Service Charge: S20 Consultation Shock for Landlords
Landlords will have to consult leaseholders far more often before carrying out works to their properties following a recent decision in the High Court.
In Phillips v Francis CH/2012/0515 a new landlord bought the freehold of a holiday site. They decided to bring the site up to what they called “first class” standards.
The landlord carried out a rolling programme of works. The chalet owners were happy to have their site improved. They were less happy with having to bear the substantial cost through their service charge. They challenged the service charge in the County Court and then in the High Court.
S20 Landlord & Tenant Act 1985 (as amended) says that a landlord has to consult leaseholders in advance if the contribution of any tenant is more than £250 for qualifying works. In Phillips, each part of the works was below the £250 limit, but the works as a whole were more than £250 per leaseholder. The landlord said that, because no individual contract was above the £250 threshold, they didn’t have to consult.
The Judge in the High Court disagreed. Even though there were a number of separate contracts, the amount being charged in a single service charge year was more than £250. It didn’t matter that the contracts were separate. The landlord had to consult because the cumulative total was above £250 per leaseholder.
What does it all mean? Landlords have until now only served s20 consultation notices when a particular contract or project means each leaseholder will have to pay over £250. Now a landlord will have to look at overall expenditure on qualifying works in a year. If the total will mean each leaseholder will have to pay over £250 then they will need to serve a s20 Notice.
What about past years? Leaseholders will argue that , if no s20 notices were served, their service charges should be capped at £250 if the cumulative total exceeds that amount for a year.
Service charge consultation is already a minefield for both landlords and tenants. This is a significant change in the law which will have far reaching effects.