First-tier Tribunal Grants Landlord Dispensation from Consultation Requirements

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : LON/00AY/LDC/2023/0067 Property : Various properties in [NAME_1] Applicant : [redacted] : [NAME_2] of counsel Respondents : [redacted] Representative : [NAME_5] for Respondents named in appendix 2 [NAME_7] in person Otherwise no appearance

Type of Application :

Dispensation from consultation requirements under Landlord and Tenant Act 1985 section 20ZA Tribunal Members :

Judge Professor R [NAME_9]

Date and venue of hearing : 6 December 2023 Video hearing (VHS) Date of Decision : 3 April 2024

DECISION

2

Decisions of the tribunal (1) The Tribunal, pursuant to section 20ZA of the Landlord and Tenant Act 1985 (“the 1985 Act”), grants dispensation without conditions from the consultation requirements in respect of the qualifying long term agreements entered into by the Applicant with [NAME_11] and [NAME_12]. Procedural 1. The landlord submitted an application for dispensation from the consultation requirements in section 20 of the Landlord and Tenant Act 1985 (“the 1985 Act”) and the regulations thereunder, dated 1 April 2023.

2. The Tribunal gave directions, which are dated 31 March 2023 (Judge Addy). Further directions were subsequently given in correspondence by Judge N Carr.

3. The directions provided for the Applicant to set up a webpage providing access to the application, statement of case, supporting documents and the directions, and to write to leaseholders informing them of the application and advising them of the url of the webpage. The directions included a reply form for leaseholders. Leaseholders who objected to the application were required to email the form to the Tribunal and to the Applicant by 19 May 2023.

4. Problems arose with the letters sent by the Applicant. A number of the responses complained about the number of letters that had been received by Respondents, and their confusing content. [NAME_13] and [NAME_15], two of the Respondents who provided witness statements, set out what they received. 5. [NAME_13] and [NAME_15] received no fewer than eight letters dated 24 April 2023. Four had headings referring to gas supply, three referred to electricity, and one mentioned neither. The letters referred to different service charge years. They also received further letters dated 25 April 2023 and 26 April 2023, referring to energy supplies. The letters all referred to dispensation in respect of contracts which “the Council intend to enter”, including those referring to past service charge years. There were other differences between the letters. Enclosed with the letters was a document headed “Dispensation Information and FAQ”, but it was not referred to in the letters, and referred to “works”. Both men found the content of the letters – aside again from the number – confusing.

3 6. [NAME_15] also explained that the links provided to the application, the Applicant’s statement of case and the directions were unhelpful and unexplained. [NAME_15] produced a useful guide to the documents and the process for his neighbours.

7. Nonetheless, we did received a very great deal of evidence from a large number of Respondents. In the bundle, the responses from Respondents were divided into two categories. The first category were Respondents who returned the form provided with the directions only. There were 13 such responses. The second category, of Respondents who returned both the form a separate statement, comprised 43 leaseholders. Some of the responses were duplicated among several Respondents, in whole or in part. In addition, we had witness statements from [NAME_13], [NAME_17], [NAME_15], [NAME_7] and [NAME_19]. [NAME_21], who, as we understand it, is not himself a leaseholder of the Applicant, provided a full statement on behalf of [NAME_162], who is a leaseholder. As we indicate above, [NAME_21] went on to represent a substantial number of the leaseholders before us at the hearing.

8. The leaseholders’ names were redacted from the forms returned as they were provided in the bundle. We were not told why this was done, and it was anyway pointless, as their names, quite properly, appeared in the index to the bundle. Introduction: the application 9. The Applicant seeks dispensation from the consultation requirements required by section 20 of the 1985 Act, and in particular those set out in detail in Service Charge (Consultation etc)(England) Regulations 2003, schedule 2 (that is, those relevant to a public sector qualifying long term agreement).

10. The Respondents are leaseholders of the Applicant, to which they are obliged to pay service charges under their leases. The services relevant to the application are the supply of electricity and gas.

11. The supply of electricity is that to blocks and estates and street properties for landlords’ lighting, staircase lighting, lifts, estate lighting, boiler rooms and communal services such as door entry systems and fire alarms serving leasehold properties specified in appendix 1 to the Applicant’s statement of case.

12. The supply of gas is for the central boiler room on estates, communal block boilers and communal supplies on smaller blocks serving the residential leasehold properties set out in Appendix 2 to the Applicant’s statement of case.

4 13. In this decision, we have not exhaustively summarised the evidence received. Rather, after briefly setting out the law, we have drawn from the evidence to set out the structure of the contracts, as we came to understand it, and the history of how the Applicant came to enter into the relevant contracts. We then refer to evidence of energy bills received since the start of the contracts, set out what we see as the key submissions on both sides, and make our determination. We then make some concluding observations.

