Landlord's dispensation for major works: getting it right

In RM Residential Ltd v Westacre Estates Ltd and another [2024] UKUT 56 (LC) the Upper Tribunal set aside a decision made by the First Tier Tribunal.

RM Residential had failed to consult with its tenants before carrying out major works. It applied to the First Tier Tribunal for retrospective permission to depart from the legal requirement to consult. The First Tier Tribunal refused to grant that permission.

RM Residential appealed to the Upper Tribunal.

The appeal to the Upper Tribunal centred around the correct approach to be adopted by the Tribunal when deciding whether to grant this retrospective permission, also known as ‘dispensation’. Hughes Paddison acted for the successful applicant landlord.

The Upper Tribunal held that the First Tier Tribunal had adopted an entirely wrong approach. It granted RM Residential the requested dispensation.

The law

Section 20 of the Landlord and Tenant Act 1985 sets out a statutory procedure requiring tenants to be consulted by landlords before major works are carried out.

If the consultation procedure is not followed, the landlord is only entitled to recover £250 from the tenant. That is unless the landlord obtains dispensation from the Tribunal.

In Daejan Investments Limited v Benson [2013] UKSC 14, the Supreme Court stated that the purpose of the consultation requirements is to protect tenants from paying for inappropriate works or paying more than would be appropriate. It said that when a landlord applies for dispensation, the court should focus on whether the tenant has suffered any prejudice as a result of the landlord’s failure to consult. If there has been no prejudice, that weighs in favour of the landlord.

Case background

RM Residential, the appellant, was the owner of the property. The property was a mixed-use commercial and residential property. The respondents were leaseholders of the residential units and were liable to pay a service charge.

Upon purchasing the property, the appellant instructed two engineering consultants to inspect and report on the property’s condition. The first consultant reported that there were many structural defects and the property needed urgent work. The second reported that the property was in a dangerously poor state of repair requiring immediate rectification.

The appellant carried out the work as advised by the two consultants. The appellant only partially complied with the consultation requirements, for example, only giving notice to the respondents after work had started. The timeframe between the appellant’s purchase of the property and commencement of the works was short. By the time work had begun, the Land Registry had not yet registered the appellant’s ownership.

First Tier Tribunal decision

The appellant applied to the First Tier Tribunal for dispensation.

The First Tier Tribunal found that the respondents had not suffered any prejudice as a result of the appellant’s failure to fully follow the consultation procedure. However, it still refused to grant the appellant dispensation for the following reasons:

1. The transfer of the freehold to the appellant had not been registered when the works were carried out. Because the appellant was not the registered owner of the property, it was not entitled to enter the property to complete the works. Nor did it have any legal standing to apply for dispensation.
    
2. The works were not urgent.

Appeal grounds

There were six grounds of appeal, namely:-

1. The First Tier Tribunal was wrong to hold that a landlord who has not yet been registered as owner of the property cannot enter and do works on the property that it has purchased.
    
2. The First Tier Tribunal was wrong to hold that the appellant could not apply to the First Tier Tribunal to seek dispensation until it was the registered owner of the property.
    
3. The First Tier Tribunal was wrong to hold that the works were not urgent and that this justified the refusal to grant dispensation.
    
4. The First Tier Tribunal was wrong to refuse to grant dispensation where it found the respondents had suffered no prejudice.
    
5. The First Tier Tribunal was wrong to hold that the appellant had failed to provide a proper explanation of the extent and cost of the works.
    
6. The First Tier Tribunal was wrong to hold that the appellant had failed to provide satisfactory evidence of completion of the works.

Upper Tribunal appeal decision

The appellant succeeded on all grounds.

The Upper Tribunal granted the appellant dispensation and the First Tier Tribunal’s decision was set aside. The reasoning given in relation to each ground is summarised below.

First ground

The ‘registration gap’ is the period between the completion of the purchase by the execution of a transfer and the registration of that transfer at the Land Registry.

The Upper Tribunal explained that in the registration gap, the vendor of the property holds the legal title on trust for the purchaser. During that period, the vendor has no power to make decisions and must act at the direction of the purchaser.

During the registration gap, quite simply, the purchaser is the owner, albeit in equity rather than law. As such, despite being in the registration gap, the appellant had the right to enter the property and to carry out works.

In stark criticism of the First Tier Tribunal, the Upper Tribunal Judge said at para 41 of the judgement that:

 ‘to say that [during the registration gap the purchaser] is not the owner of the property both flies in the face of everyday reality and betrays a failure to understand equitable ownership’.

Second ground

The Upper Tribunal pointed to the landlord and tenant legislation which defines service charges by reference to a landlord’s costs. As outlined above, during the registration gap, the unregistered owner is the landlord (in equity) and therefore is entitled to the recovery of service charges imposed for the purpose of recovering a landlord’s costs. A landlord in the registration gap is equally bound by the consultation procedure, just as a registered owner is. As such, there was no doubt that the appellant had legal standing to apply for dispensation.

Third ground

The Upper Tribunal made it clear there is no requirement to prove that the works were urgent. Whilst the decision to grant dispensation is a matter of discretion, it ‘exceeds the bounds of that discretion’ to impose a precondition of urgency. The Upper Tribunal referred to Daejan and reiterated the Supreme Court’s ruling that normally the sole question in granting dispensation is whether the tenant has suffered prejudice as a result of the lack of consultation. An owner does not have to demonstrate that the works were urgent in order to obtain dispensation.

Fourth ground

The First Tier Tribunal found that there was no prejudice arising from the appellant’s failure to follow the consultation procedure but nevertheless refused to grant dispensation. The Upper Tribunal held that, having established that there was no prejudice, the First Tier Tribunal was wrong to refuse dispensation.

Fifth and sixth grounds  

The Upper Tribunal also held that the First Tier Tribunal had made findings against the weight of the evidence in respect of the appellant explaining the need for the works, the appellant setting out the cost of the works, and the appellant demonstrating that the works had been completed. The Upper Tribunal set aside those findings as well.

Conclusion

The Upper Tribunal’s decision essentially confirmed that:-

1. Property owners who find themselves in the registration gap (ie after completion of their purchase but before they have been registered as owners) are indeed entitled to enter their properties in order to carry out works. They are also entitled to bring a subsequent application for dispensation. The unregistered owner is the owner, albeit in equity rather than law. Not having yet been registered as the owner of the property at the Land Registry does not affect these rights.

2. The urgency of the works is not a key factor for the Tribunal when deciding whether to grant dispensation. The correct approach is for the Tribunal to assess whether the tenants have suffered any prejudice as a result of the owner’s failure to consult. If there has been no prejudice, that weighs in favour of the owner.

If you have any questions relating to this case note, or require advice on a related matter, please contact Andrew Turner at aet@hughes-paddison.co.uk or on 01242 574 244.