Local Authority Granted Dispensation from Consultation Requirements for New Energy Contracts

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AU/LDC/2022/0188P Properties :

Various residential leasehold properties in the City of London Borough of Islington Applicant: [redacted]

The London Borough of Islington Representative : [COUNSEL] – [COMPANY] Respondents :

[redacted] [COMPANY], as referred to in the [NAME] of [NAME] :

Dispensation from compliance with statutory consultation requirements

Tribunal members :

Judge P [NAME] Mr S Mason FRICS

Date of decision : 9 January 2023

DECISION

Description of hearing

This has been a remote hearing on the papers. The form of remote hearing was P. An oral hearing was not held because the Applicant confirmed that it would be content with a paper determination, the Respondents did not object and the tribunal agrees that it is appropriate to determine the issues on the papers alone. The documents to which we have been referred are in an electronic bundle, the contents of which we have noted. The decision made is described immediately below under the heading “Decision of the tribunal”.

2 Decision of the tribunal

The tribunal dispenses unconditionally with the statutory consultation requirements in respect of the qualifying long-term agreements (“QLTAs”) which are the subject of this [NAME]. The [NAME]

1. The Applicant seeks dispensation under section 20ZA of the Landlord and Tenant Act 1985 (“the 1985 Act”) from the consultation requirements imposed on the landlord by section 20 of the 1985 Act in relation to two QLTAs.

2. The [NAME] is in respect of all residential leasehold properties in the London Borough of Islington where the Applicant is the landlord. The QLTAs in question are for the supply of electricity and gas. Applicant’s case 3. The Applicant’s current contracts for the supply of electricity and gas are with [NAME] ([NAME]) and will now both end on 31 March 2023. These contracts were agreed in 2019 to cover the period 2020 to 2024. The contracts were not for purchasing energy at a fixed price but they allowed the Applicant access to the commodity markets. The Applicant made trades on the markets through [NAME] to purchase volumes of electricity or gas for defined periods. The commodity element of the electricity and gas was purchased flexibly, taking into account market conditions and the Applicant’s requirements as to when the supplies were needed or when the market was low.

4. For 2020/21 and 2021/22, the supplies for both financial years were purchased in full prior to the start of each year by [NAME] trades for the full volumes. However, significant volatility and price rises in the energy market from September 2021 onwards meant that the usual strategy of purchasing when the market was low could not be implemented. The Applicant therefore opted to purchase for shorter periods with the expectation that prices would eventually settle.

5. However, the ongoing war in Ukraine and Russia disrupted the flow of gas through the Nordstream pipeline and led to increased volatility and further price rises. This left the Applicant’s energy portfolio exposed to a high level of risk in terms of costs for 2023/24 onwards.

6. In order to mitigate its exposure to the market for 2023/24 onwards, the Applicant approached [NAME] ([NAME]) to enquire whether they had secured supplies for 2023/24 in advance at lower than current market rates and whether they had sufficient spare

3 capacity for the Applicant to join. [NAME] confirmed that this was the case. The rates at which that [NAME] had purchased were significantly below the market rate, offering a large potential saving for 2023/24. Based on market prices on 17 October 2022, the Applicant estimated that the commodity prices that it would secure through the relevant [NAME] for 2023/24 were around 30- 35% lower than market rates.

7. The Applicant then discussed with [NAME] the possibility of an early termination of the existing supply agreements. [NAME] agreed to this on the basis that the Applicant would pay a termination fee. The Applicant states that the fee was negligible in terms of the potential saving that could be achieved by switching to the [NAME] and that in any event it would be paid by the Applicant and not passed on to tenants and leaseholders.

8. In September 2022, the Applicant’s Executive Committee agreed to enter into new energy supply contracts for electricity and gas with the relevant [NAME] and to terminate the existing contracts with [NAME]. The report was taken to the Executive Committee under the Applicant’s urgency provisions due to the tight timelines. The [NAME] required the Applicant to contract with it at least 6 months before the start date of the supply contracts. As the supply contracts were due to start on 1 April 2023, this meant signing the contracts with the [NAME] by 30 September 2022. The contracts were duly signed on 29 September 2022. Each contract is expressed to last from 1 April 2023 to 31 March 2025 with the option of termination after one year if requested by 31 March 2023.

