High Court rules on service charge consultation procedures

7 February, 2013

The High Court’s recent verdict in an appeal relating to the service charge consultation requirements under Section 20 of the Landlord and Tenant Act 1985 rather set the cat amongst the pigeons in the world of residential service charges. It was an appeal by the leasehold owners of chalets in a holiday park in Devon against a ruling by the County Court regarding the landlords’ failure to consult before carrying out qualifying works.

The County Court had held that the correct approach was to 1) identify which items constituted qualifying works, 2) consider whether they constituted one or more sets of qualifying works (i.e. a project-by-project approach) and 3) assess whether the total cost of each project exceeded the statutory cap of £250 per leaseholder. This followed the reasoning of the Court of Appeal in Martin v Maryland Estates in 1999.

The High Court disagreed, and decided it didn’t have to follow the Maryland case because it predated the changes introduced by the Commonhold and Leasehold Reform Act 2002. The judge felt that there was nothing in the legislation that required the £250 cap to be applied on a project by project basis. Instead, a landlord had to assess the qualifying works that it expected to carry out over the service charge year and decide whether the total cost of all of the workscrossed the threshold, in which case it would have to consult.

Not only does the decision depart dramatically from the standard approach that practitioners had adopted following the Maryland case, it also leaves a number of questions unanswered. For instance, if the landlord consults on a large project, does he have to consult on smaller projects as well even if the total cost of all of the smaller projects over the course of the service charge year is less than £250 per leaseholder? We will have to wait and see.