A new High Court ruling could have major complications for landlords and property management companies.
The case, Phillips and Goddard v Francis and Francis, concerned a programme of works due to be carried out at a holiday park in Padstow, Cornwall and the application of Section 20 consultation requirements under the Landlord and Tenant Act 1985 to qualifying works.
Section 20 laid out restrictions that non-compliance by a landlord or managing agent led to a cap of the amount of expenditure that the landlord can recover from the tenant.
In the case of qualifying works, that cap was £250 per leaseholder and the requirement to consult was triggered where the individual tenants’ contribution to works exceeded this level.
It was previously thought that the consultation requirements were triggered on a project by project basis, however the recent ruling by the Chancellor of the High Court has muddied this interpretation.
The ruling held that as the cost of the works were payable on an annual basis, then the limit should be applied to the proportion of works carried out in that year.
Summing up, the Chancellor said under the current legislation, there is no “triviality threshold” in relation to qualifying works and all the qualifying works must be entered into the calculation unless the landlord is prepared to carry out any excess cost himself.
He also dismissed the decision from the case of Martin v Maryland Estates on the basis that the legislation had been amended since then and the legislative scheme was now different. The judge also ruled that the wrong tests had been carried out and overturned the decision.
So from the ruling, many have interpreted that s20 consultations will be almost mandatory each year to ratify many service charge budgets or the £250 cap will apply.
However the judge agreed with the “common sense” ruling from the Martin v Maryland Estates that it is possible to argue that properly planned projects may still be consulted upon separately which could reduce the incentive or need to consult on any remaining works required to a building in any given year.