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Russell May
Russell May,
Residential service charge consultation
22 January 2011

Imagine you are the landlord of a block of flats. All of your tenants have long leases which state that they must pay a contribution towards the costs you incur maintaining and repairing the building.

Imagine the roof needs to be repaired, the brickwork needs re-pointing and the exterior needs a lick of paint.

You can, you think, confidently arrange for the work to be done, safe in the knowledge that all the money you spend will be covered by the service charge payments you will claim from your tenants.

Well think again.

The Landlord and Tenant Act 1985 sets a number of procedural hoops through which a landlord must jump in order to recover the cost of major works from his tenants, and if he fails to follow the correct procedure he could find himself having to foot a large part of the bill himself.

The Act imposes a duty on landlords to consult their tenants before any major works are carried out. Tenants must be given an opportunity to comment on the proposed works and even suggest the name of contractors who should be asked to tender for the job. If a landlord does not follow the procedure correctly, the amount he can claim from each tenant toward the cost of those works will be limited to £250.

The fact that this could leave the landlord with a huge bill to pay is irrelevant, a point illustrated only too well by the recent Court of Appeal decision in Daejan Investments v Benson.

In this case the Court of Appeal confirmed the Lands Tribunal decision that because the landlord, Daejan, had not complied fully with the consultation requirements before awarding a contract for major works it could, as a result, only collect a contribution of £250 toward the costs involved from each of its five tenants. The total contribution payable by the tenants was therefore £1,250, leaving Daejan to foot the remainder of the £270,000 bill.

The Court of Appeal rejected Daejan’s argument that the financial effect on the landlord was a relevant factor that it should take into account in reaching its decision. Instead, it agreed with the Lands Tribunal that the potential impact of its findings – draconian from the landlord’s point of view and a windfall for the tenants – was an intrinsic part of the legislative scheme, and it was neither the court’s nor the tribunal’s job to rewrite it.

So what steps should a landlord take to ensure he does not find himself in a similar situation?

  • First, remember that the statutory consultation procedure must be followed if the contribution that will be required from each tenant to cover the costs of the planned works will be more than £250.
  • Secondly, allow plenty of time. The 1985 Act, and its associated regulations, set out a three stage procedure which must be followed to the letter, and this could take at least two to three months to complete.  Trying to cut corners by shortening the period allowed for tenants to submit comments, as Daejan did, could lead to disaster.
  • Thirdly, if in doubt, take advice. The result in Daejan Investments v Benson shows that the court will apply the statutory consultation requirements very strictly, regardless of the cost to landlords. 

For more information about this case or to find out more about how the Dispute Resolution team can help you please contact Russell May on 0118 952 7206 or email [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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