If you are involved in the management of residential blocks of flats, you will be all too familiar with the limits imposed on the raising of services charges imposed by various laws, and in particular the time-consuming and complicated consultation process that you have to comply with where you want to do works to your building which result in the contribution of any tenant being more than £250.
These works are known as ‘qualifying works’, and if you do not comply with the consultation process before undertaking them, you will only be able to recover a maximum of £250 from each tenant, however much the works actually cost. In other words, if you fail to consult, you will be left to pay the shortfall, which is often substantial.
So when you are contemplating undertaking ‘qualifying works’, you need to work out whether those works will result in any tenant’s contribution being more than £250. This is fairly easy when you are only going to undertake one major set of building works. You simply cost up the works and if they result in any tenant’s contribution exceeding £250, you will consult with your tenants.
Will you be left holding the baby?
But what happens if you then have to do additional works, or undertake emergency works, that you did not anticipate doing? Do all the works that you have undertaken in a service charge year count as one set of works, which trigger the consultation requirements as soon as they exceed the £250 per tenant contribution (this is known as the ‘aggregating approach’)? Or is each set of works counted as a different set of works, each with its own £250 per tenant ceiling (this is known as the ‘sets approach’)?
The distinction between the aggregating approach and the sets approach is extremely important, because if all works carried out in one year are counted as one set of works, then the consultation requirements will be triggered earlier. What’s more, once the £250 per tenant ceiling has been exceeded, you will have to consult on each subsequent set of works, however minor they are. Finally, there is the obvious problem that whilst you may know at the beginning of the year what routine works you will need to undertake, you will not know what emergency works need doing, so how do you know that they will all add to more than £250 per tenant?
And so to bed
So in 2012, the High Court* confirming that the aggregating approach applied to qualifying works would have come as very bad news for you. However, the good news is that common sense has now been restored by the Court of Appeal in its recent decision**, which rejected the aggregating approach and confirmed that the sets approach is one to adopt.
*Phillips and Goddard v Francis
** EWCA Civ 1395