Court Of Appeal Rules On Residential Service Charge Issue

Landlords Expected To Be Relieved By Landmark Decision

06.11.2014

The Court of Appeal handed down a landmark decision at the end of last week that experts believe will be greeted with delight by residential landlords and management companies.

Francis & Another –v- Phillips & Others [2014] EWCA 1395 is based around issues which arose where a holiday park landlord failed to consult with its tenants on the incorrect assumption that the statutory requirements did not apply to holiday chalets. However, the more important element of the case revolved around the definition of “qualifying works”.

Legislation currently states that residential landlords should consult if they intend to carry out works and then pass costs back to tenants under a service charge – specifically if the amount payable would be more than £250. The question is therefore what does this £250 limit attach to – is it each individual item of work, a set of works or all of the works conducted in any one particular year?

In its decision, the Court of Appeal adopted the so called “set approach” i.e. you need to look at a “set” of works rather than each individual item or all of the works conducted in a particular year. When considering what works fall within a set, the court provided a non-exhaustive list of relevant factors such as:

  • where there works are carried out;
  • whether they are the subject of the same contract; 
  • whether they are done at more or less the same time; and
  • whether the works have a connection to one another.

If the set of works will exceed the statutory threshold then landlords must follow the consultation procedure or face not being able to recover the full costs of the works from the tenants.

Expert Opinion
Before this decision landlords and management companies were concerned that, applying the High Court’s decision, would lead to a perpetual consultation process which would be time consuming and expensive and ultimately result in delays to the works.

"In reaching their decision the Court of Appeal applied a common sense approach to the legislation and have provided some useful guidance for landlords and managing agents to consider.

"The Court of Appeal, however, reiterated a tenant’s right to challenge the costs of works if they feel they are unjustified or have not been completed to a reasonable standard."
Christopher Perrin, Partner