Aster Communities v Kerry Chapman & Ors

Dispensation under Section 20ZA is to be assessed by reference to whether tenants have suffered relevant prejudice from defective consultation, and tribunals may grant dispensation on such terms as are necessary to remove that prejudice. Rather than requiring each individual tenant to show they personally would have acted differently, a tribunal may address group prejudice arising where the failure to consult prevented one or more tenants from eliciting changes that would have benefited all, and may impose conditional terms including requiring the landlord to meet the cost of expert investigation or the tenants' costs.

The appellant, a social landlord, appealed from the Upper Tribunal's dismissal of its challenge to conditions imposed by the First-tier Tribunal when granting dispensation under Section 20ZA of the Landlord and Tenant Act 1985 from consultation requirements in the Service Charges (Consultation Requirements) (England) Regulations 2003. The FTT found a "credible case of relevant prejudice" arising from the omission to identify proposed wholesale replacement of balcony asphalt in consultation notices and granted dispensation subject to conditions requiring the landlord to pay for an expert surveyor nominated by tenants and to pay the tenants' costs. The Upper Tribunal dismissed the landlord's appeal and the Court of Appeal (majority) dismissed the appeal from that decision, the court considering the correct approach to prejudice, reliance by some tenants on others' likely actions, and the power to impose conditional terms.

Disposition

1. The appeal is dismissed. The FTT and Upper Tribunal were entitled to grant dispensation under Section 20ZA on terms to remedy identified prejudice.

Reasoning and key findings

1. Legal framework: Sections 18–30 and, in particular, Section 19, Section 20 and Section 20ZA govern service charges and the consultation requirements and permit a tribunal to dispense with consultation where it is reasonable to do so; the requirements are set out in part 2 of schedule 4 to the 2003 Regulations. The leading authority is Daejan Investments Ltd v Benson [2013] UKSC 14, which focuses the tribunal on whether tenants have suffered real prejudice from non-compliance and recognises power to grant dispensation on terms.
2. Focus on prejudice: The correct inquiry under Section 20ZA is the extent to which tenants were prejudiced by the landlord's non-compliance, assessed sympathetically in the tenants' favour where appropriate. If tenants establish a credible case of prejudice, the tribunal should look to the landlord to rebut it, and where prejudice is established a tribunal should, absent good reason, require the landlord to compensate for that prejudice when granting dispensation.
3. Evidential approach: The FTT was entitled to accept a tenant's sworn statement that, had the consultation included a specific item, she would have sought expert advice and challenged the works. That factual finding was within the tribunal's judgment and not vitiated by want of cross-examination where the landlord did not seek a hearing.
4. Group prejudice: A tribunal may treat the prejudice as affecting the group of tenants collectively where the failure to consult prevented a tenant (or tenants) from taking steps that would likely have resulted in a reduction in scope or cost of works benefitting all tenants. It is not necessary for each tenant to prove individually that they would have acted differently if the group process would have produced a different outcome.
5. Permissible conditions: The tribunal has a broad discretion to grant dispensation on such terms as are appropriate in nature and effect. That may include (a) requiring the landlord to pay the reasonable costs of an expert nominated by the tenants to investigate alleged prejudice and (b) requiring the landlord to pay the tenants' costs of the dispensation application and prohibiting recovery of those costs by service charge, provided the conditions are proportionate and connected to remedying or investigating prejudice. In the present case the FTT's conditions were within its discretion because they addressed an unresolved risk of prejudice and provided a means to investigate and redress it in subsequent proceedings if necessary.
6. Application to facts: The FTT's finding of a "credible case of relevant prejudice" in relation to wholesale replacement of balcony asphalt was open on the evidence, including the tenant's inspected observations and expert material arising later in section 27A proceedings, and the imposition of the conditions was a lawful exercise of its wide discretion. The Upper Tribunal correctly dismissed Aster's appeal and the Court of Appeal agreed.

Orders

1. The appeal is dismissed. Costs and consequential directions are those recorded by the tribunals below.

• Upper Tribunal (Lands Chamber): Appeal from FTT dismissed; permission to appeal to the Court of Appeal granted (Judge Bridge) — [2020] UKUT 0177 (LC).
• First-tier Tribunal (Property Chamber - Residential Property): Original section 27A proceedings and later section 20ZA dispensation application decided; dispensation granted subject to conditions (Judge E. Morrison).