14. From the outset, we should make it clear that neither the Tribunal nor the Respondents were clear as to which contracts the dispensation application applied before the hearing. At the hearing, [NAME_2] made it clear that the view of the Applicant was that the only contracts that were capable of being qualifying long term agreements were those with [NAME_11] for electricity and [NAME_12] for gas (see below), and that the application related only to them. The Law 15. What follows is a brief summary. The relevant statutory provisions in full may be consulted here: https://www.legislation.gov.uk/ukpga/ 1985/70 https://www.legislation.gov.uk/uksi/2003/1987/contents/made 16. Sections 20 and 20ZA make provision for landlords to consult with tenants before entering into what are termed qualifying long term agreements (as well as one-off contracts), where the tenant is liable to pay a “relevant contribution” under his or her lease to costs incurred under the qualifying long term agreement. It is accepted by all parties that two contracts entered into by the Applicant with [NAME_11] and with [NAME_12] are qualifying long term agreements.

17. Section 20 states that unless the consultation requirements are complied with, or a dispensation granted under section 20ZA (see below), the contribution to be made by a tenant is limited. In respect of qualifying long term agreements, that limit is £100 a year (regulation 4).

18. The details of the consultation required (“the consultation requirements”) are set out in the Services Charges (Consultation etc)(England) Regulations 2003. Those regulations make provision for consultation on qualifying long term agreements in schedules 1 and 2. Schedule 1 applies to such agreements which do not require “public notice”. section 2 applies to those that do. “Public notice” refers to requirements under the law regulating procurement by public bodies, which in turn derives from EU law.

5 19. Section 20ZA (1) provides Where an application is made to the appropriate tribunal for a determination to dispense with all or any of the consultation requirements in relation to any qualifying works or qualifying long term agreement, the tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements.

20. A dispensation application under section 20ZA can be made retrospectively, as it was in this case.

21. The leading case on dispensation is [COMPANY_22] v [NAME_163] [2013] UKSC 14; [2013] 1 WLR 854, a Supreme Court case. In that case, the Court said that the Tribunal should allow a dispensation unless the tenants would suffer financial prejudice were it not to do so. If the tenants would suffer financial prejudice, the Tribunal should allow dispensation, but on such terms as would remove the prejudice suffered. Only in a case in which that was not possible should dispensation be refused. There have been important subsequent cases in the Upper Tribunal in relation to the dispensation approach set out in [NAME_23]. The Tribunal is bound as a matter of law to follow precedent in the Upper Tribunal and higher courts.

22. The effect, or otherwise, of [NAME_23] in this case is the subject of dispute between the parties. Overview of the structure of contracts 23. The system that now obtains for the purchase and supply of electricity and gas is as follows.

24. The Applicant has entered into what is known as a framework agreement with [NAME_25], which provides a method of collective energy purchase for a number of public bodies. The terminology relating to the contracts is somewhat opaque. We use “framework agreement” for the agreement between the Applicant and [NAME_25] here, but note that in a short “user guide” provided by [NAME_25] and made available to the Tribunal, the “framework contract” is expressed as defining the relationship between [NAME_25] and the supplier (ie the call off contractors – see below), whereas the term “access agreement” is used for that between a local authority and [NAME_25]. We stick with the terminology of “framework” for the [NAME_25]/Applicant relationship, as that was how it was expressed in the primary evidence as to the relationships from the Applicant (from [NAME_26], see below). 25. [NAME_25] is sometimes described as a company owned by Kent County Council (“[NAME_28]”), but the evidence was that it is a trading name utilised by [NAME_28], with whom the actual contracts lie.

6 26. [NAME_25] negotiates the purchase of quantities of electricity and gas on behalf of its clients, including the Applicant. It does so by a mixture of long term and short term contracts made at different starting times and for different periods. The aim of the system is to secure energy supplies at the cheapest price and to reduce volatility for the consumer in what is a notoriously volatile market. The consumer price paid by the Applicant is a product of this mix of purchasing decisions. These purchasing decisions themselves take place on the basis of prices offered often for a short period, which may have to be entered into quickly. We are not entirely clear as to who contracts with the wholesale energy suppliers – that is, whether the contracts are with [NAME_25], or that [NAME_25] (presumably under the framework contract) is empowered to require the call off contractors to enter into the contracts, and [NAME_26] was not able to assist us on the question in his evidence. As far as we can determine, the question does not affect the issues before us. 27. [NAME_25] negotiates the purchase of the energy. The administration of the delivery of the energy to buildings and billing requires the Applicant to enter into contracts with providers of those services. In the jargon of the sector, these are called “call off” contracts. The call off contracts entered into by [NAME_1] under the [NAME_25] framework agreement were with [COMPANY_29] for electricity and [NAME_30] for gas. The [NAME_11] contract was for four years (with provision for a one year extension). The contract was entered into on 18 November 2019, the supply start date being 1 April 2020. That with [NAME_12] was dated 22 November 2019, with the same start date.

28. The call off contractors bill the Applicant for the cost of the energy. Within that invoice is included [NAME_25]’s fee for its service. [NAME_25]’s fee is a small percentage of the overall energy spend. So [NAME_25] recovers its fees from the call off contractors. As a result, it was the Applicant’s case that the framework agreement is therefore not a qualifying long term agreement for the purposes of the consultation requirements, because the Applicant, as the landlord, does not incur costs which it passes on to the leaseholders under the framework agreement. Rather, the framework agreement gives access to the supplier (call off) contracts, under which the costs are incurred. Thus it was the Applicant’s case that it was only the call off supplier contracts which were qualifying long term agreements.

