Court case has serious consequences for landlords recovery of service charges

On the 21st December 2012 the High Court handed down its judgment in the case of Phillips & Godard -v- Francis & Francis {2012 EWHC 3650 (Ch) in what is being seen as an early Christmas present for long leasehold tenants.

Most Landlords have now got their heads around the consultation requirements introduced by the Commonhold and Leasehold Reform Act 2002, the provisions of which came into force on the 31st October 2003. Prior to this decision where landlords wished to recover service charges of more than £250 per tenant they had to comply with the consultation requirements set out in the Act or apply to the LVT for a dispensation. It was generally considered and indeed supported by case law that this £250 cap applied to a distinct set or works i.e. replacement of windows and was not aggregated across the service charge year so as to take into account other distinct works that would not have exceed the cap.

The decision has changed that so that if the aggregate cost of all works across the service charge year exceeds £250 then the full consultation process must be completed by the landlord if they wish to be sure of recovering more than the £250 from each tenant.

In many blocks in particular in London the costs of service charges for relevant works over the course of a year will inevitably exceed £250 per tenant and from now on Landlords will need to consult routinely at the commencement of each service charge period. Although how they will seek to describe items of routine maintenance, which whilst covered by the cap are not yet known, remains to be seen.

More worrying perhaps is that this decision could open the door for tenants to challenge historic service charges that have not already been agreed or determined by the LVT.

The decision does seem to fly in the face of the purpose of the £250 cap which was to ensure that Landlords did not have to consult on every piece of routine maintenance, however it seems that until it is reversed Landlords are stuck with it will need to take care to consult or take their chances in applying for dispensation at the LVT.