Andover asphalt major works war sees landlord forced to pay for leaseholders’ expert

By Harry Scoffin

Leaseholders denied consultation are entitled to have their surveyor fees put on the landlord’s tab, an upper tribunal judge has ruled.  

New costs have been imposed on landlords looking to rush through contentious major works programmes due to an upper tribunal ruling last month that has sent shockwaves through the sector.

Aster Communities v Chapman & Ors (“Chapman”) is being seen as a judgment that has marginally but decisively titled the balance of power in high-stakes major works battles towards leaseholders.

It revisits a controversial Supreme Court ruling that had been criticised for undermining transparency in major works and limiting the discretionary powers of judges in the first-tier tribunal (or LVT as it was then known).

Writing exclusively for Leasehold Knowledge Partnership, barrister Joshua Dubin, who represented the winning leaseholders via direct access, says that “Chapman” treads “new” and “potentially fertile ground” in the areas of prejudice and evidence.

Is “Chapman” the new “Daejan”? – Leasehold Knowledge Partnership

COMMENT By Joshua Dubin, the barrister who won for the leaseholders The Aster Communities v Chapman decision does not entirely redress the balance which tipped in favour of landlords in the Daejan v Benson judgment. But it might go a little way to ameliorate the position of tenants.

“This decision shows not only the wide powers of the FTT [first-tier tribunal] to impose conditions on dispensation but also that the FTT will seek to do justice by tenants and view them sympathetically especially where a landlord as large as Aster has failed to carry out the service charge consultation requirements imposed by statute,” says Talbot Walker LLP, which instructed Mr Dubin.

Landlord and tenant solicitor Giles Peaker has suggested the precedent-setting ruling could even be helpful for leaseholders in disputes where they “don’t have initial expert evidence” to support their case. In an article for Nearly Legal, he notes:

“… the Tribunal may order the costs of expert investigation to be paid by the freeholder, at least in circumstances where the landlord had not established clearly the necessity/scope of works.”

Dispensing with section 20 – requirements on landlord – Nearly Legal: Housing Law News and Comment

Aster Communities v Chapman & Ors (LANDLORD AND TENANT : SERVICE CHARGES) (2020) UKUT 177 (LC) A quick note on this one. Where a landlord is looking to do works that would cost residential leaseholders more than £250 each under the service charge, they have to follow the section 20 Landlord and Tenant Act 1985 […]

“Daejan” and major works background

Where major works cost each leaseholder more than £250, landlords are expected to comply with the consultation regulations laid out in section 20 of the Landlord and Tenant Act 1985.

However, if they have failed to abide by these rules passed by Parliament to ensure greater financial transparency in leasehold, they can make a section 20ZA application.

Landlords who simply want to sidestep leaseholders and disclosure can also apply in advance of commencing works.

If they fail to gain s20ZA approval, they will be unable to recoup more than £250 a head.

In recent years, however, s20ZA has been a formality for landlords. They would get their money back.

But last month’s upper tribunal ruling has applied and extended Daejan v Benson, the 2013 Supreme Court decision which placed the “factual burden” on leaseholders.

Epic leasehold battle ends with victory of freeholder in the Supreme Court – Leasehold Knowledge Partnership

The seven-year legal battle over a £280,000 major works contract ended today in defeat for the leasehold residents at the Supreme Court. But it was a Pyrrhic victory. Freeholder, Daejan, a part of the Freshwater empire, which had failed to follow the correct consultation procedure, was ordered to lop £50,000 off the bill and pay the leaseholders’ legal costs.

“Benson” in effect gave a greenlight to landlords to put their costly major works schemes, however poorly administered or justified, through the service charge.

This decision put an end to leaseholders using procedural mistakes, sometimes trivial ones, to prevent their landlords from recouping tens, even hundreds of thousands, of pounds for major works that in some cases may have been proven necessary and of a good standard.     

“In a stark departure from the judgment of the minority (Lord Hope and Lord Wilson), the majority (Lord Neuberger (giving the lead judgment), Lord Clarke and Lord Sumption) ruled that the conduct of the landlord is irrelevant no matter how flagrantly it might have behaved in failing to adhere to the consultation requirements, unless it can be shown that the conduct caused actual prejudice. In this regard Lord Wilson described the conclusion of the majority as, subverting the intention of Parliament,” Tanfield Chambers published at the time.

“In a judgment that tenants might consider disappointing, the majority of the Court has found that whilst decisions as to service charge expenditure remain in the hands of the landlord, transparency and accountability have no part in the consultation process in so far as they might be considered appropriate ends in themselves,” the analysis continued.