29. As [NAME_2] made clear at the outset of the hearing, this application is for the dispensation from the consultation requirements in respect of the two call off contracts alone.

7 The development of the [NAME_25] system in London 30. It is helpful in understanding the way in which the current system has come about, and in particular the decisions made by the Applicant at the point at which it entered into the call off contracts, to set out a narrative of the development of the system. This account is taken principally from the witness statement and oral evidence of [NAME_26]. [NAME_26]’s responsibilities for the Applicant include the procurement and management of various central corporate contracts, including those for electricity and gas.

31. The chronology starts in 2007, when a process called the London Energy Project (“[NAME_31]”) was established, and funded, by 36 London public bodies, including the Applicant. The purpose of the project was to use the combined authorities’ energy spending power to deliver better deals by collectively accessing wholesale energy markets. In 2008, [NAME_31] endorsed the use of two national public sector Professional Buying Organisations. One was [NAME_25]. The other was Crown Commercial Services (“[NAME_32]”). [NAME_31]’s assessment was that these two bodies were able to secure energy procurement on an aggregated, and therefore more economic, basis for [NAME_31]’s member authorities.

32. It was [NAME_26]’s evidence that these arrangements did deliver concrete advantages for the Applicant, as it did for the other [NAME_31] members. The Applicant used the [NAME_32] framework.

33. The next stage was that [NAME_31] sought to develop a London-specific buying structure, to serve various ends considered desirable by the London authorities, rather than remain within a national system. [NAME_26] summarised these as including greater transactional efficiency, various improved customer facing tools, and what he described as wider strategic objectives, which including social value and green energy requirements. [NAME_31] developed a service level agreement around these requirements.

34. A tender exercise for a new, separate, London framework based on this service level agreement failed. An open contract notice was issued on 29 April 2019, but no satisfactory bid was received.

35. After that, [NAME_31] continued with attempts to set up an arrangement using the enhanced service level agreement. Rather than set up a new framework, the new approach was to use the service level agreement for procurement within an existing framework. That framework could only be provided by [NAME_25], because [NAME_32] were not able to deliver a start date of 1 April 2020, as required by [NAME_31].

36. As a result, on 5 November 2019, the Applicant entered into a framework agreement with [NAME_25].

8 37. As to the two call off contracts, [NAME_25] undertook a process to identify possible suppliers specifically for [NAME_31] members. The only electricity supplier that came forward was [NAME_11]. [NAME_33] described as a “mini-competition” took place for the preferred gas supplier, which was won by [NAME_12]. There was one other contractor in the competition.

38. The bills paid by the Respondent, and passed on through the service charge to leaseholders where relevant, are comprised of commodity costs – that is, the gas or electricity – and other, non-commodity costs. These include the costs and charges of the call off contractors and the (small) fees of [NAME_25]. Evidence of costs since 2020 39. We received evidence from Respondents that the bills they faced had increased very substantially in the time since the contracts came into force.

40. The most systematic evidence came from [NAME_17], and was recorded in his witness statement. [NAME_17] had accessed a great volume of data on electricity prices through a series of Freedom of Information requests to the Applicant. He produced a short table that reflected this data, which compared (among other things) the price given as that secured by [NAME_25], taken from [NAME_26]’s witness statement and its attachments, with the most common tariff, as charged to leaseholders. The figures are for the tariff per kilowatt hour for the category of electricity called non-half hour. The figures are as follows: [NAME_25] tariff Most common Leaseholder tariff 2020/21 4p 12.453p 2021/22 5p 13.007p 2022/24 12p 21.164p 41. Thus, in [NAME_26]’s terms, it appears that between 68% and 43% of the total cost to (most) leaseholders comprised non-commodity costs, that is, those additional costs attributable to the call off supplier and [NAME_25]’s fees rather than the wholesale cost negotiated by [NAME_25].

42. This evidence was uncontested by the Applicant. In the light of the more anecdotal evidence from other Respondents, we accept that the account shown by [NAME_17]’s figures would be very broadly replicated in respect of other electricity categories and gas. Submissions 43. [NAME_21]’s principal submission related to the possibility of evidence of prejudice to the leaseholders, the importance of which is apparent from [NAME_23]. He argued that, before the leaseholders (and by

9 extension, the Tribunal) could assess whether they had suffered prejudice from a failure to consult, they must be provided with sufficient information to enable them to make that assessment, and that had not happened. 44. [NAME_21] said that it was not disputed that some form of framework agreement could be the most efficient way to purchase gas and electricity. But what was open to criticism was the way in which the Applicant had gone about securing the current arrangements. He said it was not clear why the preceding arrangement with [NAME_32] could not have continued, that it appeared that the Applicant had not engaged with [NAME_32] in time for [NAME_32] to be able to start by the April 2020 deadline, and that there was nothing to show that [NAME_25] was to be preferred. Similarly, the grant of the call off contracts to [NAME_11] and [NAME_12] was not properly explained. It was necessary that the leaseholders should be able to understand why there was such a narrow choice in respect of both contracts. There was no material available relating to investigation into the performance of [NAME_11] and [NAME_12]. Given the lack of information on any and all of these matters, the leaseholders could not possibly specify what prejudice they had suffered.

