Qualifying Works

 “High Court finds the £250.00 limit for “qualifying works” applies to all works carried out in a year not limited to specific projects

In Phillips and Goddard -v- Francis the retiring Chancellor of the High Court, Sir Andrew Morritt, has found that “qualifying works” for which the £250.00 cost per leasehold unit limit applies under the Landlord and Tenant Act 1985 as amended by the Commonhold and Leasehold Reform Act 2002 (“CLRA 2002”) applies to all works within a financial year and not just individual projects. This means that unless the landlord or his managing agent is confident that there is no possibility that the maintenance works being carried out to a building throughout the entire financial year will not amount to more than £250.00 per leasehold unit in total then the landlord or the agents must follow the Section 20 Consultation procedure for every piece of maintenance work.

Sir Andrew Morritt noted that the amendments within the CLRA 2002 fixed the limit for qualifying works by reference to the contribution sought from the leaseholder rather than the costs of the actual works themselves, as a result the emphasis had shifted from identifying and costing the works to be carried out to notifying the leaseholders of an intention to carry out works and limiting the amount of the individual contributions sought to pay for them after their completion. He found nothing in the present legislation requiring the identification of one or more sets of qualifying works as a pre-requisite to consultation being required. As the contributions are payable on an annual basis then he found by the application of “common sense” that the limit is applied to the proportion of the qualifying works carried out in that year. There is no “triviality threshold”, that is the individual works costing less than £250.00 are not subject to consultation, and therefore all the qualifying works must be entered into the calculation unless the landlord is prepared to carry an excess himself. As normally works will be carried out as and when required, there is therefore a need for some limitation on an obligation to contribute to sporadic works as well as with re-development plans conceived as a whole. His view reflected a concern that stages of a project were divided into smaller parts each costing less than £250.00 per leasehold unit thereby circumventing the Section 20 consultation requirements.

The effect is that if a landlord does not consult on all qualifying works then the leaseholder’s contribution for the total costs of works in the accounting period will be capped at £250.00. This decision will of course add enormously to the costs of works and may cause delays in the carrying out of works due to consultation being required even for the most trivial matters. It will also enable leaseholders to use the decision to challenge past costs’ claims for repairs. A generally worded Section 20 Notice served at the start of a financial year to cover potential work in the coming year may well fail because it does not identify the actual works required. It has also been suggested that management fees will significantly increase, not only because more works will be involved but also because major fees will be claimed for what would previously have been perceived as routine repairs covered by the standard management fee. Some managing agents have expressed the view that such an interpretation of “qualifying works” renders the management of repairs almost impossible to carry out effectively and efficiently and will be looking for RICS or ARLA to intervene in any appeal. It is understood the decision may not be appealed for commercial reasons.

Whilst this is a decision of the High Court and therefore not binding in the same manner as those of the Court of Appeal and the Supreme Court, it introduces a very considerable level of uncertainty into a landlord’s ability to recover maintenance costs and makes the landlord vulnerable to challenges to both past and future maintenance costs.

If you have any queries concerning the matters raised please contact Jeremy Teall of the Property Litigation Team on 020 8567 3477 or e-mail jteall@prince-evans.co.uk