profit. He was unable to show where this is provided for in that contract.

19. Mr Chambers, in his closing remarks, accepted that TSG has no direct right to compensation if their contract was terminated. However, he suggested that there is an implied contractual right to damages. As to the consultation requirements he submits that the leaseholders accepted that there should not be a full consultation when the problems with the roof emerged in August 2009. In answer to our questions he accepted that the landlord could have had applied either for an advance determination or an order under section 27ZA in August 2009 but he considered that the landlord and the leaseholders had agreed on a course of action. Mr Chapman accepted that the statutory consultation had not taken place. However, he contended that the landlord and its agents had carried out a full consultation with the leaseholders and this should persuade the tribunal to dispense with the requirements exercising our discretion under section 27ZA.

20. Ms Collins made closing submissions on behalf of the leaseholders. In her submissions, the consultation requirements should have been strictly adhered to. They exist to protect leaseholders and cannot be in any sense waived. It would have been possible to have carried out a consultation and to have started on the works in good time. She says that the leaseholders are prepared to pay the amount they originally thought they would be paying under the formal consultation in the first part of 2009. Reductions should be made from this sum, however, to reflect the poor quality of some of the work and the fact that the works to the rear to the property have yet to be completed. She reminded us that the leaseholders do not consider that they should be in any way responsible for Mr Webb’s fees. She cited various authorities including the decision of the Upper Tribunal in Daejan Investments Limited v Benson (and others) [2009] where the landlord’s appeal against the refusal of a leasehold valuation tribunal to exercise its discretion to dispense with the consultation requirements in section 20 of the Landlord and Tenant Act 1985 was dismissed. Lord Justice Carnwath, the senior president of the Upper Tribunal, stated ‘..The potential effects - draconian on the one side and a windfall on the other- are an intrinsic part of the legislative scheme’ (paragraph 40). In that appeal the landlord’s charges were some £270,000. As a result of their failure to comply in full with the statutory consultation requirements they could only recover £250 from each of the five leaseholders.

21. We have decided not to exercise our discretion to dispense with the consultation requirements in section 20 of the Act. When Mr Webb and Mr Walsh discovered the true state of the roof it should have been clear to them that an additional consultation should take place under section 20. Mr Webb admitted during the hearing that a formal consultation could have been started in August 2009. We have concluded that Mr Webb was committed to continuing to use TSG as the contractors for the following reasons:

• he asked Mr Walsh for a fresh quotation for the works

• he rejected the contractors later proposed by the leaseholders

• he arranged for Mr Walsh to attend the September 2009 meeting with the landlords and the leaseholders

• he failed to contact the scaffolding contractors to see if they would continue with their provision of the scaffolding if TSG did not continue with the contract

• he incorrectly concluded that ending the contract with TSG would have been costly

• In that respect, he was wrong to suggest that it is a term of the JCT contract that TSG would have been entitled to payments for loss of profits

• We also reject Mr Chapman’s submission that there is an implied term in the contract entitling TSG to such payments. It is surely the essence of these widely used contracts that there is certainty as to the terms of the contract.

22. As the hearing progressed it became clear that the landlord and those advising them did not seriously pursue the argument that there had been a proper consultation. It follows that the real issue is whether the tribunal should exercise its discretion to dispense with the consultation requirements. Section 20ZA of the Act reads as follows:

(1) Where this section applies to any qualifying works or qualifying long term agreement, the relevant contributions of tenants are limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either—

(a) complied with in relation to the works or agreement, or

(b) dispensed with in relation to the works or agreement by (or on appeal from) a leasehold valuation tribunal.

(2) In this section “ relevant contribution” , in relation to a tenant and any works or agreement, is the amount which he may be required under the terms of his lease to contribute (by the payment of service charges) to relevant costs incurred on carrying out the works or under the agreement.

(3) This section applies to qualifying works if relevant costs incurred on carrying out the works exceed an appropriate amount.

(4) The Secretary of State may by regulations provide that this section applies to a qualifying long term agreement—

(a) if relevant costs incurred under the agreement exceed an appropriate amount, or

(b) if relevant costs incurred under the agreement during a period prescribed by the regulations exceed an appropriate amount.

(5) An appropriate amount is an amount set by regulations made by the Secretary of State; and the regulations may make provision for either or both of the following to be an appropriate amount—

(a) an amount prescribed by, or determined in accordance with, the regulations, and

(b) an amount which results in the relevant contribution of any one or more tenants being an amount prescribed by, or determined in accordance with, the regulations.

(6) Where an appropriate amount is set by virtue of paragraph (a) of subsection (5), the amount of the relevant costs incurred on carrying out the works or under the agreement which may be taken into account in determining the relevant contributions of tenants is limited to the appropriate amount.

(7) Where an appropriate amount is set by virtue of paragraph (b) of that subsection, the amount of the relevant contribution of the tenant, or each of the tenants, whose relevant contribution would otherwise exceed the amount prescribed by, or determined in accordance with, the regulations is limited to the amount so prescribed or determined.