45. As to the proper approach to be adopted to dispensation by the Tribunal, [NAME_21] submitted that [NAME_23] was to be distinguished. The test under section 20ZA was one of reasonableness. The Applicant’s case was that [NAME_23] set down a general test requiring financial prejudice in all cases. But, [NAME_21] argued, [NAME_23] was a very different case. In paragraph [38], the Supreme Court set out the questions it was answering, the third of which was “the approach to be adopted when prejudice is alleged by tenants owing to the landlord’s failure to comply with the requirements”. In this case, [NAME_21] said, there was no such complaint. Rather, in this case, the Respondents were complaining about their inability to assess whether they had suffered prejudice.

46. The facts of [NAME_23] were different. It did not concern a qualifying long term agreement. There had been extensive consultation, which made it easy for the Court to say that the tenants must show prejudice, because the tenants knew everything that there was to know about the relevant issues (works, rather than a long term contract). In this case, there was no consultation at all, and the tenants had no idea what they would need to know in order to establish prejudice.

47. In connection with the question of the availability of the requisite information, [NAME_35] argued that the only piece of evidence provided by the Applicant to show that the call off contracts secured better value for money were the charts appended to [NAME_26]’s witness statement, which plotted the price secured by the framework agreement against the front month market price of the two

10 commodities. [NAME_21] made various criticisms of the provenance and relevance of the charts. 48. [NAME_21] also referred us to his written representations, in which he draws attention to the statement in [NAME_23] at paragraph [41] that refers to it being inappropriate to impose fetters on the Tribunal’s exercise of the jurisdiction, and, given the “almost infinitely various” circumstances in which dispensation may arise, that the principles set down by the Supreme Court “should not be regarded as representing rigid rules”.

49. In respect of the passage (from paragraph [67]) in which the Supreme Court says that, while legal proof remains with the Applicant, there was a factual burden on the tenants to identify some relevant prejudice, [NAME_21] argued that that was no doubt straightforward where the relevant material was available (as in [NAME_23]), but was not at all practicable when the Applicant itself had not made available the basic information that would enable the Respondents to discharge a factual burden. 50. [NAME_21] argued that, had there been a consultation, the Respondents would have asked for a list of additional information, specified in [NAME_21]’s written submission. This included copies of the framework agreement, access agreements and the call off contracts, including documents included by reference in those agreements, justification for any redactions in the agreements, evidence as to the Applicant’s process in relation to the agreements, including specifically why it contracted with [NAME_11] and [NAME_12], and an explanation of the basis of their non-commodity pricing, specifically in relation to [NAME_25]’s costs. In his submissions, [NAME_21] added that, once such information had been provided, there may have been further supplementary requests for information. 51. [NAME_21] also argued that both Aster Communities v Chapman [2020] UKUT 177 (LC) and Lambeth London Borough Council v Kelly [2022] UKUT 290 (LC), cited by [NAME_2], were to be distinguished. In the former, the Upper Tribunal found that the landlord had undertaken a good-faith consultation process that amounted to more extensive consultation than required by section 20. In the latter, the information needed by the Respondent had been eventually provided, and the Respondent had not indicated the need for further information, so the finding as to the tenants’ inability to demonstrate prejudice was fair. 52. [NAME_21] referred to the multiple and misleading letters sent out by the Applicant in attempted satisfaction of the Tribunal’s directions. The chaotic way in which this had been done, he argued, was sufficient on its own for us to find that allowing dispensation would be unreasonable.

11 53. [NAME_21] also contested [NAME_2]’s assertion that it was the very restrictive schedule 2 of the 2003 regulations that was engaged. He argued that it was inconsistent with regulation 33(8) of the Public Contracts Regulations 2015, regulation 33(8) that a single contractor had been nominated for the electricity contract, but a mini-competition organised in respect of the gas contract. As we understood him, this he saw as an argument to the effect that a public notice was not necessary, and that therefore schedule 1 applied.

54. A number of the written responses (for instance, that from [NAME_37] and a number of other respondents, and that from [NAME_39]), referred to paragraph 11 of the Applicant’s statement of case. That asserts that “[NAME_1] did not give public notice for the contracts it enters into because it will rely on the public notices served by [NAME_25] when they set up the framework agreements which [NAME_1] used to obtain their own contracts”. Some respondents merely claimed this in aid of the assertion that it was unclear which contracts the dispensation application related to. But others suggested that it indicated that a proper public notice had not been made, and that that in turn meant that the consultation was governed by schedule 1. 55. [NAME_7] made further submissions on his own account.

