Landlord Allowed to Bypass Consultation Requirements for Electricity and Gas Supply Agreement

OUTCOME: Allowed

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Case Reference

: CAM/00KG/LDC/2024/0607

HMCTS

: Paper

Properties

: All properties in respect of which costs may be payable under the relevant agreement for the Landlords’ Electricity Supply as listed in the Schedule to the [NAME]

Applicants

: [redacted]

: [COUNSEL]–Head of Procurement

Respondents : [redacted] Properties who may be liable to pay a service charge towards the costs incurred under the relevant agreement.

Type of [NAME] : To dispense with the consultation requirements of Section 20 of the Landlord and Tenant Act 1985 pursuant to Section 20ZA for a long-term agreement for the supply of electricity and gas

Tribunal

: Judge JR Morris

Date of [NAME] : 18 October 2024 Date of Directions : 28 January 2025 Date of Decision : 20 March 2025

_______________________________________________

DECISION ____________________________________

© CROWN COPYRIGHT 2025

FIRST - TIER TRIBUNAL [NAME] CHAMBER ([NAME])

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Decision

1. The Tribunal determines that it is reasonable to dispense with compliance with of Schedule 1 to the Service Charges (Consultation etc) (England) Regulations 2003 (SI 2003/1987).

2. The Applicant Landlords shall place a copy of the Tribunal’s decision on dispensation together with the relevant appeal rights attached on their website within seven days of receipt and shall maintain it there for at least three months, with a prominent link to them on their home page.

Reasons

The [NAME]

3. An [NAME] for dispensation from the section 20 consultation requirements in respect of a qualifying long-term agreement for supply of electricity and gas to the communal areas of the Properties where the Applicant is the Landlord was made on 18 October 2024.

4. The Properties are various residential buildings at sites listed in Appendix 1 of the [NAME], where the Applicant is responsible for the communal electricity and gas supply to which [NAME] contribute. At the time of the [NAME] an agreement had not been entered and the Applicant sought dispensation before proceeding.

5. The Applicant stated that they were seeking a total dispensation of the consultation requirements imposed by Section 20 of the Landlord and Tenant Act 1985 (as amended) because the fuel procurement process is an increasingly volatile market, such that suppliers submit prices on the basis that they can be withdrawn at short notice so offers may be available for a few hours only. Therefore, to obtain the best electricity and gas prices the Applicant needed to be able to act within three hours and in those circumstances, it is impracticable and impossible to comply with the consultation requirements. As an appendix to the [NAME] the Applicant provided a statement from their [NAME], [COMPANY] in support of the [NAME] which is set out under the “Evidence and Submissions” heading below.

6. The Applicant proposed to send a letter to all [NAME] explaining why dispensation was being sought, including a list of Frequently Asked Questions (FAQ) and a summarised version of our energy consultant's analysis of the market and projections. The letter will be posted on the Applicant’s website and will include:

1. Details of the consultation procedure;

2. A copy of the [NAME] with all the relevant documents including a detailed analysis of the market and projections;

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3. How to respond to the letter with any questions raised in the consultation period that are not answered in the FAQ and that these will be anonymised; 4. Copies of any of the documents (electronic or hard copies) will be provided on request; 5. Directions, when made by the Tribunal. The Applicant added that documents will also be provided to the [NAME] for further review during their meetings.

7. These proposals were in keeping with the requirements of [NAME] set out below.

8. Directions were issued on 28 January 2025 which stated that the [NAME] would be determined on or after 10 March 2025 based on written representations, unless either party made a request for an oral hearing by 7 March 2025. No request was received.

9. [NAME] required the Applicant to write to each of the [NAME] by email, hand delivery or first-class post, informing them: (a) of the [NAME]; (b) that a copy of the [NAME] and all the supporting documents, with any personal details deleted or redacted, and a copy of [NAME] are available on line advising them of the URL address and notifying them that any response to the [NAME] should be made by 28 February 2025. (c) that if a [NAME] wished to receive a printed copy of the [NAME] and [NAME] they should write to the Applicant, who will then send printed copies (again, with any personal details deleted); (d) that as the [NAME] progresses additional documents will be added to the website, including the final decision of the tribunal, stating clearly that the final decision is likely to be uploaded on or after 10 March 2025. The Applicant was to confirm by email that [NAME] had been carried out and state the date on which this was done.