23. The party’s recollection of the September 2009 meeting differ in several respects. The landlords and those advising them suggest that the leaseholders agreed to waive a formal consultation. However, we reject the argument (advanced by Mr Chapman) that leaseholder’s statutory consultation rights can be waived by them.

24. As these statutory requirements were introduced for the protection of leaseholders it seems to the tribunal that they cannot simply be excluded except by a prior application to the tribunal. For example, application could have been made to this tribunal in August 2009 for an order dispensing with the consultation requirements or for an advanced determination that the scope of the works was reasonable. Our jurisdiction to dispense with the consultation requirements is contained in section 20ZA to the Act which reads as follows:

(1) Where an application is made to a leasehold valuation tribunal for a determination to dispense with all or any of the consultation requirements in relation to any qualifying works or qualifying long term agreement, the tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements.

25. Mr Chapman suggests that as there was, as it were, a de facto consultation, in the autumn of 2009. However, we have concluded that what took place was the very antithesis of both the policy and the detail of the statutory consultation requirements. We reach this conclusion for the following reasons: first, the leaseholders were informed of the proposal to renegotiate the contract with TSG. Those advising the landlord appeared to have concluded that this was the best way to proceed from August on and before the leaseholders were told of the additional costs. Those attending the September meeting included Mr Walsh of TSG who had a direct interest in the outcome of the meeting. It was also clear from the fact that the leaseholders had instructed solicitors that they had grave misgivings at the way the proposed works had proceeded.

26. Nor are we convinced that the landlord and those advising them proceeded correctly in February 2009 to commission expensive works without full inspection of the condition of the roof. Having inspected the premises we noted that it was possible to have a visual view of most part of the roof from street level. We also consider (unlike Mr Webb) that steps could have been taken to carry out a closer inspection by using, for example, what is commonly known as a ‘cherry picker’. Unless there was a dramatic deterioration in the condition of the roof between February and the beginning of August (which seems highly unlikely) the need for a completely new roof could have become apparent far sooner than it eventually did.

27. Another way of looking at the situation as is stood in August 2009 is that a new consultation process could (as Mr Webb accepted in his evidence) have started that month proposing a new schedule of works or a new roof inviting the leaseholders to nominate contractors and for their observations on the proposed works. If, as seems likely, they would have nominated contractors, it would have been for those advising the landlords to have sought such estimates and to have considered them. The process could have been completed by October 2009 with the appointed contractor starting work shortly after. The failure to do this has clearly prejudiced the leaseholders as a more competitive contract could have been obtained. Mr Webb told us that TSG use subcontractors and that they add the cost of supervising their work at a rate between 10 - 15% of the contract costs. Choosing a suitable contractor who undertakes the work directly could have been cheaper. Further, by paying TSG for their supervision of the works and paying Mr Webb’s fees, the leaseholders are, in effect, being charged twice for the same work.

28. To summarise we have decided not to exercise our discretion to dispense with the consultation requirements in section 20 and the regulations made under that section. We have also concluded that the leaseholders both suffered obvious prejudice because of the failure to consult properly.

29. We have some sympathy with the landlords, who, so far as we know are not professional landlords. They seem to have taken all the right steps by obtaining professional advice. However, their recovery is subject to the statutory cap of £250 for each leaseholder. In this matter, however, the leaseholders have agreed to pay towards the costs (for works from which they clearly benefit).

30. We turn to the complaints about the quality of the works. On the basis of our inspection we have concluded that the pebble dashing was poor and we also noted that some of the works to the rear of the building have not been completed. This leads us to the conclusion that it would be reasonable to deduct £1,000 from the final charges. We explain how we reach our final conclusions of the amounts payable below.

31. Finally, we deal with the leaseholder’s objections to bearing any responsibility for Mr Webb’s fees. We consider that under the leases the landlords are entitled to appoint agents and to recover their costs. In our view Mr Webb was acting for the landlords in two capacities: as to their duties under the leases and the Act and also as individuals who will bear one-third of the costs of the works to the roof. We do not think it reasonable to expect the leaseholders to contribute to the landlord’s costs of employing him. Mr Webb, in our opinion, could have done far more to investigate the roof in February 2009. We have also concluded that he should have advised on the need for a fresh consultation in August 2009.

32. The leaseholders told us through their representatives that they are willing to pay what they originally thought they would pay that is the total of £14,828. They did not rely on the statutory cap imposed by section 20. As we have decided to deduct £2000 from this figure (and not to require them to pay towards Mr Webb’s fees), the leaseholders are to pay one-half of the net figure of £12,848 which £6,414 each.

33. Finally, there is no need for us to consider making an order under section 20C of the Act as Mr Chapman told us at the hearing that the landlords will not seek to recover any of their professional costs in connection with these proceedings as a service charge.

Signed: ..................................

James Driscoll LLM, LLB Solicitor (Lawyer Chair)

15 July 2010