56. He argued, first, that at the point of drafting the statement of case, the Applicant was treating the framework agreement with [NAME_25] as being a qualifying long term agreement. He noted the passage in which the statement of case argues that “it would not be practical for leaseholders to be consulted on every occasion that [NAME_25] instructs the supplier to forward buy energy on [NAME_1]’s behalf, as by the time the consultation process has been concluded, the price would no longer be available.” (see paragraph [94] below).

57. Secondly, he argued that the Applicant’s position at that time was right, in that the framework agreement was a qualifying long term agreement, and that we should so find. The core of the argument was that, because [NAME_25]’s fee was passed on to leaseholders via the call off contractors’ invoices, that fee was, indirectly, a “relevant contribution” paid by the leaseholders.

58. Thirdly, [NAME_7] also addressed us as to distinguishing [NAME_23], relevantly covering similar points to those raised by [NAME_21] (albeit he also quoted the dissenting judgments).

59. Fourth, he also echoed [NAME_21] on the lack of the information that the Respondents would need to demonstrate prejudice, making the particular point that, insofar as the Applicant did provide some information on pricing, it was on the basis of the [NAME_25] framework versus no framework at all. It was therefore impossible for the Respondents to construct a counter factual comparison between this

12 framework, and a realistic alternative framework that might have been available. 60. [NAME_7]’s final point was that there were a number of serious issues with the Applicant’s performance of its functions, and it would conduce to its proper accountability as a public body were we to decline this application. Otherwise, we would be endorsing its bad behaviour. 61. [NAME_2] responded.

62. The application was for dispensation in respect of the call off contracts. The status of the framework contract was not before us. Whether it is a qualifying long term agreement or not would be a matter for a challenge under section 27A of the 1985 Act. 63. [NAME_2] was not, he said, fully instructed as to the situation with the letters, but observed that a large number of responses had in fact been received, and that their nature did not mean that the directions had not been adhered to. 64. [NAME_23] could not be distinguished. It clearly set out how we should approach dispensation, and was further reinforced by additional authorities. He referred to Aster in the Upper Tribunal, noting that the approach to dispensation was not overturned in the Court of Appeal. In the most recent case, [COMPANY_41] v [NAME_164] [2023] UKUT 271 (LC), at paragraph [61] [NAME_165] expressly referred to paragraph [17] in Aster: “[t]he exercise of the jurisdiction to dispense with the consultation requirements stands or falls on the issue of prejudice.” 65. In respect of paragraph [41] of [NAME_23], it was to be seen in the context of paragraph [42], in which Lord Neuberger considered section 20ZA in its statutory context. He came to the conclusion (in paragraph [44]) that the purpose of the provisions was to avoid the financial consequences of tenants paying for inappropriate work or paying too much for them, that is, in this case, paying for an inappropriate long term contract, or paying too much for it. The purpose could only be properly reflected in terms of financial prejudice.

66. The factual burden is on the tenants to identify prejudice. As to the point that that was impossible because insufficient material had been provided, the Respondents had, now, more information than they would have had had consultation taken place, and could not identify prejudice.

67. The requirements were those in schedule 2 of the regulations. [NAME_2] said that it was hard to think of a contract that is more obviously subject to the public procurement requirement for a pubic

13 notice. [NAME_2] interpreted some of the objections to the terms of the statement of case as essentially an objection to public notice being given in advance of the consultation. He argued that the fact that a public notice had already been given was unexceptional – it would usually be the case that a public sector landlord would not engage on a schedule 2 consultation without having first given public notice. It is because public consultation is necessarily constrained when a contract is subject to public procurement regulation that schedule 2 was much more limited than schedule 1. It was not open to a consultee to suggest another provider, which was why the consultation issue was only as to the services to be provided. Since those services were gas and electricity, it is not conceivable that the position taken over a long process of years involving [NAME_31] and other boroughs would have been reversed.

68. As to the next stage of the schedule 2 requirements, the landlord’s proposal, it would not have been possible to provide financial details on the basis of future rates for the commodities, but even if that had been possible, given the inability to go to another contractor, it was difficult to see what responses could have achieved.

69. No Respondent had said what they would have said if there had been consultation. In any event, the main element to the bills was the cost of the energy, which had no bearing on the call off contract in that it was set by the [NAME_25] negotiators. [NAME_25]’s own costs would be the same, irrespective of call off contractor, so the only possible difference would be whether [NAME_11] or [NAME_12]’s administrative costs would be higher than others. But the evidence was that [NAME_11] was the only electricity provider that was interested, and it was [NAME_12] who won the mini- competition. Determination 70. The Tribunal is concerned solely with the application under section 20ZA of the 1985 Act to dispense with the consultation requirements under section 20 and the regulations.

71. First, we are satisfied that the relevant schedule in the regulations is schedule 2. We did not receive extended submissions on the application of the law relating to public procurement, and it is not immediately apparent to us what the statement in the Applicant’s statement of case means. However, it must be that a public sector contract of this significance is subject to the obligation for a public notice, as [NAME_2] submitted. Our preliminary task is to decide which of schedules 1 and 2 apply. In deciding that, it is not ultimately relevant whether a valid public notice has been given or not. What matters is whether a public notice is required, and clearly it must be.