Supreme Court ruling on Daejan v Benson gives freeholders the whip-hand and is ‘a judgment that tenants might consider disappointing’ – Leasehold Knowledge Partnership

The lawyers representing the leaseholders in the Daejan v Benson Supreme Court case earlier this week have given their analysis of the case. Philip Rainey, QC, and colleagues at Tanfield Chambers, represented leaseholders at Queens Mansions, Muswell Hill, in north London, who had not been properly consulted on £280,000 of major works.

It was up to the tenants to prove at tribunal that they had suffered actual prejudice by a failure to consult (virtually impossible without a gifted surveyor), until now.

Daejan v Benson: ‘on the whole good for landlords’ – Leasehold Knowledge

So says Natasha Rees (left), a partner at Forsters solicitors, who must get some sort of prize for stating the bleeding obvious. (And whose beauteous photograph unaccountably alone adorned the accompanying press release, although it quoted no less illustrious, but presumably plainer, professional colleagues.)

Would you like ketchup with that hat? – Nearly Legal: Housing Law News and Comment

Ok. Confession time. For the last year or so, I have been confidently predicting (often vocally and to unsuspecting passers-by) that the landlord would lose its appeal in Daejan Properties Ltd v Benson [2013] UKSC 14. Well, the landlord won.* And so I have a veritable brimful** of hats to consume over the next few […]

“Chapman”

In February 2019, Aster Communities, the housing association, applied for a waiver of the statutory controls on service charges laid out in section 20 of the Landlord and Tenant Act 1985 after completing an element of a major works project that had already been ruled against by the first-tier tribunal (FTT).

The major works scheme at Kingsway Gardens, Andover in Hampshire, a five-block development built in the 1960s, was challenged by leaseholders on quality and cost grounds two years earlier.

Anger in Kingsway Gardens over £20k-per house maintenance bill

OUTRAGED residents on an Andover housing estate have been told that they could be charged £20,000 each towards remedial works to be undertaken by their housing association landlord. At a heated meeting on Monday night held by Aster Communities, leaseholders on Kingsway Gardens were told that a survey had indicated maintenance works needed to solve water ingress problems to a total value of £2.07 million.

In that case, the FTT determined that while the landlord had carried out the consultation process in “good faith”, it would be unreasonable to charge the leaseholders removal of asphalt from all the balconies.

The landlord did not appeal this finding.

Residents ‘left suicidal’ as landlord plans to charge them £27,000 each for maintenance

LEASEHOLDERS of an Hampshire estate say they have been left feeling suicidal because their housing provider landlord is proposing to bill them up to £27,000 EACH to fund a £4.8m maintenance project. Kingsway Gardens residents in Andover received letters from Aster Group detailing works to be carried out on Saxon, Stuart, York and Tudor Courts with estimates of charges per flat as much as £27,000.

With only two flats found to have water ingress from the roofing, the FTT cited a lack of convincing evidence for complete replacement. It also highlighted the fact that the job had not featured in the original section 20 consultation.

Kingsway Gardens residents’ ‘nightmare’ as major works underway

KINGSWAY gardens residents are spending weeks with restricted access to their garages, gardens and daily living as its freeholder continues its latest round of significant works to the estate. Housing provider Aster Group has set up scaffolding around the blocks which residents say is causing serious disruption since work on some courts began last month.

Tribunal outcome “disaster” say residents in fear of affording up to £26K sum for Aster repairs

KINGSWAY Garden residents have reacted to the news of the Aster tribunal outcome, with many living in the affected blocks now in fear of how they will afford the huge sum, despite Aster offering a payment plan. One Kingsway Gardens resident said: “There are poor people living here, they don’t have this money.

On asphalt replacement, the FTT did, however, leave open for the possibility of the landlord returning to judges with an application to dispense with consultation regulations, the section 20ZA, which is what it did in February 2019.

While the landlord was successful in getting its s20ZA approval, a number of seemingly non-standard conditions were attached, which the landlord took issue with and appealed to the upper-tribunal (UTT).

The three conditions were:

“(i) Aster is to pay the reasonable costs of an expert nominated by the lessees to consider and advise them on the necessity of replacing all the balcony asphalt at the main blocks.

“(ii) Aster is to pay the respondent’s [sic] reasonable costs of this application, to be summarily assessed if not agreed.

“(iii) The costs of the application should not be recoverable by Aster from the lessees through the service charge.”

Aster objected to paying for the leaseholders’ legal and professional fees. It only agreed not to put its own costs through the service charge.

Citing the “Daejan” case, Aster argued that it was not for the landlord to evidence the necessity of the balcony asphalt works and that the FTT had “reversed the burden of proof” when it was for the leaseholders to have instructed a surveyor.

Aster claimed the FTT went beyond its remit by “imposing as a condition a requirement that the landlord pay the cost of the lessees’ surveyor in circumstances where no surveyor had yet been instructed”.

“In the absence of evidence from a surveyor, the appellant submits that the lessees cannot establish any actual prejudice,” noted the upper tribunal.

