Katie Edwards, Associate at specialist property dispute solicitors JB Leitch, looks at recent case law to provide advice and clarification on the process of consultation where there are complex structures and leases in place…

Chain of Title and Who Must Consult and Be Consulted

Section 20 Landlord and Tenant Act 1985 (“LTA”) provides for leaseholders to be consulted in respect of major works and qualifying long-term agreements (“QLTA”) when the costs for each leaseholder exceeds a certain amount. The current amount is currently £250 per leaseholder for major works and £100 per leaseholder for QLTAs.

The purpose of consultation is to allow the leaseholders the opportunity to comment upon the works, put forward proposed contractors and understand the choice of contractor where the cheapest is not chosen. Consultation will be carried out by the landlord or management company responsible for the works and the procedure under the Service Charges (Consultation Requirements) (England) Regulations 2003 (“the 2003 Regulations”) should be followed.

However, in certain situations the process of consultation can be more than straightforward. The responsibility of carrying out the consultation becomes blurred where there are complex title structures with numerous landlords and head leases. In these circumstances it is not always clear which party should be consulting and to whom they should consult.

The case of Leaseholders of Foundling Court and O’Donnell Court v Mayor and Burgesses of the London Borough of Camden and others [2016] UKUT 366 (LC) deals with this issue directly. 

In this case the freehold owner of the development had demised part of the development comprising of Foundling Court and O’Donnell Court to the head lessor. The head lease demised the residential under leases to the tenants. Major works were carried out by the freeholder and service charges were demanded from the head lessor, who then demanded from the tenants. One of the preliminary issues dealt with by the Upper Tribunal was which party ought to have consulted the tenants.

The Upper Tribunal reviewed the meaning of “landlord” and “tenant” within LTA and the purpose and intention of section 20, section 20ZA LTA and the 2003 Regulations. The Upper Tribunal considered why consultation is an important process for residential service charge.

The Upper Tribunal determined that:

“…the primary purpose of the regime established by sections 20 and 20ZA, and by the 2003 Regulations, is to ensure that those who are ultimately responsible for paying for work or services are consulted and practical difficulties which might be encountered by landlords in complying with those obligations cannot dominate their interpretation.”

The ultimate paying parties are, in most circumstances, the tenants of the long residential leases. These are the tenants who pay the service charge incurred by the head lessor and the subsequent charges passed down by the freeholder through the chain of leases.

There is no need for a direct contractual relationship between the freeholder and the tenant for the purpose of consultation and it was stressed by the Upper Tribunal that the party carrying out the major works or entering into a QLTA must give notice to each of its direct tenants, and each of its own sub-tenants who are liable to contribute to the costs.

Practical Considerations

The precedent set out by case law may raise practical difficulties whereby the tenant information may not be available to the party consulting. Despite this, the Upper Tribunal gave guidance within their judgment, stating that the freeholder could:

• Deliver consultation notice addressed to “the leaseholder” to each property in the building/development concerned
• Ask the head lessor to provide the information

The LTA does not have any service requirements set out in respect of section 20, however it will be apparent that not all tenants will reside at the property within the building/development. Have they been consulted satisfactorily if they do not and this was known by the head lessor? You can see how the difficulties arise and this is likely to be the reason why the Upper Tribunal confirmed that the head lessor should be requested to provide correspondence information.

Despite a head lessor having correspondence addresses, these may not be provided due to issues with GDPR. 

To overcome this hurdle, copies of the correct number of notices could be provided to the head lessor for them pass on to each tenant, if they are willing.

Alternatively, the freeholder could seek dispensation of the consultation requirements pursuant to section 20ZA LTA by making an application to the First-tier Tribunal and including all parties as respondents.

In conclusion, where complex lease structures are in place it is important to establish who is responsible for carrying out works or entering into the QLTA – and who the ultimate paying party of the costs are.

It is not enough to consult with the immediate head lessor of a block as this would frustrate the intention of section 20 LTA and careful consideration of the lease structure is therefore required.