Accordingly, it is the requirements in schedule 2 that apply.

14 72. We reject the attempts by [NAME_21] and [NAME_7] to distinguish [NAME_23]. We accept [NAME_2]’s submission that the inherent logic of [NAME_23] is that only financial prejudice enters into the calculation. That follows, in our view, from the Supreme Court’s identification of the (only) objects of that part of the 1985 Act as being those spelled out in section 19, which is to say the avoidance of unfair prejudice being imposed on tenants; combined with the Court’s approach of directly applying those objects to the terms of section 20 and 20ZA. Neither of those conclusions, particularly the second, was inevitable, but that is what the Court said, and it is binding upon us.

73. It might have been possible at one time to argue that paragraph [41] provided a crack through which [NAME_21] and [NAME_7]’s key point – the need for information sufficient to allow a prejudice assessment as a precondition for the factual burden on the tenants of identifying prejudice – might slip ([NAME_21] optimistically described it as a cavern). However, we accept that the Upper Tribunal cases cited by [NAME_2] close that gap, if ever it was available. Aster and the other cases are as binding upon us as is the decision of the Supreme Court. Prejudice, and the initial demonstration thereof by the tenants, is now what a derogation application is all about.

74. In a sense, that is sufficient to decide the application, as the Respondents did not (as of necessity, they argued) put a positive case in respect of prejudice. Nonetheless, we accept [NAME_2]’s invitation to consider what would have happened, had there been a schedule 2 consultation. In doing so, we take a realistic attitude to the information that would have been provided and the approach that the Applicant would have taken.

75. The matters that would have been set out in the notice of intention would have been a description of the services to be provided (“the relevant matters”) under regulation 1(2)(a) and the landlord’s reasons for considering it necessary (regulation 1(2)(b)). The rest of the requirements in regulation 1(2) are either not relevant, or the invitation to respond etc.

76. The description of the services would be in terms of the general operating approach of [NAME_25]. The reasons would have been a justification of the advantages of this approach, in general terms, similar to those provided in the statement of case. No one really contests at a general level the advantages of the sort of framework agreement entered into by the Applicant, for the reasons advanced. [NAME_21] expressly accepted the point. [NAME_7]’s argument was as to possible alternative frameworks, not a challenge to the basic concept. The same, or similar, appears to be the views of those respondents who provided substantive responses.

15 77. The landlord’s proposal published to the leaseholders (regulations 4 and 5) would include nothing more than the identities of the parties, the length of the agreement, and the explanation as to why no costings were available (which they would not be). As [NAME_2] observes, the Respondents have now, as a result of this application, had much more detail than that, and cannot identify prejudice. They could not have done so then, so as to persuade the Applicant to adopt another course.

78. If a respondent were to ask for the long list of materials in the list in [NAME_21]’s written submission, the Applicant might well have declined, on the basis that it was not obliged to provide it.

79. But if it had, then the main thrust of the response, as it applies to the questions as to the process taken and the reasons for contracting with [NAME_11] and [NAME_12], would have been broadly the explanation as set out in the statement of case, or merely what we have set out in this decision at paragraphs [30] to 938]. Any request for a comparison with the previous CSS arrangement would be entirely speculative and general in respect of financial outcomes, and would have meant that the advantages of the London-centred service level agreement endorsed by the Applicant would not be realised. No doubt the agreements themselves would have been almost wholly redacted as commercially sensitive, as was the case in the one agreement disclosed in these proceedings.

80. None of that would have allowed the Respondents to seriously contest the proposal.

81. The history related above appears to us to amount to a situation in which the [NAME_31]-enhanced service agreement, which inevitably meant a framework agreement with [NAME_25] (only) was the only game in town. That required call off contracts for electricity and gas. The only option in respect of electricity was [NAME_11]. In respect of gas, there had been one other contractor in play before the mini-competition organised by [NAME_31], but that had been rejected in favour of [NAME_12]. Even if other call off contractors might have been available (and there was some suggestion that a small minority of authorities had contracted with others), there is nothing in what would have been disclosed in the consultation process that would have meant that the leaseholders could have persuaded the Applicant to abandon [NAME_11] and [NAME_12]. And as it is clear that a large majority of [NAME_31] authorities did contract with [NAME_11] and [NAME_12], it could hardly be said that that was an unreasonable or inappropriate choice. Where an authority had decided to follow the [NAME_31] recommendations, there was no alternative to [NAME_11], and [NAME_12] won the mini-competition.

82. Further, we think it likely that the prime mover in the Respondents’ discontent is the level of charges they face for electricity and gas. [NAME_166] suggested that the main components of these higher bills was the electricity and gas, and of what remained, [NAME_25]’s fee, which would not have been different had there been different call off contractors. We doubt this. [NAME_17]’s figures suggest that for half of the period, the commodity price was substantially less than half of the total cost (in relation to the most common tariff), and for the other two years, it was not far off half. We do not have a calculation, but is seems likely that [NAME_25]’s fees are a relatively small proportion of the non- commodity cost. It is true that [NAME_17]’s figures only related to one element of electricity, but as we note above, they are borne out by the admittedly anecdotal evidence of other leaseholders.