10. [NAME] also required [NAME] who oppose the [NAME] by 28 February 2025 to: • Complete the attached reply form and send it by email to the tribunal; and • Send to the landlords, by email or by post, a statement in response to the [NAME] with a copy of the reply form. They should send with their statement copies of any documents upon which they wish to rely.

11. [NAME] further required the Applicant by 7 March 2025 to: • Prepare a digital, indexed and paginated Adobe PDF bundle of all relevant documents for use in the determination of the [NAME], containing all of the documents on which the landlords rely, including the [NAME] form, these and any subsequent directions, copies of any replies from the [NAME] and any relevant correspondence with the tribunal; • Upload a copy of the bundle to their website;

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• Write to each of the [NAME] who have sent a reply form to oppose the [NAME], by email and/or post, providing them with a link to the uploaded bundle or, if they request one, a paper copy of the bundle; • Send a link to that bundle (or a PDF) to the tribunal.

12. The Applicant sent a link to the website. The Tribunal confirmed from the website that, in accordance with the intentions expressed by the Applicant in the [NAME] and in compliance with [NAME], the Applicant posted the following documents: • A copy of the [NAME]. • An explanation of the consultation procedure. • A relevant Frequently Asked Questions and Answers document. • A letter notifying the [NAME] that an [NAME] for dispensation from the consultation requirements of section 20 of the Landlord and Tenant Act 1985 would be made. The letter also explained why it was considered impractical to carry out the consultation procedure at the present time for a long-term contract for gas and electricity for the communal areas. • A statement by its [NAME] giving an overview of the current global situation in respect of the cost of utilities and how this impacted on their price in the UK for 2025. • An Explanation by the energy consultant, [COMPANY] as to why it was necessary to seek dispensation from the consultation requirements for gas and electricity at this time and how the flexibility of dispensing with the requirements would benefit the [NAME]. • A copy of [NAME] giving the opportunity for [NAME] to respond to the [NAME]. • A letter explaining the procedure for obtaining dispensation.

13. The Applicant confirmed that no objections to the [NAME] had been received by them and none had been received by the Tribunal.

The Law

14. Section 20 of the Landlord and Tenant Act 1985 limits the relevant service charge contribution of tenants unless the prescribed consultation requirements have been complied with or dispensed with under section 20ZA. The requirements are set out in The Service Charges (Consultation Requirements) (England) Regulations 2003. Section 20 applies to long term qualifying contracts (contracts for more than 12 months) if the relevant costs incurred exceed an amount which results in the relevant contribution of any tenant being more than £100.

15. The consultation provisions appropriate to the present case are set out in Schedule 1 to the Service Charges (Consultation etc) (England) Regulations 2003 (SI 2003/1987) (the 2003 Regulations). The Procedure of the Regulations are summarised in Annex 2 of this Decision and Reasons.

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16. Section 20ZA allows a Landlord to seek dispensation from these requirements, as set out Annex 2 of this Decision and Reasons and this is an [NAME] for such dispensation.

The Lease

17. A copy of a Lease, the relevant provisions of which were understood to be common to all the Leases granted by the Applicant or its predecessors. The relevant terms are as follows:

1. Clause 3 [NAME]’s Covenants

The [NAME] covenants with the Landlord as follows:

3.1 Pay rent To pay…the Service Charge in accordance with Clause 7

3.3 Outgoings (c) To pay the Service Charge in accordance with Clause 7

2. Clause 5 Landlord’s Covenants

The Landlord covenants with the [NAME] as follows:

5.4 Lighting and cleaning of Common Parts …so far as practicable to keep the Common Parts of the Building adequately cleaned and lighted.