The leaseholders, led by Kerry Chapman, contested that the “the FTT had ample power to impose the three conditions in question”, highlighting the “breadth of the statutory words and the recognition by the Supreme Court in Daejan that each case is fact-specific”.

In the same way the FTT found that the leaseholders had articulated “a credible case of relevant prejudice, namely that [they] will be asked to pay for inappropriate works”, the UTT had registered its disquiet with the landlord’s failure to show its hand in the early stages.

By not declaring its intention to replace all the balcony asphalt in the original section 20 consultation process before commencing the work “with the intention of recovering its costs through the service charges”, the freehold owner had “presented the lessees with a fait accompli”, said Judge Stuart Bridge.

“The lessees had not had the opportunity to consult their expert on the works that had been done in circumstances where the FTT had already found, in the course of section 27A proceedings, that complete replacement of the balcony asphalt was unnecessary,” he continued.

Judge Bridge went on to reject Aster’s interpretation of “Daejan”, highlighting that the Supreme Court’s Lord Neuberger stressed the need for the tribunal to be sympathetic to leaseholders where the landlord has failed in its “statutory duty” to consult them.

“Such an approach is also justified because the [FTT] is having to undertake the exercise of reconstructing what would have happened … For the same reasons, the [FTT] should not be too ready to deprive the tenants of the costs of investigating relevant prejudice, or seeking to establish that they would suffer such prejudice. This does not mean … uncritically accept[ing] any suggested prejudice, however far-fetched, or that the tenants and their advisers should have carte blanche as to recovering their costs of investigating, or seeking to establish, prejudice,” determined Lord Neuberger at the time.

While Judge Bridge recognised that the Supreme Court held that “it is not the function of the tribunal to punish the landlord”, he argued that the tribunal’s sole focus must be on determining the “extent” to which prejudice, if any, has been caused to leaseholders by a failure to consult.

Judge Bridge agreed with the FTT in rejecting Aster’s evidence, which failed to make an appearance in the earlier section 27A proceedings:  

“The FTT took an adverse view of Mr Greenhalgh’s evidence. The evidence had not been served in a timely manner …

“Mr Greenhalgh was not in any sense independent: not only was he an employee of the landlords, he had been involved throughout the process of planning the scheme of works; and there were respects in which the FTT, in the previous hearing, had rejected his evidence on other matters.”

The landlord had urged the FTT not to take into account its conduct, arguing that the leaseholders would still have an opportunity to challenge the reasonableness of the asphalt works at a later date.

Judge Bridge rejected Aster’s argument on the basis that a section 20ZA application cannot be assessed without reference to the history of the wider major works dispute:

“An application to dispense with consultation requirements does not take place in a vacuum.”   

Indeed, the spirit of “Daejan” can only be upheld by FTT judges if they facilitate leaseholders in establishing prejudice:

“If the FTT takes a view of the application without regard to what has happened previously as between the landlord and the tenants, and what is likely to happen in the foreseeable future, it is difficult to see how it can properly consider what if any prejudice has been suffered.”

The landlord’s understanding of the burden of proof was also rejected:

“If the tenants were obliged in every case to show that the works proposed were inappropriate (or too expensive) as a prerequisite to the FTT refusing the landlord’s application for unconditional dispensation, it would entirely frustrate the process of dispensation.”

Judge Bridge ruled that the FTT “sought to do justice by imposing as a condition of dispensation that the landlord pay the reasonable costs of obtaining a surveyor’s report”, which, he explained, would enable the leaseholders to establish whether the works had been necessary or inappropriate in the first place.

He deemed the condition “understandable as the FTT looked back, with the benefit of hindsight, to the issues ventilated in the section 27A application concerning the on-account demands, and as it looked ahead to the likely issues in a future section 27A application concerning service charge demands for completed works”.

The UTT also rejected the landlord’s complaints of a lack of time limit within which the expert is to be chosen and the lack of definition as to what constitutes “reasonable” for the cost of the leaseholders’ surveyor or M&E consultant.

“These do not seem to be issues of any real substance,” noted Judge Bridge.

He recognised the difficulties posed by the Covid-19 pandemic, but reasoned that it was feasible for the leaseholders to find their expert, obtain their fee “which they should furnish to the landlord for information only” and have the investigation completed “within four months”.

In “Daejan”, Lord Neuberger said:

“… once the tenants have shown a credible case for prejudice, the [FTT] should look to the landlord to rebut it.

“And, save where the expenditure is self-evidently unreasonable, it would be for the landlord to show that any costs incurred by the tenants were unreasonably incurred before it could avoid being required to repay as a term of dispensing with the Requirements.”

Although it will take time before leaseholders use the ruling to win their own major works battles, there is no doubt that “Chapman” has weakened the grip of landlords.

The full ruling is here: ChapmanJune2020