83. There may, in other words, be a real concern about the level of fees being charged now for gas and electricity to the Applicants’ leaseholders. But that cannot be relevant to what would have happened if there had been a schedule 2 consultation in 2019. No-one knew that that was what the fees would be then. While this is, no doubt, partly because of the volatility of the market (or its recent inflation), it appears that it may also be something to do with the non-commodity charges. We are, however, in no position to know what that is, even now, so there is no possibility that it is something that could have been uncovered in 2019, and used to persuade the Applicant to contract in a way that would be more advantageous.

84. We add that it seems to us that a significant contribution to the Respondents’ submissions has, in reality, been a dissatisfaction with, or critique of, the policy and commercial decisions made by the Applicant over a period of years, but particularly in the run up to the events of 2019, and the failure of the first tender, for the wholly London-specific framework, in that year.

85. But these are not the right proceedings for those criticisms to be deployed. First, we are obliged to focus on a limited decision at one point in that process – the entering into of the call off contracts; and to do so through the narrow perspective of tenant prejudice.

86. Secondly, and more broadly, the Tribunal’s jurisdiction under section 20ZA is simply neither appropriate for, nor equipped to conduct, a judicial review-type investigation of the rationality of the Applicant’s decision making to join the [NAME_31] process, and to stick with it, rather than, for instance, to abandon the enhanced service level agreement and contract with [NAME_32], or whatever other options could be shown to have been available to it.

87. We now consider subordinate submissions made by the Respondents.

88. We reject [NAME_7]’s submission that we should decide that the framework agreement is a qualifying long term agreement. We agree with [NAME_2] that we are only concerned with the application

17 under section 20ZA in respect of the call off contracts. We would be acting outwith our jurisdiction were we to consider the status of the framework agreement.

89. We reject [NAME_7]’s submission that the accountability of the Applicant as a public body is relevant to our decision in relation to dispensation. The 1985 Act regulates landlords qua landlords, and is indifferent to the legal or indeed constitutional status of a landlord. It is as a landlord, not as a public body, that the Applicant appears before us.

90. We also reject [NAME_21]’s submission that the chaotic way in which the Applicant sought to communicate at required by the directions was such that that alone justified refusing dispensation. There is nothing in [NAME_23] or any of the other case law that is now relevant that would justify refusing dispensation to punish a party for poor conduct of the litigation. Given the inability to marry the point to any prejudice, it would presumably mean refusing the application outright. To do so would be grossly disproportionate. Limiting the annual costs of electricity and gas to £100 for each leaseholder would involve the Applicant in absorbing millions of pounds worth of losses.

91. We also note one small inaccuracy in [NAME_21]’s submissions. He stated that the Applicant had failed to engage with [NAME_32] in time for them to be able to offer a framework agreement that would satisfy the Applicant in time for the April 2020 start date. It was in fact [NAME_26]’s evidence that [NAME_32] had been fully aware of the process throughout. It may be (we do not know) that the constricted time scale created by the failure of the original London-only framework proposal is the reason why [NAME_32] was unable to be prepared in time to the offer an equivalent adapted framework to that provided by [NAME_25], but that is a different point.

92. We accordingly allow the application to dispense with the consultation requirements under section 20ZA of the 1985 Act. In the absence of identified prejudice to the Respondents, we do so unconditionally. Some closing observations 93. We have rejected [NAME_21]’s submission that we refuse the application because of the letters produced by the Applicant. That does not mean that we regard what happened as being in any way acceptable. It is difficult to understand how the decision to behave in such a chaotic and unhelpful way could have been made – someone actually wrote the letters, and in respect of eight of them, presumably instructed them to be sent on the same day. The Tribunal, and above all the [NAME_45], are entitled to better.

18 94. [NAME_7], in his submissions, referred to the statement in the statement of case noted at paragraph [56] above. [NAME_7] referred to it in pursuance of his argument that the framework agreement was a qualifying long term agreement. But he also criticises it as not relevant to (even) the framework contract. We agree with [NAME_7]’s criticism. Quite apart from the question of whether the framework agreement required consultation, that passage is seriously misleading. Even if the Applicant thought at the time that the framework agreement counted as a qualifying long term agreement, the argument was specious. The prices negotiated on a short time frame by [NAME_25] do not constitute the framework agreement between the Applicant and [NAME_25] (whatever the actual contractual relations). Rather, they relate to the mechanism used by [NAME_25] to do its job of negotiating prices on the wholesale market in such a way as to reduce risk and maintain overall price stability in a volatile market. It is an easy argument to make (and we think it has been used in other [NAME_25] cases involving [NAME_46]), but it ignores the basic structure of contracts as they have been explained to us, most clearly in [NAME_26]’s oral evidence. The use of this argument by the Applicant (and other [NAME_46]) seems to us either to indicate that the people responsible for its statement of case do not understand the nature of the contracts involved; or that the argument is being deployed dishonestly. Neither is an attractive prospect.

