Pre-Construction Consultation and the Futility of Dispensation

"Alice laughed: 'There's no use trying,' she said; 'one can't believe impossible things.'"

"'I daresay you haven't had much practice,' said the Queen. 'When I was younger, I always did it for half an hour a day. Why, sometimes I've believed as many as six impossible things before breakfast.'"

Introduction

Generally, any landlord who wishes to enter into a qualifying long term agreement (QLTA"), viz. an agreement for a term of more than 12 months (subject to certain exceptions) as a result of which any tenant will pay a service charge of more than £100 ("the appropriate amount") for the relevant service charge period, must either consult in accordance with the Service Charges (Consultation Requirements) (England) Regulations 2003 (SI 2003/1987) ("the Regulations") or obtain a dispensation from the First-Tier Tribunal (Property Chamber) ("PC"). Failure to consult will result in the relevant service charge being capped at the appropriate amount.

The facts

In BDW Trading Limited and anor v South Anglia Housing Ltd [2013] EWHC 2169 (Ch), BDW and Utilicom Ltd entered into an agreement for a term of 25 years.  Utilicom would be the sole supplier of hot water and electricity to a development built by BDW. BDW would recover the costs from its lessees, although at the time of signing there weren't any.

The issues

The Court considered:

1. whether the consultation requirements in section 20 of the Landord and Tenant Act 1985 ("the Act") apply to a QLTA to be entered into in relation to buildings which are not let at the time of the agreement; and, if so
    
2. given there were no consultees so that consultation would be impossible, whether the owner had to seek a dispensation from the PC or recoup only the appropriate amount.

The short answer

The answer to (1) was no and issue (2) fell away.

The defendant's principal arguments

The defendant argued that:

(a) the Act did not require an identifiable tenant when the agreement was executed;

(b) as the Regulations assume that it does apply to buildings not yet in existence or not yet let, the Act should be construed consistently with them so that the definition of "the landlord” in section 20ZA(2) should include future or prospective landlords and therefore the consultation requirements were engaged; and

(c) if, absent any tenants, consultation was impossible, the PC could grant dispensation.

Reasoning (a) away

The Act does not say that “the landlord” is someone who may in the future become a landlord. Despite radical changes to the Act, the definitions of “landlord”, “tenant”, “lease” and “tenancy” still bore the conventional meaning they had when enacted. The Court considered it was inconceivable, if the Act was to apply, that the draftsman of the legislation would not have so provided in clear terms.

Furthermore, it would not be a sensible construction to require a person to consult, when there was nobody with whom to consult.

The troublesome Regulations – (b) gone

Regulation 3(l)(d) assumes the Act applies to agreements entered into where there are no tenants, because it exempts agreements of five or fewer years' duration.

In principal the Regulations would be admissible as an aid to the interpretation of the Act: Hanlon v The Law Society [1981] A.C. 124, per Lord Lowry at 193G to 194C. There was, however, little doubt as to the meaning of the Act: the reference in section 20ZA(2) to “the landlord” denoted an existing tenancy.

Considerable stretching of the statutory language would be required to produce an ambiguity.

Thus, the Regulations were likely to be of little weight.  Furthermore, as they appeared to have been drafted without much attention to the statutory provisions they carried no weight or conviction as evidence of the legislative intention.

An appeal to absurdity

It was submitted that unless section 20ZA(2) applied to potential future landlords, the legislation became absurd. The consultation requirement could simply be avoided by entering into long term service agreements before letting flats.

The Court considered that prospective purchasers could enquire about the level of charges and presumably – it is not stated – choose not to enter into the lease.  Furthermore those who did sign up would still have the protection of section 19 if costs were unreasonable. These counter-arguments reduced an absurdity to a mere disadvantage!

By way of contrast, were the extended meaning to be adopted other anomolies could arise: the owner of property who has no intention of becoming a landlord, e.g. a developer who intends to sell not let, or the owner of a house who, long after making the agreement, is posted abroad and, wanting to let, finds that he has to get a dispensation.

The fictional role of the PC at (c)

In Paddington Basin Developments Limited v West End Quay Estate Management Limited [2010] EWHC 833 (Ch); [2010] 1 W.L.R. 2735,  Lewison J. stated:

41. The very fact that Parliament provided for the dispensation of the consultation requirements shows, in my judgment, that it contemplated that agreements might well fall within the definition of qualifying long term agreements even though the consultation requirements might be difficult, or even impossible to apply.
42. However, I do not consider that the fact that a landlord proposes to enter into a long term agreement with a monopolist (e.g. water company) is a reason for excluding such an agreement from the definition of qualifying long term agreements or necessarily excluding it from all the consultation requirements…”

This was of no assistance: Lewison J. did not have in mind the instant situation.  The Court was firmly of the view (relying on Daejan Investments Limited v Benson [2013] UKSC 14; [2013] 1 W.L.R. 854) that in such matters the LVT normally operates as a body hearing adversarial disputes, and there was no regulatory or procedural provision for the determination of one-sided consultation applications.

It is suggested that practitioners may continue to boggle at the description of proceedings before the PC as adversarial.

"I don't understand you," said Alice.  "It's dreadfully confusing!"