The Estate comprises five low-rise blocks, built in the 1950s and containing, in total, about 180 flats.

About a quarter of those flats were held on long leases as a result of the exercise of the right to buy. The remainder were occupied under the terms of secure, periodic tenancies.

Hot water and heating were supplied through a communal four-boiler system, although some of the long lessees had taken the plunge and installed their own individual hot water and heating systems in their flats.

The long leases required the landlord to provide hot water and heating to the flats between October and April.

The lessees were obliged to contribute, by way of service charge, towards “the cost of periodically inspecting maintaining overhauling repairing and where necessary replacing the whole of the heating and domestic hot water systems and gas electricity and water pipes and cables serving the block”.

The secure, periodic tenants had no such obligation.

In 2008, Camden followed the appropriate consultation procedure for the appointment of a contractor under a qualifying long term agreement (a “QLTA”) to carry out building repairs and renewals to its housing stock.

In November 2011, boiler 3 broke down.

In December 2011, just a few days after boiler 3 was repaired, boilers 1 and 2 broke down. Camden asked for quotations for replacing those two boilers from three contractors.

All three replied. One contractor, G & D Higgins, emailed to say that if Camden were able to place an order for the replacement of all four boilers, with the work taking place within two to three months, it would depress its prices. It was going through a quiet period and wanted to keep its workforce busy.

In January 2012, boiler 3 was in trouble again.

On 06 January 2012, Camden placed an order with G&D Higgins for the replacement of one boiler.

Ten days later, it placed another order for another boiler from G&D Higgins.

Just over three weeks after that, on 09 February 2012, it ordered a third boiler from G&D Higgins.

At the same time:

• It hired some temporary boilers – costing £1,522.80 per week;
• It hired some flexible hose at £78 per week, and
• Arranged for delivery and installation of the temporary appliances at a cost of £2,154.

On 13 February, Camden ordered a fourth boiler from G&D Higgins. All four boilers were priced at the reduced rate that had been offered in order to keep the G&D Higgins workforce busy.

There was then a delay because two mains pipes burst, but by 16 April 2012, all four new boilers were either working or were ready for commissioning.

Rather oddly, after buying all those new boilers in February 2012, in March 2012, Camden arranged for a report entitled “Options appraisal of heating and DHW [domestic hot water] supplies at Harben Road Estate”.

The report found that improvements to the “internal heating provision of each [flat]” were urgently needed, and considered the five options for heating and hot water to the estate:

1) Carry out only essential repairs. This was rejected on the basis that the whole system needed replacing;

2) Replace distribution mains, pumps, boilerhouse equipment and “dwelling internals”. The capital cost would be £2,584,000, costing each lessee £14,000 by way of service charge;

3) Same as option 2 but with new meters, which would, with option 5, give joint best environmental performance;

4) Remove the communal system and replace it with individual gas fired condensing boilers in each flat. The capital cost here would be £1,235,000, resulting in a £6,700 service charge to each lessee;

5) Same as option 4 but to replace the communal system with electric heating and hot water.

The report rejected option 4, even though it was the cheapest option, for the following reasons:

• Annual servicing obligations would fall on Camden, and would become more costly over a thirty year period;
• The occupiers of the flats (both periodic tenants and long lessees) would be obliged to buy their own fuel. That represented a £120 per year cost for which the occupiers of the flats would be liable.

The report recommended that option 2 be pursued, primarily because it would allow Camden to protect its periodic tenants from fuel poverty.

On 15 July 2013, Camden gave the lessees notice that the cost of works to replace three of the boilers and two sections of hot water pipes had been incurred between 14 March and 27 November 2012.

The notice stated that the works cost £246,707.15 and gave each lessee an estimate of the proportion of that cost that would be attributed to his/her service charge, provided that the FTT dispensed with the requirement to consult for those costs.

In November 2013, Camden sent another letter to the lessees. It:

• Set out the cost of repairing and replacing the boilers;
• Noted that Camden was in the process of reviewing options with lessees for the heating system on the Estate;
• Informed the lessees that no bills would be issued until the consultation process was complete;
• Stated that if individual heating systems were installed, a view would be taken as to which elements of those systems would be charged to the lessees, and
• Invited the lessees to withhold payment for the “heating emergency repair works” until the outcome of Camden’s application for dispensation from the requirement to consult had been determined.

At the end of January 2015, Camden considered that it was still engaged in its consultation process with the lessees.

By March 2015, Camden had spent a further £400,000 on works to the heating system in addition to the cost of the repairs and replacement of the boilers.

Those costs were not however included in the dispensation application, which focused solely on the repairs, replacements and boiler hire between November 2011 and April 2012, and which were said to have been urgent works.

