Section 20 Where to now?

February and March have been quite a couple of months in the world of Section 20 consultation and major works (Commonhold and Leasehold Reform Act 2002). First we had the Philips case in the High Court, which created open season for leaseholders and confusion for managers in making all works in a year count as Section 20 works and not just one-off major projects. Then this week we saw the Supreme Court’s decision on Daejan v Benson case, which was cited as rebalance for owners. On 8 March, I had first-hand experience with an LVT case that cited Daejan as defence for non-compliance of the Section 20 process. This could arguably the first LVT hearing to reference the Supreme Court’s decision.

Looking at the Philips case, there are a lot of webinars and conferences seeking to give guidance and training on the greatest unknown in property for a long time. Prior to Philips there was no question that major works are one-off projects which incur costs to a leaseholder in excess of £250. The High Court, in its infinite wisdom, has determined that all items incurred over a service charge year are works for the purpose of the 1985 Act and therefore should be subject to Section 20 process. This causes confusion and challenges. If a leaseholder has a leaky pipe, does he/ she need to consult? How can agents manage if they are in constant consultation? How can managing agents plan for the maintenance and repairs?

The approach Chainbow is taking is a pragmatic one that will be backed up through our quarterly reports and will endeavour to demonstrate reasonableness and openness in all areas.

Turning to Daejan, the Supreme Court has managed to surprise everybody and go against all other Court bodies before them. The most interesting thing is the reason the Supreme Court made its decision. Over the coming months and years much will be written and said on this subject, but it was an experience to be in what was probably the first LVT case to use Daejan as its defence.

The case was held the day after the decision and partly concerned the failure of a landlord and agent to comply with the Section 20 process. The landlord’s barrister argued that nothing further was needed following the Supreme Court ruling. However, this would appear to be a red herring and it is certainly not open season for landlords and agents to ignore the Section 20 process or fail to comply with it.

In the Daejan case, the landlord offered a £50,000 reduction on the £270,000 bill and the Supreme Court considered sufficient compensation was available to the leaseholders. On that basis they turned over the decisions and allowed the works with the reduction of £50,000. Also, there is a clear statement in the decision that the facts of Daejan make the decision possible. Therefore, anyone thinking they can ignore getting Section 20s correct and rely on Daejan should be extremely careful.

Similarly, leaseholders thinking about a LVT Section 20 claim every year for all repairs and works may get a very short shrift!