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• Author: Ranjeet Johal

Obligation to re-tender under the Service Charges (Consultation Requirements) (England) Regulations 2003 (‘the Consultation Requirements’)

The Consultation Requirements, which were enacted pursuant to section 20ZA(4) of the Landlord and Tenant Act 1985 (‘the Act’), require a landlord to consult with leaseholders in respect of qualifying works and qualifying long-term agreements. If a landlord fails to comply with the Consultation Requirements, he is only able to recover £250.00 from leaseholders for qualifying works and £150.00 for a qualifying long-term agreement.

Under the Consultation Requirements for qualifying works, a landlord must first serve a notice of their intention to carry out work, setting out, amongst other things, details of the proposed works. Regard must be had to any observations made by the leaseholders. The second stage is for a landlord to consult on estimates obtained for the works.

The purpose of sections 19-20ZA of the Act and the Consultation Requirements is to ensure that leaseholders are not required to pay for unnecessary services, services which are provided to a defective standard or to pay more than they should for services which are necessary and provided to a good standard (per Lord Neuberger, Daejan Investments Ltd v Benson [2013] 1 WLR 854).

In Reedbase Limited v Fattal [2018] EWCA Civ 840, following the completion of the Consultation Requirements by the landlord, additional work was found to be required, amounting to £30,000 (10% extra on the original cost of circa £300,000), in respect of roof works.

The defendants challenged this additional cost, arguing that the landlord should have re-tendered for the purposes of stage 2 of the Consultation Requirements on the basis that there had been a material change leading an additional cost.

It was accepted that the landlord had the right to apply for dispensation from the Consultation Requirements (per Daejan) but it had not done so and so it was not an issue in these proceedings.

The Court of Appeal considered that it may sometimes be necessary for the second stage of the Consultation Requirements to be repeated and held that the relevant test, in the absence of explicit statutory guidance, was whether in all the circumstances the leaseholders had been given sufficient information by the first set of estimates. Additionally, it must also be considered, whether in all of the circumstances, including the position of the other leaseholders who had not objected, the protection afforded to the leaseholders by the consultation process was likely to be materially assisted by obtaining fresh estimates.

On the facts of this case, there was no requirement to obtain fresh estimates for a number of reasons: (1) the defendants had known about the change in works and approved them; (2) the additional costs were a relatively small proportion of the overall costs; (3) it was unrealistic to obtain further estimates for a small proportion of the works from contractors who had previously tendered; (4) re-tendering would have delayed the works, which might have prejudiced other leaseholders; and (5) the defendants continued to have the protection afforded to them by section 19 of the Act.