[2023] UKUT 174 (LC)

Section 20ZA of the 1985 Act gives the FTT power to dispense with the consultation requirements, and the Supreme Court in Daejan Investments Limited v Benson [2013] UKSC 14 is authority for the way in which the FTT’s discretion is to be exercised. At paragraph 44 Lord Neuberger said this:

“44.

Given that the purpose of the [consultation requirements] is to ensure that the tenants are protected from (i) paying for inappropriate works or (ii) paying more than would be appropriate, it seems to me that the issue on which the LVT should focus when entertaining an application by a landlord under section 20ZA(1) must be the extent, if any, to which the tenants were prejudiced in either respect by the failure of the landlord to comply with the Requirements.

46.

I do not accept the view that a dispensation should be refused in such a case solely because the landlord seriously breached, or departed from, the Requirements. That view could only be justified on the grounds that adherence to the Requirements was an end in itself, or that the dispensing jurisdiction was a punitive or exemplary exercise. …

50.

In their respective judgments, the LVT, the Upper Tribunal and the Court of Appeal also emphasised the importance of real prejudice to the tenants flowing from the landlord's breach of the [consultation requirements], and in that they were right. That is the main, indeed normally, the sole question for the LVT when considering how to exercise its jurisdiction in accordance with section 20ZA(1).

The question for the FTT, then, in deciding whether to grant a dispensation was whether the leaseholders would suffer any prejudice as a result of the failure to consult. I emphasise those words; as Lord Neuberger pointed out at paragraph 65, that is the relevant prejudice and no other:

“The tenants can always contend that they will suffer a disadvantage if a dispensation is accorded; however, as explained above, the only disadvantage of which they could legitimately complain is one which they would not have suffered if the [consultation requirements] had been fully complied with, but which they will suffer if an unconditional dispensation were granted.”

It was also made clear in Daejan – and the parties agree – that the FTT is entitled to impose a condition on the grant of a dispensation. At paragraph 54 of the Supreme Court’s judgement Lord Neuberger said that the FTT:

“has power to grant a dispensation on such terms as it thinks fit – provided, of course, that any such terms are appropriate in their nature and their effect.”

He went on to give examples of appropriate conditions, for example that the landlord carry out a limited version of the consultation process, or that where consultation would have led to a reduction in the cost of the work by, say £25,000 (because an observation that a leaseholder would have made would have saved the landlord some money) the FTT might impose a condition that that £25,000 would be irrecoverable from the leaseholders. He went on:

“I also consider that the LVT would have power to impose a condition as to costs – eg that the landlord pays the tenants' reasonable costs incurred in connection with the landlord's application under section 20ZA(1).”

I come back to the point about costs later. But was the condition that the landlord pay for the costs of a waking watch an appropriate condition in the present case?

Mr Mullin for the landlord argued that it was not. He pointed to the FTT’s words in its paragraph 25: “The cost of waking watch does constitute a significant financial prejudice to the leaseholders.” That is not a relevant prejudice; it was not caused by the failure to consult.

Ms Sharma and Mr Simmons in response reiterated the respondents’ view that the waking watch was part and parcel of the one set of works, as the FTT said. They stressed their concerns about the delay in getting the second fire risk assessment, and then the rush to put a waking watch in place without any consultation – which they said if not legally required is good practice – and then the use of the waking watch as a justification for the landlord’s failure to consult. Had the landlord taken action when advised to do so in June 2020 there would have been ample time to consult. The installation of the waking watch immediately after the risk assessment was premature and unnecessary. In any event, consultation on the fire alarm would not have taken more than a month or two and so could still have been completed in the summer of 2021. As it was, the landlord selected the cheapest option without regard for maintenance costs and a proper analysis should have been carried out.

As to that latter point, Mr Mullin pointed out in response that the works were commissioned almost immediately after the tenders were obtained and on the basis that the chosen contractor could complete the work much sooner than the others. The work was commissioned on 21 August 2021; to delay that point until completion of the consultation would have cost £10,000 per week, and the consultation has to take at least 60 days because of the time that has to elapse between the stages. Any saving in choosing a different contract would have wiped out by the waking watch cost, and so it was in the leaseholders’ interests for the fire alarm work to proceed as fast as possible. I accept Mr Mullin’’ arguments about that point.

Nevertheless, the respondents’ indignation is understandable. From their point of view, a waking watch was put in place which in their opinion was unnecessary, and then it was relied upon by the appellant as justification for the urgency of the fire alarm works.

But even if it were true – and the FTT made no finding to that effect – that the waking watch was unnecessary, that would not have been a justification for refusing a dispensation from consultation about the fire alarm. As the Supreme Court made clear in Daejan, the consultation requirements are not an end in themselves; they can be dispensed with if there is no relevant prejudice to the leaseholders, meaning prejudice that arose because of the lack of consultation rather than for any other reason. The FTT can impose conditions upon the dispensation; but those conditions must be relevant and appropriate. Relevant conditions would address the relevant prejudice to the leaseholders.

I agree with the respondents that paragraph 50 of the Supreme Court’s decision in Daejan indicates that other considerations might be relevant to the grant or refusal of a dispensation. But even if the waking watch was unnecessary, that is not relevant to the question whether or not the dispensation should be granted; it is not the role of the FTT in considering a dispensation application to penalise the appellant for other aspects of its conduct. The claim that the waking watch was unnecessary would of course be highly relevant to a challenge to service charges on the basis that the costs incurred by the landlord in setting the waking watch were unreasonable, pursuant to the FTT’s jurisdiction under section 27A of the Landlord and Tenant Act 1985. (Footnote: ¹) But if (which has not been decided) the waking watch was unnecessary that was irrelevant to the application for a dispensation; equally therefore a condition relating to payment for the waking watch was an irrelevant condition.

The leaseholders’ concern about the delay in getting the second fire risk assessment is also understandable, but it is difficult to see that matters would have turned out differently if the second assessment had been obtained within three months of the first. The recommendation would no doubt have been the same even if the assessment had been carried out sooner, and the action taken by the appellant might well have been the same. Even if that is not the case, the delay is irrelevant because the issue for the FTT was whether the leaseholders had suffered relevant prejudice as a result of the failure to consult about the fire alarm.

All that said, the FTT imposed the condition not because of any judgment about the merits of the landlord’s decision to impose a waking watch, nor because of the delay, but because it regarded the waking watch as “part and parcel of the works to deal with the potential fire risk” (paragraphs 23 to 26 of its decision, quoted above) and took the view that “if matters had been properly dealt with” the landlord would have consulted about the waking watch, despite the fact that there was no legal obligation for it to do so. That erroneous consideration led the FTT to impose an irrelevant condition on the dispensation, namely that the landlord was to fund the waking watch. In effect the FTT punished the landlord for failing to carry out a consultation which it was not obliged to carry out.

I set aside the FTT’s decision insofar as it imposed a condition on the dispensation that the landlord was to pay for the waking watch.