Finally, help for those who want partners

The new consultation regulations under the 2002 Commonhold & Leasehold Reform Act should alleviate problems previously faced by landlords wanting to adopt a partnering approach to the procurement of major works.

Under section 20 of the old 1985 Landlord & Tenant Act, the requirement to obtain two estimates from contractors as part of the consultation process meant that it was virtually impossible for landlords to comply when using partnering arrangements.

However, the changes made by the 2002 act have been a long time coming. In the meantime, many registered social landlords have been challenged by residents refusing to pay major works charges, claiming that the strict terms of section 20 have not been followed. One such landlord is Charlton Triangle Homes.

Readers will already be familiar with the problems encountered by the association over recovering service charges for major works from its leaseholders (HT 16 May 2003, page 8). In March 2003, a leaseholder took Charlton to arbitration over its failure to comply with section 20, as it then was, before entering into a partnering arrangement for a programme of works on the Charlton Triangle Estate in 2001.

The arbitrator found in favour of the resident and concluded that the maximum amount the landlord could recover from her was £50. Charlton stood to lose in excess of £250,000 if all affected leaseholders refused to pay more than this amount.

It was against this background that the RSL took the step of applying to the county court for an order dispensing retrospectively with the need to comply with section 20. The application was made under the dispensing provisions present in section 20(9) of the 1985 act. This power has been retained in the amendments made by the 2002 act, save that applications must now be made to the Leaseholder Valuation Tribunal.

Charlton had to persuade the court that it was reasonable for it to dispense with the need for the landlord to have complied with section 20's strictest terms, in particular the requirement to obtain two estimates.

In essence, the association had to show that it had acted reasonably, even though it had failed to comply with the 1985 act.

The new regulations are by no means simple. Plenty of opportunities remain for landlords to fall foul of the law

Chief among the factors relied on by the RSL were the partnering approach's advantages: expert evidence was put before the court showing how Charlton obtained best value through the process in terms of construction costs, time savings, predictability and client/end user satisfaction. The evidence included extensive consultations with residents undertaken by the association.

The court was also asked to take into account the fact that service charges recoverable from leaseholders were capped at £10,000 by virtue of statutory regulation, even though the average cost of works per leaseholder was in the region of £17,000.

The association contended that there was no prejudice to residents in its failure to follow section 20's strictest terms.

Charlton Triangle's application came before Woolwich county court in December last year. Presiding district judge Lee made an order allowing retrospective dispensation.

It is worth highlighting the points made by the judge in deciding that the RSL had acted reasonably:

• the only "breach" of section 20 committed by Charlton Triangle Homes was that two estimates were not obtained
  
• the adoption of a partnering approach had worked well, and in fact had benefited residents
  
• residents had been informed about the nature and costings of the proposed works
  
• with regard to the mandatory "cap" of £10,000, the judge stated it would be "entirely unjust" for the resident to get away with paying a nominal sum
  
• section 20 was not designed for a resident to get a "quick one over" on his or her landlord. Its purpose was for residents to be given as much information as the landlord could provide. This had happened in the Charlton case.

It is important to acknowledge that the case was brought against one resident as a representative case, and that the resident chose not to defend it. Nevertheless, the judge's findings – in particular, his purposive approach to section 20, that its provisions were not designed to trip up landlords – are instructive.

Of course, the amendments to section 20 made by the 2002 act should mean that the problems encountered by Charlton will not arise in the future.