A recent Upper Tribunal decision provides guidance on the application of the Building Safety Act 2022 to recoverable service charges, relating to applications to dispense with section 20 consultation procedure for urgent major works.

Major works consultations, and applications for dispensation

The general position is that when a freeholder landlord proposes to undertake works to their property that are going to cost any one of their contributing leaseholders more than £250, they must follow the consultation procedure pursuant to section 20 of the Landlord and Tenant Act 1985 (“the LTA 1985”). This requires landlords to consult with their leaseholders to give them an opportunity to negotiate quotes and providers for the works, and to raise any objections. This process has three stages, each with a minimum 30-day timeline, so there is at least a 3-month wait before any work can commence on the proposed works.

As is often the case in property law, however, there is an exception. Where these works are urgent, usually for reasons relating to safety of the occupiers, the landlord can apply to the First-tier Tribunal (the “FtT”) for a dispensation order to dispose with the need for these formalities. As of recently, these urgent works may be pursuant to the Building Safety Act 2022 (“the BSA 2022”)

The case of Adriatic Land v Hippersley Point, and the decisions at First-tier Tribunal

In in Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point [2023] UKUT 271 (LC), the Landlord applied to the FtT to do precisely this, as urgent work to fix safety defects were required at the building, Hippersley Point. Unconditional dispensation was granted, but with the proviso, by way of a section 20C order, that the Landlord could not recover of the costs of the application from the service charges. The Landlord applied for a review of the section 20C order. The section 20C order was revoked, but the FtT made a decision which effectively had the same outcome. The FtT instead made a costs order, making the dispensation conditional on the Landlord not being able to recover the costs of the application from qualifying leaseholders through service charges.

Appeal in the Upper Tribunal, considering the Building Safety Act 2022

The Landlord appealed the decision in the Upper Tribunal (“the UT”), and it was here that the following issues were addressed:

• Whether the FtT had the procedural scope to impose a costs condition relating to the service charges; and
• Paragraph 9 of Schedule 8 to the BSA 2022 which, admittedly, had only come into force a few days before the reviewed decision. It states that “no service charge is payable under a qualifying lease in respect of legal or other professional services relating to the liability … of any person incurred as a result of a relevant defect". Sub-paragraph (2) qualifies that legal advice and proceedings before a court or tribunal are included under this definition of services.

Decisions and key points

Firstly, the UT held that the FtT had erred in law when making the costs order, meaning it made a mistake in its interpretation of the law – neither party had actively sought the costs condition and thus had not made submissions on this point. It was found to be beyond the scope of the FtT to impose the costs condition.

Secondly, the reviewed decision also raised the point that the effect of paragraph 9 of Schedule 8 is that any service charge costs incurred and falling payable before 28 June 2022 are not payable after this date by qualifying leaseholders. It is not retrospective, but rather a cut-off point was imposed, regardless of when the costs were incurred or when the service charges became payable. Therefore, leaseholders who were diligent and paid their service charges before 28 June 2022 would have paid these costs, but those who were late and did not pay by this date, benefit from the protection imposed by paragraph 9 and are not required to pay legal costs.

This provision in the BSA 2022 also more generally protects the position of leaseholders that in the event that the landlord brings a dispensation application relating to building safety works required under the BSA 2022, the leaseholders will not be liable for the costs of doing so.

The reviewed decision also confirms the position on the application of paragraph 9: all unpaid service charge costs relating to work done pursuant to the BSA 2022 were no longer due from qualifying leaseholders on 28 June 2022, meaning potentially millions of pounds worth of service charges have been written off overnight.

This new position on non-recoverable legal costs from service charges post-28 June 2022 is certainly something for landlords to bear in mind when completing urgent works to a property.