3. Clause 7 Service Charge Provisions

7.3 How calculated The Service Provision shall consist of a sum comprising the expenditure estimated by the [NAME] as likely to be incurred in the Account Year by the Landlord for the matters specified in Clause 7.4

7.4 Service Provision The relevant expenditure to be included in the Service Provision shall comprise all expenditure reasonably incurred by the Landlord in connection with the repair. management, maintenance and provision of services for the Building and shall include (without prejudice to the generality of the foregoing): (a) the costs of and incidental to the performance of the Landlord's covenants contained in Clause 5.2 (Insure)) and Clause 5.3 (Repair redecorate renew structure) and Clause 5.4 (Lighting and cleaning of Common Parts);

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(d) any Outgoings assessed, charged, imposed or payable on or in respect of the whole of the Building or in the whole or any part of the Common Parts;

4. Schedule 9 Defined Terms

“[NAME]” means the individual nominated by the Landlord to estimate expenditure in relation to the Service provision in accordance with Clause 7.3 (How calculated).

“Building" means the building on the Estate of which the Premises form part and each and every part of the Building and any other areas the use and enjoyment of which Is appurtenant to the Building. whether or not within the structure of the Building.

“Common Parts” means those parts of the Building (whether or not within the structure of the Building) to be used in common by any of the [NAME]. other tenants and occupiers of the Building. the Landlord, and those properly [NAME] or permitted by them to do so, and “Common Parts" includes (but without limitation) the entrance hall, corridors, lobbies, staircases, access ways. passages, external pavements, car park, service and loading areas. service road. gardens if any) and other such amenities, but excluding any such parts as may be within the Premises.

“0utgoings” means (In relation to the Premises) all existing and future rates. taxes, duties, charges, standing charges, levies assessments, impositions and outgoings whatsoever (Whether parliamentary or local and including equipment rents and hire charges) which are now or may at any time be payable, charged or assessed on [NAME], or the [NAME].

Submissions and Evidence

Applicant’s Case

18. A statement from the Applicant’s [NAME], [APPELLANT] explaining the reasons for seeking dispensation from the consultation requirements was provided as follows:

Reduced Prices on Long-Term Procurements

Prices within the energy markets have been volatile over the past four years and, while they have fallen from the highs from last year, they remain higher than they were pre-Covid. However, the forward market does present opportunities to buy long-term contracts as the market is in backwardation. Backwardation means that prices are cheaper the longer you buy forward, i.e. contracts, 2, 3 or 4 years are cheaper than a one-year contract.

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[NAME] request a dispensation of the consultation requirements provided for by Section 20 of the Landlord and Tenant Act 1985. This dispensation will be used to enter a long-term contract which would save tenants money and provide Service Charge stability. (A graph was provided outlining the prices for the next 4 years.)

A review of baseload UK power and gas prices demonstrates that prices have been particularly volatile over the past two years and rose substantially during the peaks of the Energy Crisis in 2022. The market is now steadier than it has been in recent times but remains high compared to historic periods over the past twenty years due to global conflicts (Ukraine/Russia and the Middle East).

Despite the current prices, there is still an opportunity to enter into a long-term agreement to buy energy at a lower rate than that of shorter-term contracts.

By having a long-term contract with a supplier, the [COMPANY] is empowered to make decisions about when to buy energy, rather than being at the mercy of market movements; this means [NAME] will have a longer term to have stable and fairer prices. A long-term agreement also allows for easier budgeting. This will help the buyer to manage their expenses more efficiently and will also prevent any surprise increases further down the line.

Finally, a benefit to having a long-term energy agreement is that it will prevent the need to renew the contract every 12 months with the resulting associated fees. Each time an agreement is renewed, both parties have to pay for re-negotiation, re-tendering, and sourcing, which adds up over time. These costs will be avoided on behalf of the tenant.

Capacity to Work with Long-Term Suppliers

A dispensation of Section 20 of the Landlord and Tenants Act will enable [NAME] to appoint energy suppliers on a long-term agreement. Establishing a long-term supplier agreement will allow [NAME] to include tender requirements to the suppliers to support the housing organisation with their energy efficiency initiatives. This could include new energy connections and the installation of new meters.

A long-term energy contract will enable stronger relationships with suppliers which take time to build. This will facilitate a greater understanding of their requirements. It will also guarantee security for both the energy seller and the buyer, knowing that the agreement will last.

The key advantage of strong, healthy supplier relationships is that you can gain better value for your business. The better the relationship with the suppliers, the more likely customers are to benefit from dedicated service, preferential pricing and special terms. Through this, the supply chain becomes more efficient, cost effective and productive.

