Case study: The Brunswick Centre, Landmark Case in Upper Tribunal (Lands Chamber)
Summary
The Upper Tribunal (Lands Chamber) held that the statutory obligation to comply with section 20 of the Landlord and Tenant Act 1985 (“the 1985 Act”) was an obligation imposed on the freeholder and not the head lessee.
Background
Where a landlord carries out work to a building or any other premises and the contribution payable by any leaseholder towards those works exceeds the applicable limit (currently £250 per dwelling), the contributions will be capped at that limit, unless either:
- a) the landlord has complied with the statutory consultation requirements (which can be found in the Schedules to the Service Charges (Consultation Requirements) (England) Regulations 2003); or
- b) those consultation requirements have been dispensed with by the First-tier Tribunal (Property Chamber)
The question which arose in this case was whether, when the leaseholder of a dwelling is obliged to pay a service charge to his or her immediate landlord in respect of the cost of works carried out by a superior landlord, the requirements imposed by the 2003 Regulations to consult the leaseholder before the works are carried out must be satisfied by the superior landlord or by the immediate landlord.
The Brunswick Centre is a Grade II listed complex mixed with retail, residential and commercial premises. Allied London (Brunswick) Limited (“Allied”) acquired the freehold interest in the Brunswick Centre in or around 2000. It sold its interest in 2007 to Brunswick GP Limited and Brunswick Nominee Limited, who subsequently transferred the freehold to BIS (Postal Services Act 2011 Company) Limited in 2012. In 2014, the freehold was acquired by Lazari Investments Limited, the current freeholder.
The freehold is subject to a head lease of various parts of the Brunswick Centre (including the two blocks of flats, O’Donnell Court and Foundling Court) which is and was at all material times held by the London Borough of Camden (“Camden”).
87 of the 408 flats are let out on long underleases, granted pursuant to the right to buy provisions in the Housing Act 1985. Those underleases require the occupational leaseholders to contribute towards the costs incurred by Camden in and about the maintenance and management of the Brunswick Centre, as a service charge. In the case of the more recent underleases, those costs (towards which the leaseholders are required to contribute) expressly include the costs incurred by Camden’s landlord, the freeholder, and towards which Camden is required to contribute under the terms of its head lease.
In 2005, Allied carried out major works, which (it is accepted) were of an unsatisfactory standard. Since the works were carried out, defects have lead to the all of the subsequent freeholders incurring further costs in remedying them. Remedial work is still ongoing.
In 2014, leaseholders of 49 of the flats in O’Donnell Court and Foundling Court made an application to the FTT to determine their liability to pay various service charges dating back to 2007, pursuant to s.27A of the Landlord & Tenant Act 1985. The application covers a number of items and categories of expenditure, including the major work undertaken by Allied in 2005.
Among other things, the leaseholders alleged that they had not been consulted in respect of that major work, pursuant to s.20 of the 1985 Act. That much was accepted by the parties to the proceedings. Allied had served a notice of intention (stage 1 notice) and statement of estimates (stage 2 notice) on Camden, purportedly in compliance with s.20; however, it did not serve those notices on the occupational leaseholders of flats in the Brunswick Centre. Camden then copied and circulated those notices to the flat owners; however, by the time they circulated the statement of estimates, they were only able to allow 21 days for the raising of observations in connection with the estimates, as opposed to the required 30 days.
Camden sought to argue that the responsibility for complying with the consultation requirements lay with Allied. Allied sought to argue the opposite. The leaseholders were initially agnostic, but developed an interest when it was suggested that there may be no obligation to consult with the flat owners at all (an argument which was thankfully abandoned).
Handing down his judgment, the Deputy President of the Upper Tribunal expressed a degree of surprise that the legislators had not considered how the consultation process was to operate where there is an intermediate lease between the freehold and the occupational leaseholders.
The starting point, he noted, should be the definition of the term “relevant costs”, because the s.20(1) limitation applies when the relevant costs incurred in carrying out the qualifying works exceed the appropriate amount specified in regulations made under section 20(4) of the 1985 Act (currently the 2003 Regulations). “Relevant costs” are defined, by s.18(1) of the 1985 Act, as “costs … incurred … by or on behalf of the landlord, or a superior landlord”.
By Regulation 1(3), the 2003 Regulations apply “where a landlord … intends to carry out qualifying works”, and provision is made for that landlord to invite, receive and consider observations on its proposed works. It must follow, therefore, that the individual who is obliged to consult is the individual who actually carries out the work. Further, Paragraph 1(1)(a) of the Schedules to the 2003 Regulations makes it clear that the obligation is to consult with “each tenant”.
The Deputy President did acknowledge that difficulties might arise in circumstances where the freeholder was not aware of the identity or correspondence addresses of the occupational leaseholders, but in those circumstances the freeholder could either liaise with the head lessee, take a view and serve s.20 notices on the flat addresses, or apply for dispensation.
The decision will be a significant one for freeholders who manage developments, which are subject to intermediate leases; principally because (in the experience of the writer) few freeholders will have considered that they might be responsible for consulting with all of the occupational leaseholders in the development, and so it is likely that there have been a large number of major works projects which have been undertaken by freeholders, without proper consultation. Moving forward, it will also create an additional administrative burden for freeholders of developments with intermediate leases. On the other hand, the decision is likely to be welcome news to intermediate landlords.
Freeholders of developments with intermediate leases would be well advised to work closely with their head leaseholders and their agents, when planning any major work; and agents of such freeholders may want to consider reviewing their management agreement and fee structure to ensure that it includes the preparation and service of s.20 notices.
Brethertons LLP acted for the leaseholders in this matter.
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