Section 20 of the Landlord and Tenant Act 1985 requires a landlord to follow a prescribed consultation process if the cost of the works will result in a service charge contribution of more than £250 per long lessee.

The cost of Camden’s repair and replacement boiler works resulted in a service charge exceeding £250 per long lessee.

Camden failed to follow the consultation process required of it and contained in Schedule 3 to the Service Charges (Consultation Requirements) (England) Regulations 2003/1987.

It therefore applied under section 20ZA of the Landlord and Tenant Act 1985 for dispensation from the obligation to consult.

The FTT initially opted to determine the application on the papers, but the lessees requested an oral hearing.

At that hearing, it transpired that neither party was equipped to deal with the issues, and in particular, the question of prejudice, raised in Daejan Investments Ltd v Benson [2013] UKSC 14, the leading case on dispensation.

When the Tribunal gave them copies of Daejan, the lessees asked for an adjournment, so that they could obtain legal representation.

“When the observations of Lord Neuberger in Daejan as to the landlord’s probable obligation to pay the tenants’ reasonable costs of opposing the application were drawn to her attention [Camden’s representative] very properly accepted the Tribunal’s suggestion that the landlord should bear the [long lessees’] reasonable costs of legal representation…”, said Lady Wilson, the Tribunal judge. 

The hearing was therefore adjourned.

Here are the Benson principles, summarised by Lady Wilson in the FTT’s decision:

• The jurisdiction of the Tribunal to dispense with the consultation requirements is unfettered beyond what can be gathered from the Act;
• Since the purpose of the consultation requirements is to ensure that tenants are protected from paying for inappropriate works or paying more than would be appropriate, the question on which the Tribunal should focus is the extent, if any, to which the tenants were prejudiced in either respect by the landlord’s failure to comply with the requirements;
• The Tribunal has power to grant dispensation on appropriate conditions;
• The correct approach to prejudice to the tenants requires the Tribunal to bear in mind in particular:
  • The only disadvantage of which the tenants can complain is one which they would not have suffered if the requirements had been complied with but which they will suffer if an unconditional dispensation were granted;
  • While the legal burden is on the landlord, the factual burden of identifying some relevant prejudice is on the tenants, who will have to identify what they would have said if they had been consulted; but, given that the landlord will have failed to comply with the consultation requirements, the landlord can “scarcely complain” if the Tribunal views the tenants’ arguments sympathetically, and, once the tenants have shown a credible case for prejudice, it is for the landlord to rebut it.

The FTT was not backward in expressing its view as to Camden’s approach to the application: “This case”, it said, “has in our view not been taken sufficiently seriously by the landlord, and … the preparation of its case has been lamentable”.

Camden’s Mechanical Services Manager gave evidence, although it appeared that he had not been directly involved in the boiler repair and replacement process.

Mr Yu, one of the lessees, gave evidence for the lessees. He adopted his statement of case. His position was that:

• The lessees did not object to dispensation being granted for genuinely urgent works such as mending broken pipes and hiring a temporary boiler, and
• If he had been consulted, he would have favoured individual systems because they were cheaper to run.

Formalism

Camden’s initial submission was that the lessees had produced no evidence verified by a statement of truth.

’Twas true that the lessees had not prepared any witness statements, but they had prepared lengthy statements of their case.

The Tribunal rejected that submission as being overly formalistic: “It is frequently the case that statements of case stand as witness statements for the purpose of Tribunal hearings, which are supposed to be relatively informal”.

The first practical difficulty that the FTT identified was lack of knowledge:

“Many tenants, and indeed some landlords, are not aware of the decision in Daejan, and, if they have heard of it, they do not necessarily fully understand its implications”.

This is particularly relevant in dispensation cases, because in Daejan, Lord Neuberger made it clear that the FTT has the power to order that the landlord pays the costs that the lessee has incurred in relation to the dispensation application. Lessees often discover this too late – for example at the hearing of the application itself – for it to be useful and effective.

“In order to obtain the full advantages of professional representation, tenants are likely to need to be represented well in advance of the hearing so that they may obtain the disclosure and require the evidence that they need in order to establish that they have been prejudiced”, observed Lady Wilson.

In her view, there was a second, equally practical obstacle:

• It is not a given that the landlord will be required by the FTT to pay a lessee’s costs relating to a dispensation application;
• The Tribunal might only determine the landlord’s liability to pay the lessee’s costs at the hearing of the dispensation application itself. By then the legal costs would either have been incurred, or it would be too late to arrange for proper representation;
• Many lessees will not be in a position to pay those costs from his/her own pocket;
• Few organisations, lawyers and surveyors included, are prepared to carry out work without the comfort of knowing that they will be paid.

“It follows”, concluded Lady Wilson, “that the availability to tenants of legal or other professional representation for the preparation or conduct of the landlord’s application for dispensation is not as great an advantage as might appear. It many cases it will be illusory”.

