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Francis v Phillips  EWCA Civ 1395
You may recall that in December 2012, in the High Court, a judgment was handed down by the Chancellor in Phillips v Francis  EWHC 3650 (Ch), determining that all of the qualifying works carried out in a given year were to be aggregated, and that the cost of all those works were to be combined before the cap of £250 per tenant was applied.
As a result of that decision, it became essential for landlords to consult their tenants on all qualifying works throughout the course of the year and, failure to do so, or could result in a liability to pay the balance of the cost of the works carried out over the £250 limit.
The decision was appealed and heard in the Court of Appeal in October 2014. There were two questions to be determined, one relating to the qualifying works issue, and another relating to management charges. This article will deal with the qualifying works issue.
Section 20 of the Landlord and Tenant Act 1985 (‘the Act’) provides that service charges recoverable from tenants in respect of qualifying works are limited to £250 per tenant, unless the landlord has complied with the consultation requirements set out in The Service Charges (Consultation Requirements) (England) Regulations 2003 (‘the Regulations’).
The Regulations require a landlord to give notice in writing of the proposed works to each tenant, including the reasons for doing the works, and invite observations in writing and suggestions of from whom the landlord should try and obtain an estimate. There then follows a fairly lengthy consultation process.
Decision of the Court of Appeal
The Court considered the approach applied by the Chancellor, which suggested that all works on a building or any other premises in any given year were to be aggregated without division into separate steps. It was determined that the aggregating approach was wrong. The Court held that an aggregating approach would mean that the annual limit could easily be broken by an emergency situation. The landlord would then be forced to consult or apply for dispensation and therefore run the risk of annoying the tenants, or run the risk of non-recovery if no dispensation was sought. Furthermore, it was held that the obligation to consult for every major item of maintenance was not sensible and unworkable.
Instead, the Court considered that instead, a “sets approach” should be adopted. Each discrete set of works should be grouped together and a limit of £250 per tenant should be applied to that particular set. The Court then gave a list of relevant factors to be considered when determining a set of qualifying works.
The list includes the following:
It was made clear, however, that this is not an exhaustive list of criteria, that a decision should be made taking into account all circumstances, and that it would be a question of fact and degree.
It was also pointed out that leaseholders were still afforded protection by section 19 of the Act as they are not required to pay for unnecessary services or services which are provided to a defective standard, and do not have to pay more for services which are necessary and are provided to an acceptable standard.
What does this mean?
Landlords and those managing properties on their behalf must consider carefully the nature of the works being done, in light of the guidance provided, and assess whether the qualifying works that are being carried out form part of a set or not.
Landlords, however, should not see this as an opportunity to artificially divide up planned work into separate contracts, in order to avoid the statutory consultation process. Any such approach is open to challenge from the tenants and may result in the landlord only being able to recover £250 from each tenant.
This article is for information purposes only and is not legal advice. It should not be acted or relied upon and legal advice should be sought before applying any of the information in this article to any facts or circumstances.