Collingwood v Carillon House Eastbourne Ltd (LANDLORD AND TENANT - SERVICE CHARGES - consultation requirements)

Factual and Procedural Background

This appeal arises from a decision of the First-tier Tribunal (FTT) concerning the reasonableness and payability of service charges demanded by the landlord, Company A, from the appellant tenants. Two main issues were in dispute: the cost of external works to a building subject to consultation requirements under the Landlord and Tenant Act 1985, and charges related to the management of the landlord as a limited company.

The property at issue is a large house converted into seven flats, each let on a long lease. The appellants are leaseholders of three of these flats, and the respondent landlord is the freehold owner and immediate landlord. The other leaseholders are shareholders in the landlord company, but the appellants are not.

In 2017, the landlord's managing agents notified all leaseholders of intended external redecoration and repairs and invited contractor nominations. One appellant nominated a company of which he was sole director. However, the landlord failed to seek a quotation from this nominee before issuing the notice of estimates, which included two other contractors' bids. The nominee later provided a quote, but it was rejected and not included in the consultation notice. The landlord awarded the contract to a different contractor at a higher price.

The appellants challenged the service charges before the FTT, arguing non-compliance with statutory consultation requirements and disputing charges for the landlord's company management costs. The FTT found the charges payable, reasoning that the landlord had endeavored to carry out consultation and that no prejudice to the tenants was shown.

The appellants appealed, raising questions about compliance with consultation procedures, the relevance of tenant prejudice absent a dispensation application, and the recoverability of management fees for running the landlord company.

Legal Issues Presented

1. Whether the FTT adequately addressed compliance with the statutory consultation requirements under section 20 of the Landlord and Tenant Act 1985, and if non-compliance should limit the tenants' liability to £250 each.
2. Whether, in the absence of an application for dispensation under section 20ZA of the Act, the FTT was entitled to consider the absence of prejudice to tenants when determining service charge payability.
3. Whether fees charged by the managing agents for running the landlord as a limited company are properly recoverable as service charges under the lease covenants.

Arguments of the Parties

Appellants' Arguments

• The consultation process under Schedule 4 Part 2 of the Consultation Regulations is sequential and strict, requiring the landlord to seek estimates from tenant-nominated contractors before issuing the notice of estimates.
• The landlord failed to obtain a quotation from the nominated contractor before issuing the notice of estimates, rendering the consultation defective.
• The landlord's later request for a quote from the nominee did not cure the defect as it was too late in the process.
• The landlord improperly excluded the nominee's quote from the consultation notice on grounds not supported by the regulations.
• The FTT erred by considering absence of prejudice relevant without a dispensation application, which was not made, and either wrongly granted a dispensation or failed to properly address compliance.
• The managing agents' fees for running the landlord company are not recoverable under the lease because the appellants are not members of the company and the lease covenants do not cover such costs.

Respondent's Arguments

• The landlord complied with the statutory requirement to consult, which is not prescriptive about procedural detail but requires a consultation in substance.
• The missed nomination was rectified by eventually inviting the nominated contractor to tender, but that tender did not meet the landlord's requirements and was properly rejected.
• The landlord went beyond the statutory requirements by obtaining additional quotes and consulting with tenants.
• No application for dispensation was made because the landlord complied with consultation requirements, as found by the FTT.
• The management fees are recoverable under the lease as they relate to the property's management and include necessary company accounting, given the landlord's sole asset is the property.
• The nominated contractor lacked assets and was dissolved, undermining the appellants' position.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Daejan Investments Limited v Benson [2013] UKSC 14	Clarification of the purpose of sections 19 to 20ZA of the Landlord and Tenant Act 1985, emphasizing tenant protection from unreasonable service charges and defective services.	The court relied on this precedent to interpret the consultation requirements strictly and to reject the FTT's apparent flexible approach.
Wilson v Lesley Place (RTM) Company Limited [2010] UKUT 342 (LC)	Leaseholders are not liable for costs of running a Right to Manage (RTM) company under similar lease covenants.	The court applied this principle to find that the appellants were not liable for management fees related to running the landlord company.

Court's Reasoning and Analysis

The court emphasized that the consultation requirements under the Consultation Regulations are strict and sequential, leaving no room for flexible interpretation or substantial compliance. The landlord failed to comply because it did not seek an estimate from the tenant's nominated contractor before issuing the notice of estimates, which is a clear procedural breach. Furthermore, the landlord was obliged to include the nominee's estimate in the consultation notice regardless of perceived shortcomings in the estimate.

The court found that the FTT erred by considering the absence of prejudice to the tenants as relevant in the absence of a dispensation application under section 20ZA, which was not made. The FTT's finding that there was no breach was not supported by the evidence, and its reliance on the landlord's "best efforts" was incompatible with the clear statutory requirements.

Regarding the management fees, the court analyzed the lease covenants and concluded that the charges for running the landlord company do not fall within the tenants' obligations under the lease. The relevant clauses cover expenses related to the property and managing agents, accountants, and auditors in respect of the property, but not the landlord company's management costs.

Holding and Implications

The appeal was succeeded on all grounds.

The court set aside the FTT's decision that the full cost of the external works was payable. Instead, in the absence of a dispensation application, the tenants' liability for the external works is limited to £250 each as prescribed by the statutory consultation regime.

The court also held that the appellants are not liable for the managing agents' fees charged for running the landlord as a limited company. These sums are not payable under the terms of the lease.

No broader precedent was established beyond the direct effect on the parties, but the decision reinforces the strict and sequential nature of consultation requirements and clarifies limits on recoverable management charges under typical lease covenants.