Out-Law News 3 min. read
25 Jul 2013, 2:25 pm
Nicola Buchanan of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the court found that consultation requirements under the Landlord and Tenant Act (LTA) did not apply where there were no existing tenancies at the time a qualifying long-term agreement (QLTA) was entered into.
A QLTA is an agreement entered into by, or on behalf of, a landlord which lasts for more than 12 months under which a tenant would be obliged to pay service charges. Under the LTA, where the amount payable by a residential tenant in service charges under a QLTA will exceed £100 in any one year, the landlord must consult with the tenants or get permission not to do so from the Property Chamber, formerly the Leasehold Valuation Tribunal. If the landlord does not comply with these requirements, it will only be able to recover the statutory cap of £100 per tenant per year.
"This is a ground-breaking decision and great news for developers of new schemes who want to put in place, at the outset, long term arrangements concerning the future service provision and management of their schemes," Buchanan said.
"Until now, it had been thought that unless dispensation was secured from the Property Chamber, the longest fixed term arrangement that could be put in place on a new scheme, to which the statutory cap would not apply, was five years. As a result, the case sanctions developers entering into agreements longer than five years without having to incur the delay, administrative burden and cost associated with seeking dispensation: the key is entering into those arrangements before any flats are sold," she said.
Although tenants would still have other rights of challenge under the LTA, such as the ability to challenge the reasonableness of any charge, the case was another demonstration of "the changing tide in favour of landlords", she said.
"Because the overall effect of this decision is to give a green light to a mechanism by which developers can easily avoid consultation requirements, there is a risk that a superior court may take a different view," she warned. South Anglia Housing Ltd has not said whether or not it will appeal the ruling.
The landlord in the case, BDW Trading, had asked the court to confirm the status of a 25 year agreement to provide heat and power to its development at Comet Square, Hertfordshire, which included 267 residential properties. No leases had been granted at the time of the agreement. When the leases were then granted the tenants were obliged to pay a proportion of the costs as part of a service charge.
In his ruling, Deputy Judge Neil Strauss QC said that the reference in the legislation to a "landlord" indicated that there had to be an existing tenancy. It would not be a "sensible construction" of the rules to require an owner of land or buildings to consult when there was nobody with whom to consult, he said.
"The section does not say that 'the landlord' is someone who may in the future become a landlord, and there is no proper basis for stretching its meaning," he said.
Separate regulations governing service charges which had been passed under the LTA did assume a broader meaning, the judge said. However, those regulations appeared to have been "drafted without much attention to the statutory provisions and therefore carry no weight or conviction as evidence of the legislative intention", he said.
The Service Charges (Consultation Requirements) Regulations allow developers to avoid the consultation requirements if an agreement which would otherwise be a QLTA is for no longer than five years and there are not yet any tenants in the premises to which the agreement relates.
"It seems inconceivable, if the draftsman of the legislation considered the question of agreements entered into when the property was not yet built, or not yet let, and it was intended to apply to such agreements, that he would not have so provided in clear terms," he said.
"Where, as here, there is really little doubt as to the meaning of the Act, and considerable stretching of the language required to produce an ambiguity, the Regulations and any other admissible documents are likely to be of very little weight," he said.
"In the present case, the consultation [on the regulations] strong suggests that their draftsman did not focus on this issue at all, but simply assumed that the Act applied to long term agreements entered into when no part of the building was let, without applying his mind to whether this was so," he said.
