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This week we report on a case concerning the requirements for a valid notice and we look at the Upper Tribunal's decision on the reasonableness of waking watch costs in a service charge dispute, Assethold v Adam. All this and more with our usual round up of insights from around the firm, positive news and the quiz.

Not all mistakes can be corrected - OG Thomas Amaethyddiaeth Cyf v Turner [2022]

Mr Thomas occupied land at Pentre Canol, Dyffryn Ardudwy, Gwynedd through an oral agricultural tenancy granted to him by a Mr Morris. He incorporated the Appellant company in 2019, and was its sole director, shareholder and secretary. Its registered office was his home address. In November 2019 he assigned the benefit of the tenancy to the company and did not tell the landlord. There was no statutory obligation to give notice of assignment and no restrictions existed under the oral tenancy, there was therefore no obligation on Mr Thomas or the company to tell the landlord.

The landlord's interest passed to a successor and then to her estate, to Mr Owen as her executor. Mr Owen served a notice to quit the tenancy by recorded delivery, addressed to Mr Thomas, and sent to Mr Thomas' home address. Neither Mr Thomas nor the Company served a counter-notice to oppose the termination of the tenancy.

The question before the Court of Appeal was whether the notice to quit was effective despite not having been addressed to the Company (and rather to Mr Thomas, as Mr Owen was not aware of the assignment). The Agricultural Holdings Act 1986 does not require notices to quit to be in any particular form, and a tenant is only required to serve a counter-notice if a notice to quit is "given to the tenant".

The first instance decision in favour of the landlord applied the well-known case of Mannai Investments, deciding that the only critical requirement was that the notice conveyed to the tenant "an instruction to quit the premises the subject matter of the lease". Because the notice to quit correctly identified the lease and the land, and because the landlord was unaware of the assignment, Zacaroli J had held that the reasonable recipient of the notice would have had no doubt that the notice was to convey an intention to require the person who was in fact the tenant, i.e. the company, to deliver up possession of the land.

The Court of Appeal allowed the appeal, noting that the question that was considered critical by Zacaroli J was not the only question requiring consideration. The question that should have been considered was whether the notice was "given to the tenant" in accordance with the legislation and, in the circumstances, it had not been. The Court held that the notice had not been addressed to and therefore notice was not given to the actual tenant of the land, it having been addressed to Mr Thomas and not the Company. In allowing the appeal, Lord Justice Lewison said he reached the conclusion "with some reluctance" because the landlord "fell into a trap wittingly or unwittingly created by the tenant". However, he further noted the first instance decision which would "rescue" the landlord from that trap would be inconsistent with case law and principle.

The case demonstrates the risks associated with oral tenancies and that whilst Mannai could rescue misspelling of the recipient's name, it cannot rescue a notice which identifies the wrong recipient. It highlights the importance of checking where possible who the current tenant is before serving a notice to quit.
Service charges and reasonableness - Assethold Limited v Adam and Ors [2022]

The Upper Tribunal has considered the test to be applied in determining whether a cost, reflected in a service charge demanded from leaseholders, had been reasonably incurred as required by section 19(1) of the Landlord and Tenant Act 1985 which provides “(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period— (a) only to the extent that they are reasonably incurred, and (b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard; and the amount payable shall be limited accordingly.”

There had been a number of prior building survey reports which had concluded deficiencies in the building in question did not present a significant fire risk. However, a further report commissioned by the landlord in 2021 concluded there was an intolerable fire risk. This recommended remedial works be carried out at the nearest opportunity and, until then, interim measures should be put in place, including a waking watch. Following this advice, the landlord implemented a waking watch and sought to recover the cost through service charges.

In response the leaseholders commissioned their own report which considered the fire risk to be low with no requirement for a waking watch. They argued the costs were unnecessary because the landlord's report gave the wrong advice. In the first instance, the FTT had concluded that this report had dramatically overstated the risk of fire and was wrong in its conclusions and therefore held the charges were not reasonably required pursuant to section 19. The landlord appealed.

The UTT gave guidance on the test of whether costs were reasonably incurred under section 19(1), noting the landlord must not only have a reasonable decision-making process but must also adopt a reasonable course of action to achieve a reasonable outcome. There may be more than one such course of action; the court or Tribunal is not to impose its own decision as to what should have been done, but even where the landlord followed a rational decision-making process, if the outcome of that process is not reasonable then the cost will not have been reasonably incurred.

Applying that test, the UTT held that having received a report from a reputable company, signed by three professionals, saying the fire risk was intolerable, it was rational for the landlord to implement the waking watch and whilst the report was wrong, that was only known through the benefit of hindsight. The tribunal has to consider whether the expenditure was reasonable in the circumstances and on the basis of the information available when the cost was incurred. They held that implementing an interim safety measure in response to a report that said the fire risk was “intolerable” cannot be said to have been irrational or unreasonable on the information then available.

A helpful reminder for landlords to continually assess their actions through the lens of reasonableness and to interrogate expert findings, seeking a second opinion where appropriate.
Positive news

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Insights from around the firm

Podcast: ESG Perspectives - A conversation with Permodalan Nasional Berhad

Recorded in August 2022, Elias Moubarak and Nicol Ong spoke to Muazzam Bin Mohamad, Head of Investment Stewardship and Norazha Ismail, former Head of Sustainability at Permodalan Nasional Berhad (PNB) about PNB's ESG journey. Muazzam and Norazha also provide insight on how the ESG and sustainability ecosystem in Malaysia is developing as well as the challenges organisations can face when looking to implement ESG targets.

Social Housing (Regulation) Bill – amendments

The Social Housing (Regulation) Bill has been making its way through the various readings in the House of Lords. On 31st October, the Bill received its 3rd reading, being the final stage in the House of Lords. The Bill is now to be considered by the House of Commons before it receives Royal Assent.

IR35 is no longer being repealed

The October edition of hrlaw@trowers reported that IR35 was going to be repealed in April 2023. Since then we have a new Prime Minister and a new Chancellor of the Exchequer, and the government has announced that this repeal will no longer go ahead.