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A further advantage of a long-term contract with a supplier is that a structured roll-out of smart meters can be achieved across the estate. This would in turn provide the data to identify and address areas of anomalous consumption.

Access to Market

By having a dispensation from Section 20 of the Landlord and Tenants Act, engaging with the commodity market will be a less complicated process. Approaching the market once in every three or four years instead of on an annual basis will minimise the admin time and cost of contracting. It also reduces complexity and enables better financial planning since the ability to forward hedge means our staff will have access to reasonably reliable forecast energy prices. Long term agreements therefore provide a degree of protection from the volatility of the market.

Market Volatility

The energy market is volatile. Prices regularly move 2% - 5% in a day and can move over 100% in a 12-month period. With margins in energy prices being typically less than 2%, market movement can result in prices being suddenly withdrawn. This market volatility means that the validity of fixed price offers is rarely beyond four o’clock of the same day they are issued. This means it is not possible to have an offer which remains valid for the 56 days period required for formal consultation.

[NAME]’s Case

19. No objections were received by the [NAME]

20. The Tribunal found that the [NAME] had been given an opportunity to object to or make representations concerning the entering of a long-term contract following the information provided in correspondence to the [NAME] and on the Applicant’s website. The [NAME] had also had an opportunity to respond to the [NAME] for dispensation from the consultation requirements.

21. The Tribunal found from its own knowledge and experience and from having heard cases on similar issues, that the arguments put forward by the Applicant’s [NAME] for entering a long-term contract (i.e. more than 12 months) for the supply of gas and electricity were justified. The Tribunal also found that their observations on the volatility of the market were well founded. Prices fluctuate from day to day and what might be perceived as a good offer by a supplier for a fixed price long term contract is unlikely to be held for long. The Tribunal further found that to obtain the best price for communal gas and electricity contracts, it was to the [NAME] advantage, to provide the

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Applicant and its agent with the flexibility to obtain the best offer without requiring compliance with the section 20 consultation procedure.

22. Therefore, the Tribunal found that the Respondents were not prejudiced by dispensing with the whole of the consultation procedure of section 20 of the Landlord and Tenant Act 1985.

Determination

23. In determining whether dispensation should be given and the extent of such dispensation the Tribunal considered the decision in [NAME] v Benson [2013] UKSC 14. Lord Justice Gross said that “significant prejudice to the tenants is a consideration of the first importance in exercising the dispensatory discretion under s.20ZA(1)”.

24. In addition, Lord [NAME] said that the main issue and often the only issue is whether the tenants have been prejudiced by the failure to comply: Given that the purpose of the requirements is to ensure that the tenants are protected from (i) paying for inappropriate works or (ii) paying more than would be appropriate, it seems to me that the issue on which the LVT should focus when entertaining an [NAME] by a landlord under section 20ZA(1) must be the extent, if any, to which the tenants were prejudiced in either respect by the failure of the landlord to comply with the requirements. [44]

25. In summary, the Supreme Court determined as follows:

1) The main question for the Tribunal is whether the landlord’s breach of the section 20 consultation requirements resulted in the [NAME] suffering real prejudice.

2) The financial consequence to the landlord of not granting a dispensation is not a relevant factor.

3) The nature of the landlord is not a relevant factor.

4) Dispensation should not be refused solely because the landlord seriously breached, or departed from, the consultation requirements.

5) The Tribunal has power to grant a dispensation as it thinks fit, provided that any terms are appropriate.

6) The Tribunal has power to impose a condition that the landlord pays the tenants’ reasonable costs (including surveyor and/ or legal fees) incurred in connection with the landlord’s [NAME] under section 20ZA.

7) The legal burden of proof in relation to dispensation applications is on the landlord. The factual burden of identifying some “relevant” prejudice that they would or might have suffered is on the tenants.

8) The Supreme Court considered that “relevant” prejudice should be given a narrow definition; it means whether non—compliance with the consultation requirements has led the landlord to incur costs in an unreasonable amount or to incur them in the provision of services, or in the carrying out of works, which fell below a reasonable standard, in other

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words whether the non—compliance has in that sense caused prejudice to the tenant. 9) The more serious and/or deliberate the landlord’s failure, the more readily a Tribunal would be likely to accept that the tenants had suffered prejudice. 10) Once the tenants had shown a credible case for prejudice, the Tribunal should look to the landlord to rebut it.

