Conditions to dispensation need to be relevant!
In Holding & Management (Solitaire) Ltd v Leaseholders of Sovereign View, the Upper Tribunal (Lands Chamber) has overturned the First Tier Tribunal's imposition of conditions attached to dispensation from consultation for fire alarm works undertaken by a landlord on the basis of irrelevance.
Background
The case concerned Sovereign View, a Thames riverside gated development of 174 flats and houses.
Holding & Management (Solitaire) Ltd, the landlord, commissioned a fire risk assessment of the estate in June 2020. The report raised concerns about fire stopping and recommended that a further survey be undertaken within three months.
The further survey was undertaken about a year later, which reported inadequate fire stopping in the risers and loft spaces. The recommendation was to either (i) put a waking watch in place with immediate effect or (ii) install simple battery linked smoke detectors in each flat, followed by the installation of a fire alarm system across the estate. In response to this assessment, the landlord arranged for a waking watch service (costing £10,000 / week – paid for by the service charge reserve fund). Subsequently, the landlord obtained three tenders for the installation of a fire alarm system.
Whilst the section 20 consultation requirements did not apply to the waking watch, they did apply to the installation of a fire alarm system. The landlord began the consultation process on 2 August 2021 by issuing the initial section 20 notices to the leaseholders of Sovereign View, but the consultation process stopped there. On 20 August 2021, without completing its consultation, the landlord accepted the cheapest of the three tenders, and explained on a zoom meeting with leaseholders that it intended to apply to the FTT for dispensation, on grounds that installation of the fire alarm system had to be done urgently in order to bring the significant costs incurred on the waking watch service to an end.
Upon review, the FTT decided to grant the landlord dispensation but on two conditions:
- The landlord was to pay for the waking watch service; and
- The landlord was unable to recover its legal costs in making the application for dispensation by way of service charge.
The landlord appealed to the Upper Tribunal on the following grounds:
- Applying the test in Daejan Investments Limited v Benson, the cost of the waking watch service was not a result of the failure to consult, and was not therefore a "relevant prejudice"; and
- It was in the leaseholders' interests for it to apply for dispensation, and the costs of doing so were incurred for their benefit.
The Upper Tribunal's decision
The Upper Tribunal found the FTT's decision conceptually flawed, and therefore allowed the landlord's appeal. The two conditions were set aside, and the dispensation was made unconditional.
The Upper Tribunal clarified the position in Daejan, being:
- The section 20 consultation requirements can be dispensed with if there is no relevant prejudice to the leaseholders;
- Relevant prejudice is to be interpreted as prejudice that arose because of the lack of consultation, and not for any other reasons;
- The FTT can only impose conditions on dispensation if they are relevant (ie. conditions that would actually address the relevant prejudice to the leaseholders); and
- In considering an application for dispensation, it is not the role of the FTT to penalise the landlord for other aspects of its conduct.
The Upper Tribunal set aside the waking watch condition for the following reasons:
- Any arguments as to the necessity of the waking watch service, whilst relevant to any challenge made by leaseholders on the question of reasonableness, are irrelevant to the FTT's consideration of the application for dispensation;
- The delay in obtaining the second fire risk assessment is also irrelevant, because the issue for the FTT to consider was whether the leaseholders suffered "relevant prejudice" as a result of the landlord's failure to consult about the fire alarm; and
- The FTT's imposition of this condition was (unjustly) punishing the landlord for failing to observe the section 20 consultation process, in respect of a service for which there was no obligation to consult.
Similarly, the Upper Tribunal also set aside the costs condition. It held that the leaseholders did not suffer any relevant prejudice from the absence of consultation, observing: "It was clearly sensible and in everyone's interests to get the fire alarm system installed; in that sense this was not a petition for an indulgence but a matter of practical importance for all concerned."
Conclusion
The Upper Tribunal's decision serves as a reminder that there is no principle requiring conditions to be imposed as a term of the grant of dispensation, and an illustration that any conditions must be relevant and appropriate. Consideration should be given to opposing conditions, where no relevant prejudice to leaseholders has been established as flowing from the failure to consult.