Not altogether uplifting stuff.

Prejudice, in the view of the FTT, need not be only financial.

Section 20ZA, the section which allows for dispensation with the consultation requirements, confers a very wide discretion on courts and tribunals. To limit the prejudice to purely financial prejudice would be to unduly fetter the exercise of that discretion.

The FTT derived support for that proposition from Lord Neuberger’s judgment in Daejan at paragraph 67:

“Given that the landlord will have failed to comply with the Requirements, the landlord can scarcely complain if the [Tribunal] views the tenants’ arguments sympathetically, for instance by resolving in their favour any doubts as to whether the works would have cost less (or, for instance, that some of the works would not have been carried out or would have been carried out in a different way)…

“[I]f the tenants show that, because of the landlord’s non-compliance with the Requirements, they were unable to make a reasonable point, which, if adopted, would have been likely to have reduced the costs of the work or to have resulted in some other advantage, the [Tribunal] would be likely to proceed on the assumption that the point would have been accepted by the landlord”.

The Tribunal gave a helpful example: in this case, the lessees may have argued, had they been properly consulted, that individual heating systems would have accrued advantages such as being able to:

• Switch their heating on earlier (or later) in the year;
• Arrange for repairs more quickly than repairs to a communal system would have been carried out.

As it was however, the Tribunal considered that, in fact in this case, the only prejudice supported by evidence was financial.

Until I looked it up, “egregious” for me was a synonym for “contumelious”. I was utterly ignorant of the meaning of either word before I came to the Bar.

“Egregious” does not mean “scornful and insulting; insolent” (which is the meaning of “contumelious”) – it means “outstandingly bad; shocking”.

In Daejan, Lord Neuberger held that the more egregious a landlord’s breach of the consultation regulations, the more likely a Tribunal would be to find that the lessee had suffered prejudice.

Did Camden’s failure to consult constitute an “egregious” breach of the consultation regulations? The FTT answered in one word:

“Yes”.

Good practice

The FTT considered that, even in cases of emergency, it is good practice to comply with the consultation regulations so far as the circumstances allow.

This was a reflection of Lord Neuberger’s observations in Dajaen that dispensation in some cases may be granted on terms that the normal time frames for consultation be guillotined – for example:

• The thirty day period for making observations might be limited to five; or
• The landlord may be required to convene a lessees’ meeting to explain what had happened, the reason for the urgency of the works, and the proposals for those works.

In this case, the Tribunal determined that Camden could have convened a meeting, or sent out notices of intention in the four days between 15 December 2011, when Camden discovered that two boilers had broken down, and 19 December 2011, when it sought quotations for replacement boilers.

It could then have asked the lessees for their observations before ordering the new boilers from G&D Higgins on 05 or 06 January 2012.

Better than that however:

• Camden could have arranged for temporary boilers to assure the supply of heating and hot water at a relatively modest cost of £550 per week;
• It could then have consulted under Schedule 3 to the Consultation Regulations. Schedule 3 contains the least time-consuming of the consultation procedures and could have been complete within four to five weeks.

Urgency

Camden’s application was based on the urgent need to restore the heating and hot water supply when it failed in November and December 2011.

The Tribunal accepted that the service needed to be restored as soon as possible. It determined however that the service could have been restored by repairing the pipes which had cracked and by hiring a temporary boiler for the duration of the consultation process.

The failure to consult was not the result of the urgency of the works. Instead, it was the consequence of either:

• A decision to ignore the consultation regulations;
• Ignorance of the regulations, or
• “Enthusiasm for G&D Higgins’s “special offer” in January 2012”.

None of the above were viable grounds for failing to follow the appropriate consultation procedure.

Delay

Camden’s delay in applying to the FTT for dispensation fed into the egregiousness of its failings.

The years that had passed between the carrying out of the work and the application for dispensation had, in the Tribunal’s view, undoubtedly contributed towards the paucity of evidence submitted by Camden, and had made the lessees’ task all the more difficult too.

That delay, said Lady Wilson, had “increased the prejudice that they have suffered … because witnesses whom the tenants might have wished to cross-examine are not longer available and … tenants who might have wished to take an active part in opposing the application may have sold their flats or lost interest”.

“We have concluded,” observed Lady Wilson, “that the landlord’s breach of the Consultation Regulations was egregious. It is not our function, however, to punish the landlord… we must apply the law, and must seek to assess such prejudice as the tenants may have suffered by the landlord’s failure and to reflect it in our decision. That is not an easy task”.

