These warnings have been sparked by the result of a recent arbitration case in which a leaseholder, Patricia Charman, had her £10,000 service charge bill reduced to £50 because her landlord, Charlton Triangle Homes, a subsidiary of the Family Housing Group, had failed to comply with the consultation requirements set out in the 1985 Landlord and Tenant Act (HT 16 May, page 8).
However, I acted as Charman's representative during the arbitration case and I don't believe that it will, necessarily, have the devastating effect for RSLs predicted in the press.
I believe that there are lessons that can be learned from the Charlton Triangle case that will give RSLs a realistic chance of recovering money spent on partnering contracts to date.
By the same token, leaseholders should be made aware that, just because Charman was successful, it doesn't automatically mean that, in similar circumstances, they don't have to pay their service charge bills. Each case will be decided upon its merits.
How the case could help RSLs
In the wake of Sir John Egan's 1998 Rethinking Construction report, it is clear that there are potential advantages to be gained from RSLs entering into long-term contracts with one contractor, especially with respect to the maintenance of large estates. While it is true to say that this type of partnering procurement is not compatible with the consultation requirements as set out section 20(4) or 20(5) of the 1985 Landlord and Tenant Act, the wording of the existing act also provides landlords with a method for the possible recovery of service charges.
I believe that the key to an RSL being successful lies within the concept of "acting reasonably". Section 20(9) of the Act states "that a court may, if satisfied that the landlord has acted reasonably, dispense with all or any of the relevant requirements".
There is a legal definition of the term "acting reasonably". In this particular issue it is, I suggest, as stated in the case of Maryland Estates v Charlotte Martin & Jonathon Seale (1999), where the court said that "acting reasonably" is "acting reasonably in all circumstances where section 20 is not complied with". In my opinion, this means that the landlord must show that it had a reasonable reason not to comply with the consultation requirements.
Charlton Triangle’s position was driven by a desire to recover money rather than adhere to the consultation requirements
I would also suggest very strongly that partnering policy could be considered as a reasonable reason for non-compliance, not least because the government has encouraged its use.
Why Charlton lost
So why did none of this help Charlton Triangle? Well, I believe that there are two reasons why Charlton Triangle was unsuccessful in recovering the alleged debt in its particular case.
Firstly, it wasn't completely transparent in its dealings with it leaseholders. While it did advise its lessees that they were using partnering, it also tried to claim that it had complied with the consultation requirements of the current act. Unfortunately, these two positions are mutually exclusive.
My argument on behalf of Charman was that this was an unreasonable position for Charlton Triangle to take and this position was driven by a desire to recover money rather than adhere to the consultation requirements. The arbitrator agreed.
Charlton Triangle couldn't provide any credible evidence to show that the contractor had been engaged on the basis of a best-value tender. It may well have carried out such a procedure, but never once in the three-year period of the dispute did it provide Charman with any details of the analysis it had undertaken, nor did it put any proof of such an analysis before the arbitrator.
Charlton Triangle learned the hard way that if a dispute is put before a third-party resolution forum such as arbitration then landlords will be expected to provide credible and conclusive evidence as to how they have carried out their procedures and they will be expected to provide an audit trail to support and underpin their arguments.
RSLs take action
Encouragingly, other RSLs have responded positively to the issues raised by the case. Forest Homes, in conjunction with its employer's agent Martin Associates Chartered Surveyors, is working very hard to put in place a partnering framework and act reasonably towards leaseholders that will be affected by works.
Steve Phillips is a chartered surveyor, a chartered builder, and director of Asset Management Surveyors. He represented the leaseholder in the Charman case. Further details can be found at www.assetman.org