The recent High Court decision in Phillips v Francis (No.2) has given a whole new meaning to the requirement to consult with residential tenants when carrying out works under section 20 of the Landlord & Tenant Act 1985.
Since 2003, landlords and managing agents have blissfully proceeded on the basis that consultation was only required where a tenant had to contribute more than £250 to a particular project or set of works.
This test was relatively easy. The managing agent would usually draw up a scope of works, have it costed and, if it came to more than £250 per tenant, send out the two-stage consultation notices inviting the tenants to make observations.
This approach has now been rejected by the High Court. Apparently it is wrong to cost individual ‘sets’ of works for the purposes of consultation. The cost of all works must be taken together when deciding if the £250 threshold is met.
No longer do you treat the cost of replacing the windows as an item of works separate, say, to repairing the communal boiler or replacing missing roof tiles. All of these items are ‘works’ for the purposes of section 20.
It is immediately clear that this will mean consultation will apply more regularly than has previously been thought. Rather than carrying out consultation every few years in respect of major works, landlords will almost certainly have to consult with their tenants annually since the cumulative value of works is unlikely to be less than £250 in any one year.
So who are the real winners and losers of Phillips v Francis?
When reaching its decision, the Court was trying to protect the tenant, but ironically this much wider interpretation of ‘works’ means that managing agents’ workloads will increase and we all know that more management work means higher management fees – fees which are ultimately paid by the tenants.
The idea may have been to give tenants more protection against unscrupulous landlords, but protection comes at a price.
Landlords are probably the biggest losers in all of this because they are now exposed to claims by tenants who may seek to challenge the cost of works previously undertaken on which there has been no valid consultation. After all, it is only as a result of Phillips v Francis that we now learn we’ve all been doing it wrong for the last nine years.
The real winners are the managing agents who can now look forward to charging the traditional 10% fee on not just the cost of major works but practically any works they have to carry out during the year.
We will undoubtedly see an increase in the number of landlords entering into Qualifying Long Term Agreements with their managing agents – since the consultation requirements for works are less onerous when carried out under a QLTA – and managing agents can therefore also look forward to securing longer periods of management.
It’s a win-win situation for managing agents.
Janice Northover is a partner at niche property law firm Brecher
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