Michael Wynne v Rodger Yates & Anor

Introduction

1. This is an appeal by Mr Wynne, the freeholder of 12 and 12A Cross Street, Hove, from a decision of the First-tier Tribunal (“the FTT”) about the reasonableness and payability of service charges demanded by him as landlord from the respondents, Mr Yates and Mr Livingstone, and from the FTT’s refusal to grant him a dispensation from the consultation requirements that apply to service charges for major works.

2. I heard the appeal at the Royal Courts of Justice on 9 November 2021. Mr Marcus Staples, of Deacon Crickmay Asset Management (the appellant’s managing agents) represented the appellant, and Mr Roger Yates, the first respondent, spoke for the respondents. I am grateful to them both.

3. In the paragraphs that follow I summarise the legal background to the dispute, which can be explained very briefly, and then set out the factual background. I summarise the decision of the FTT, discuss the grounds of appeal and explain why the FTT’s decision is set aside. I then go on to substitute the Tribunal’s own decision. The legal background

4. Two of the ways in which the law regulates the relationship between landlord and tenant are relevant to this appeal.

5. The first is set out in section 19 of the Landlord and Tenant Act 1985 (“ the 1985 Act ): service charges in leases are payable only to the extent that they are reasonably incurred and, if they are incurred on the provision of services or the carrying out of works, on services or works of a reasonable standard. Section 27A gives the FTT jurisdiction to determine the reasonableness and payability of service charges.

6. Second, section 20 of the 1985 Act , together with the Service Charges (Consultation Requirements) (England) Regulations 2003, provide that a tenant cannot be charged more than £250 for “qualifying works” unless consultation requirements have been complied with. Qualifying works are defined as works that are going to cost the tenant more than £250 by way of service charge. The consultation process involves a sequence of notices, the circulation of estimates for work to be done, and the opportunity for tenants both to nominate a contractor to provide an estimate and to make observations on the landlord’s plans.

7. A landlord can apply under section 20 ZA of the 1985 Act for dispensation from the consultation requirements. Following the Supreme Court’s decision in Daejan Investments Ltd v Benson [2013] UKSC 14 , dispensation will normally be given unless the tenant can show that they have been prejudiced by the failure to consult. A tenant might be able to demonstrate that prejudice by showing for example that consultation would have enabled them to suggest a cheaper contractor or a better way of doing the work. The loss of an opportunity to participate in the consultation process is not a relevant prejudice, nor is the “prejudice” of having to pay for the work.

8. Although both the reasonableness requirement and the consultation requirement are imposed on landlords in order to protect tenants, they are not the same. The fact that a landlord has consulted on works by sharing estimates and so on, and chosen a contractor in the light of their estimate, does not mean that the cost of the work will be reasonable and does not prevent the tenant from challenging the corresponding service charge on grounds of unreasonableness. Nor does it mean that nothing will go wrong and that an estimate will never be exceeded. An estimate is an estimate; if it is exceeded, that does not of itself make the cost unreasonable.

9. What the two requirements do have in common is that in order to use them as a basis of challenge a tenant has to engage with some evidence. A tenant will not be able to resist a landlord’s application for a dispensation from the consultation requirement unless he or she can demonstrate some prejudice, beyond the simple fact of not having been consulted or of having had to contribute to the cost of the works. As Lord Neuberger put it at paragraph 68 of Daejan Investments Limited v Benson : “while the legal burden of proof [of entitlement to a dispensation] would be, and would remain throughout, on the landlord, the factual burden of identifying some relevant prejudice that they would or might have suffered would be on the tenants.”

10. So the tenant must demonstrate some prejudice arising from the failure to consult; it is not for the landlord to demonstrate, in the absence of any evidence of prejudice, that the tenants were not prejudiced.

11. Equally, it is well established (see for example Schilling v Canary Riverside Development Ptd Limited [2005] EWLands LRX_26_2005) that a tenant’s challenge to the reasonableness of a service charge must be based on some evidence that the charge is unreasonable. Of course, the burden is on the landlord to prove reasonableness, but the tenant cannot simply put the landlord to proof; he or she must produce some evidence of unreasonableness before the landlord can be required to prove reasonableness.