95. Finally, this determination is concerned solely with the granting of dispensation from the consultation requirements in relation to the two contracts. If the Respondents, or other leaseholders, consider that the non-commodity elements of their electricity and gas bills are not reasonably incurred by them, they have the option of making applications under section 27A of the 1985 Act. Rights of appeal 96. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber) then a written application for permission must be made to the First-tier Tribunal at the London regional office.

97. The application for permission to appeal must arrive at the office within 28 days after the Tribunal sends written reasons for the decision to the person making the application.

98. If the application is not made within the 28 day time limit, the application must include a request for an extension of time and the reason for not complying with the 28 day time limit; the Tribunal will then look at these reason(s) and decide whether to allow the application for permission to appeal to proceed despite not being within the time limit.

99. The application for permission to appeal must identify the decision of the Tribunal to which it relates, give the date, the property and the case

19 number; state the grounds of appeal; and state the result the party making the application is seeking.

Name: Judge Prof Richard Percival

Date: 3 April 2024

20 Appendix 1: Respondents

[NAME_47], [ADDRESS], [POSTCODE] [NAME_48], [ADDRESS], [POSTCODE] [NAME_49], [ADDRESS] [POSTCODE] [NAME_50], [ADDRESS], [POSTCODE] [NAME_51], [ADDRESS], [POSTCODE] [NAME_52], [ADDRESS], [POSTCODE] [NAME_53], P 30 Witchwood Hse, [POSTCODE] [NAME_54], [ADDRESS], [POSTCODE] [NAME_6], A 39 Calais Gate, [POSTCODE] [NAME_55], [ADDRESS], [POSTCODE] [NAME_56], [ADDRESS], [POSTCODE] [NAME_57], [ADDRESS], [POSTCODE] [NAME_58], [ADDRESS], [POSTCODE] [NAME_59], [ADDRESS], [POSTCODE] [NAME_60], [ADDRESS], [POSTCODE] [NAME_61], [ADDRESS], [POSTCODE] [NAME_62], Y [ADDRESS], [POSTCODE] [NAME_14], A 18 Falmouth House, SE11 5 JT [NAME_63], [ADDRESS], [POSTCODE] [NAME_38], [ADDRESS], [POSTCODE] [NAME_64], [ADDRESS], [POSTCODE] [NAME_65], [ADDRESS], [POSTCODE] [NAME_67], [ADDRESS], [POSTCODE] [NAME_68], [ADDRESS], [POSTCODE] [NAME_69], [ADDRESS], [POSTCODE] [NAME_70], [ADDRESS], [POSTCODE] [NAME_71], [ADDRESS], [POSTCODE] [NAME_72], [ADDRESS], [POSTCODE] [NAME_73], I 8 [NAME_74], [POSTCODE] [NAME_75], [ADDRESS], [POSTCODE] [NAME_76], [ADDRESS], [POSTCODE] [NAME_77], S 30 Calais Gate, [POSTCODE] [NAME_78], H [ADDRESS], [POSTCODE] [NAME_79], J [ADDRESS], [POSTCODE] [NAME_80], [ADDRESS], [POSTCODE] [NAME_81], [ADDRESS], [POSTCODE] [NAME_84], R Flat 5, [NAME_74], [POSTCODE] [NAME_6], [ADDRESS], [POSTCODE] [NAME_85], [ADDRESS], [POSTCODE] [NAME_86], [ADDRESS], [POSTCODE] [NAME_87], [ADDRESS], [POSTCODE] [NAME_88], [ADDRESS], [POSTCODE] [NAME_89], [ADDRESS], [POSTCODE] [NAME_90], [ADDRESS], [POSTCODE] [NAME_91], [ADDRESS], [POSTCODE] [NAME_16], [ADDRESS], [POSTCODE] [NAME_8], [ADDRESS], [POSTCODE] [NAME_40], [ADDRESS], [POSTCODE] [NAME_92], [ADDRESS], [POSTCODE]

21 [NAME_74], [ADDRESS], [POSTCODE] [NAME_93], [ADDRESS], [POSTCODE] [NAME_94], [ADDRESS], [POSTCODE] [NAME_95], [ADDRESS], [POSTCODE] [NAME_96], [ADDRESS], [POSTCODE] [NAME_97], [ADDRESS], [POSTCODE] [NAME_98], [ADDRESS], [POSTCODE] Zara, C [ADDRESS], [POSTCODE]

22 Appendix 2: Respondents represented by [NAME_167] [NAME_103] [NAME_105] [NAME_107] [NAME_109] [NAME_95] [NAME_111] [NAME_112] [NAME_113] [NAME_115] [NAME_117] for [NAME_120] [NAME_124] [NAME_127] [NAME_129] [NAME_131] [NAME_65] [NAME_133] [NAME_73] [NAME_135] [NAME_137] [NAME_139] [NAME_141] [NAME_143] [NAME_145] [NAME_147] [NAME_149] [NAME_151] [NAME_152] [NAME_154] [NAME_156] [NAME_158] [NAME_160]