Tea and sympathy

Lady Wilson turned again to Lord Neuberger’s judgment in Daejan. He said:

“Given that the landlord will have failed to comply with the Requirements, the landlord can scarcely complain if the [Tribunal] views the tenants’ arguments sympathetically, for instance by resolving in their favour any doubts as to whether the works would have cost less (or, for instance, have been carried out in a different way) if the tenants had been given a proper opportunity to make their points…

“If the tenants show that, because of the landlord’s non-compliance with the Requirements, they were unable to make a reasonable point which, if adopted, would have been likely to have reduced the costs of the works or to have resulted in some other advantage, the [Tribunal] would be likely to proceed on the assumption that the point would have been accepted by the landlord”.

Applying this to the case before her, Lady Wilson said:

“We regard ourselves as entitled, indeed obliged, to view the tenants’ arguments particularly “sympathetically” which, we think, must mean more than merely feeling sorry for them”.

The lessees’ position

The Tribunal noted and accepted the lessees’ case that, had Camden consulted, they would have asked it to install individual heating and hot water systems.

As to the amount by which they had suffered prejudice, the lessees relied on the options appraisal which had been carried out for Camden in March 2012, which evidenced a significant difference in price between communal and individual heating systems.

“In our view,” continued Lady Wilson, “that would have been “a reasonable point which, if adopted, would have been likely to have reduced the costs of the works or would have resulted in some other advantage” to the tenants, as envisaged by Lord Neuberger.

“So the question arises whether we should “proceed on the assumption that the point would have been accepted by the landlord” and assume that the costs of replacing all the boilers were wasted”.

Again, a one word answer:

“No”.

The Camden conundrum

The Harben Road Estate was not a single tenure Estate. Three quarters of the Estate were occupied by periodic, weekly tenants. Their interests and means were likely to differ from those of the long lessees who had acquired their flats under the Right to Buy legislation.

This was not therefore simply a case of opting for the solution which was most cost effective, as would potentially be the case in a building containing only long lessees.

Camden, as a social landlord, had other responsibilities towards its periodic tenants – for example, the options appraisal had recommended a communal system to as to protect periodic tenants from fuel poverty. Taking that consideration into account, the FTT held that it would in all fairness not be unreasonable for Camden to decide to install a communal heating system as opposed to individual ones.

“It is not obvious, therefore, that we should “proceed on the assumption that the [tenants’] point would have been accepted by the landlord”, observed Lady Wilson.

Wait and see?

The difficulty that the Tribunal faced was that Camden had not yet decided which of the options it was going to pursue.

It could therefore turn out that when Camden did decide, any conditions on which dispensation had been granted might present the lessees with either a windfall or a liability to pay for wasted works.

The Tribunal was not minded to wait for Camden’s decision, nor was it minded to refuse dispensation, or to grant dispensation on the sole condition that Camden paid the lessees’ costs.

“… The most reasonable solution,” it said, “is to limit the costs which the tenants must pay in respect of the works which are the subject of the application by attaching to the grant of dispensation a condition limiting the costs to which they are required to contribute”.

It was time to home in on the numbers.

“A rough estimate is all we can make in this case, and, we think, in many dispensation cases where it is appropriate to grant dispensation on conditions, because it will rarely, if ever, be the case that it can be demonstrated that a precise figure has been over-spent because of a failure to observe the correct consultation process”. So ran the FTT’s caveat to its calculation, which I set out below:

• £246,707.15 was the cost of the work in respect of which the dispensation application was made.
• £34,188.43 was the cost of repairing pipe leaks.
• £1,000 was, broadly, the cost of hiring temporary boilers per week, inclusive of delivery and installation. The parties had widely differing evidence as to the cost of hire. The lessees had a quotation for £550 per week. Camden had actually paid £1,600.

The Tribunal was confident that, no matter what, Camden would have incurred the costs of the temporary boiler hire, delivery and connection costs, although it was however impossible to say how long the hire would have lasted.

Doing, as the time-honoured phrase has it, the best it could, the Tribunal allowed for twenty six weeks of boiler hire, to give time for Camden to have consulted and decided which of the five options it wanted to pursue, and reached the following conclusion:

“Bearing in mind our duty to regard the tenants’ arguments sympathetically, in the extremely difficult exercise of our discretion mandated by Daejan, we have concluded that dispensation from compliance with the Consultation Regulations should be granted on condition that the tenants’ contribution to the works which are the subject of the application should not exceed £60,000 in all, divisible between the tenants in the proportions specified in their leases”.

£60,000 was the round figure total of adding the pipe repair cost to six months of temporary boiler hire, ie £34,188.43+£26,000.

That limitation did not take into account the costs which the lessees had incurred in relation to the application.

Lady Wilson finished with a reminder. The decision is not a determination “that the sum of £60,000 was necessarily reasonably incurred. That is a matter which may have to be considered later, if and when an application is made to determine the reasonable costs of all the works carried out in connection with the communal system”.

Click here for a printer-friendly version of this post.