26. The Tribunal is satisfied that it is reasonable to dispense with compliance with the consultation requirements of Section 20 of the Landlord and Tenant Act 1985 as set out in Schedule 1 of the Service Charges (Consultation requirements) (England) Regulations 2003(SI 2003/1987).

27. The [NAME] should note that this is not an [NAME] to determine the reasonableness of the contract or its cost. An [NAME] can be made to this Tribunal under section 27A of the Landlord and Tenant Act 1985 in relation to whether any service charges for any costs payable under the agreement are reasonable or payable.

28. The [NAME] shall place a copy of the Tribunal’s decision on dispensation together with the relevant appeal rights attached on their website within seven days of receipt and shall maintain it there for a t least three months, with a prominent link to them on their home page.

Judge JR Morris

ANNEX 1 - RIGHTS OF APPEAL

1. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber) then a written [NAME] for permission must be made to the First-tier Tribunal at the [NAME] which has been dealing with the case.

2. The [NAME] for permission to appeal must arrive at the [NAME] within 28 days after the Tribunal sends written reasons for the decision to the [NAME].

3. If the [NAME] is not made within the 28 day time limit, such [NAME] 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 such reason(s) and decide whether to allow the [NAME] for permission to appeal to proceed despite not being within the time limit.

4. The [NAME] for permission to appeal must identify the decision of the Tribunal to which it relates (i.e. give the date, the [NAME] and the case number),

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state the grounds of appeal, and state the result the party [NAME] the [NAME] is seeking.

ANNEX 2 - THE LAW

1. Section 20 of the Landlord and Tenant Act 1985 limits the relevant service charge contribution of tenants unless the prescribed consultation requirements have been complied with or dispensed with under section 20ZA. The requirements are set out in The Service Charges (Consultation Requirements) (England) Regulations 2003. Section 20 applies to long term qualifying agreements if the relevant costs incurred in carrying out the works exceed an amount which results in the relevant contribution of any tenant being more than £100.

2. The consultation provisions appropriate to the present case are set out in Schedule 1 to the Service Charges (Consultation etc) (England) Regulations 2003 (SI 2003/1987) (the 2003 Regulations). The Procedure of the Regulations and are summarised as being in 4 stages as follows:

A Notice of Intention to enter a long-term qualifying agreement must be served on all the tenants. The Notice must state the reasons for entering the agreement and give an opportunity for tenants to view the relevant matter and invite observations to be made and the nomination of contractors with a time limit for responding of no less than 30 days. (Referred to in the 2003 Regulations as the “relevant period” and defined in Regulation 2.)

Estimates must be obtained from contractors identified by the landlord (if these have not already been obtained) and any contractors nominated by the Tenants.

A Notice of the Landlord’s Proposals must be served on all tenants to whom an opportunity is given to view the estimates for the relevant matter. At least two estimates must be set out in the Proposal and an invitation must be made to the tenants to make observations with a time limit of no less than 30 days. (Also referred to as the “relevant period” and defined in Regulation 2.) This is for tenants to check that the contract to be entered is permitted under the Lease, and are likely to be best value (not necessarily the cheapest) and so on.

A Notice of Works must be given if the contractor to be employed is not a nominated contractor or is not the lowest estimate submitted. The Landlord must within 21 days of entering into the contract give notice in writing to each tenant giving the reasons for awarding the contract and, where the tenants made observations, to summarise those observations and set out the Landlord’s response to them.

3. Section 20ZA allows a Landlord to seek dispensation from these requirements, as follows –

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(1) Where an [NAME] is made to a leasehold valuation 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.

(2) In section 20 and this section— "qualifying works" means works on a building or any other premises, and "qualifying long term agreement" means (subject to subsection (3)) an agreement entered into, by or on behalf of the landlord or a [NAME], for a term of more than twelve months.

(3) The Secretary of State may by regulations provide that an agreement is not a qualifying long term agreement— if it is an agreement of a description prescribed by the regulations, or in any circumstances so prescribed.

(4) to (7)… not relevant to this [NAME].