By Cassandra Zanelli and Ibraheem Dulmeer
September 2015
On 21 July 2015 the Upper Tribunal (Lands Chamber) handed down its judgment in the case of The Royal Borough of Kensington and Chelsea v Lessees of 1–124 Pond House and ors [2015] UKUT 395. The case was heard by Siobhan McGrath, the president of the First-tier Tribunal (Property Chamber) sitting as a judge in the Upper Tribunal.
The purpose of this article is to explain the above decision and how this has brought about some clarity in situations when councils and other public sector landlords procure Framework Agreements. Framework Agreements are agreements made with approved contractors who then can be awarded building work in accordance with the terms under the agreement.
This case primarily answers and/or provides clarification to the following question for council and public sector landlords:
Are Framework Agreements with contractors within the consultation requirements of Qualifying Long Term Agreements (“QLTAs”)?
What is a qualifying long term agreement?
A QLTA is an agreement to provide goods or services which lasts for more than 12 months, and which results in leaseholders contributing more than £100 in any financial year as a service charge towards that agreement. Unless a landlord consults, or obtains dispensation from consultation, they are limited to recovering £100 per leaseholder per year.
The previous position:
Whether framework agreements with contractors are QLTAs for the purposes of consultation has been unclear since 2007 when the case of the London Area Procurement Network (LAPN) v All right to buy lessees was determined (“LAPN”).
In brief, the LAPN case suggested that the framework agreements were not the agreements upon which leaseholders ought to be consulted because costs were not incurred under the framework agreements. It was held that framework agreements could not be used to recover service charge contributions unless the Tribunal granted dispensation from the statutory consultation requirements first. Instead, the LAPN held that relevant costs were incurred under Call Off Agreements, which were said to be contracts entered into for specific works pursuant to the framework agreements.
Public sector landlords procuring high value agreements of this nature are bound by the terms of the Public Contracts Regulations 2015. This requires that framework agreements over a certain value are publicly advertised and procured in accordance with the rules set out in those Regulations.
The LAPN case therefore left public sector landlords without a clear route for service charges consultation if they were procuring framework agreements. Furthermore it could be said that this case caused an administrative burden.
Background to RBKC:
The Royal Borough of Kensington and Chelsea (“RBKC”) made an application for determination in respect of the liability to pay future service charge costs of the leasehold properties at 1-124 Pound House.
The apartment leases contained a clause which obliged the leaseholders to contribute towards the costs of the works to be undertaken.
The Tribunal were asked to consider if RBKC complied with its obligations to consult under a prescribed method under section 20 of the Landlord and Tenant Act 1985 and the Service Charges (Consultation Requirements) (England) Regulations 2003.
In essence, RBKC intended to enter into a number of Framework Agreements with contractors.
The contractors would undertake repairs, maintenance and improvement works to RBKC’s housing stock. It was expected the costs could reach over £130m. As part of the application, the Tribunal were required to consider whether the Framework Agreements were “caught” by the requirement to consult.
The Decision:
It was held that Framework Agreements can be QLTAs as costs can be “incurred under” the Framework Agreements if there is “ample evidence to be satisfied that there is a sufficient factual nexus between the subject matter of the agreement and the works themselves” and if the Framework Agreements “identify the works with sufficient particularity”.
Therefore, Framework Agreements can be QLTAs, and therefore if a landlord wants to recover more than £100 per leaseholder per financial year, they will need to either consult, or obtain dispensation from the Tribunal.
If there is sufficient evidence that establishes a connection between the actual works being proposed and the framework agreements, landlords will have obligations to comply with statutory service charges consultation procedures.
The importance of this decision:
Up until now, public sector landlords did not have a particularly clear route for consultation with leaseholders if they were procuring Framework Agreements.
The recent decision makes the position much clearer. So long as a landlord carries out consultation (or obtains dispensation) (and of course so long as the service charges are recoverable under the lease, and the charges are reasonable), a landlord will be able to recover the costs they incur from leaseholders.
In answer to this question posed above:
Are Framework Agreements with contractors within the consultation requirements of Qualifying Long Term Agreements (“QLTAs”)?
Leaseholders should be aware that the answer to this seems to be “yes” following this determination.
Further questions:
If you have any questions in relation to this article please do not hesitate to contact The Leasehold Advisory Service on 020 7832 2500 or write to us using the enquiry form. Contact Cassandra Zanelli, Partner at Taylor & Emmet LLP Solicitors on 0114 218 4063, email: Cassandra.zanelli@tayloremmet.co.uk
This article is not meant to describe or give a full interpretation of the law; only the courts can do that. If you are in any doubt about your rights and duties then seek specific advice.
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