9. The Applicant was unable to carry out the required statutory consultation due to the short window of opportunity to secure the best priced contracts for the supply of gas and electricity. Pursuant to the tribunal’s directions it wrote to leaseholders on 4 November 2022 informing them of the [NAME] for dispensation and explaining that copies of all relevant documents could be viewed on its website.

10. In the Applicant’s submission, using the chosen [NAME] was a compliant route to market for the Applicant as the two relevant Framework Agreements for electricity and gas were formally tendered via OJEU and the winning bidders were appointed accordingly. This route to market was also compliant with the Applicant’s Procurement Regulations, in particular Regulation 3.1.

11. The Applicant accepts that each contract is a QLTA for the purposes of Section 20ZA(2) and (3) of the 1985 Act. It submits that it could not have complied with the consultation requirements if it was to take advantage of the reduced prices obtainable through the use of flexible purchasing. It contends that its non-compliance with the applicable consultation regulations will lead to a direct benefit to leaseholders and that, therefore, it is manifestly reasonable to grant dispensation.

4 12. The determination bundle contains supporting witness statements from [APPELLANT] ([COMPANY] for the Applicant) and from [APPELLANT] (Project Manager in the Applicant’s Home Ownership Services Department) and other relevant supporting documents. Responses from the Respondents 13. A small number of leaseholders have raised queries direct with the Applicant, and the Applicant has responded to these queries and included the queries and answers in the bundle. No leaseholders have written to the tribunal expressing any objections to the [NAME] for dispensation. The relevant legal provisions 14. Under Section 20(1) of the 1985 Act, in relation to any qualifying long- term agreement “the relevant contributions of tenants are limited … unless the consultation requirements have been either (a) complied with … or (b) dispensed with … by … the appropriate tribunal”.

15. Under Section 20ZA(1) of the 1985 Act “where an [NAME] is made to the appropriate tribunal for a determination to dispense with all or any of the consultation requirements in relation to any … qualifying long term agreement, the tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements”. Tribunal’s analysis 16. As is clear from the decision of the Supreme Court in [COMPANY] v [NAME] (2013) UKSC 14, the key consideration when considering an [NAME] for dispensation is whether the leaseholders have suffered any real prejudice as a result of the failure fully to comply with the consultation requirements.

17. In this case, there is persuasive evidence to indicate that there is a significant potential benefit to entering into these QLTAs and that it is not possible to do so whilst also complying with the statutory consultation requirements. The Applicant has seemingly provided leaseholders with such information as it reasonably could in the circumstances.

18. There are no objections before us from leaseholders, and the Applicant has dealt with such queries as have been raised – seemingly to the relevant leaseholders’ satisfaction.

5 19. The tribunal has a wide discretion as to whether it is reasonable to dispense with the consultation requirements. Based on the evidence before us, we are satisfied that it is reasonable to dispense with the statutory consultation requirements due to the benefits of entering into these contracts, the impossibility of doing so whilst complying in a meaningful manner with the statutory consultation requirements, and the lack of objections from leaseholders.

20. Even when minded to grant dispensation, it is open to a tribunal to do so subject to conditions, for example where it would be appropriate to impose a condition in order to compensate for any prejudice suffered by leaseholders. However, there is no evidence before us that the leaseholders will suffer prejudice in this case and there have been no objections, and therefore it is not appropriate to impose any conditions.

21.

Accordingly, we grant unconditional dispensation from compliance with the statutory consultation requirements.

22. For the avoidance of doubt, this determination is confined to the issue of consultation and does not constitute a decision on the reasonableness of the cost of the energy supplies once known. Costs 23. There have been no cost applications.

Name: Judge P [NAME]: 9 January 2023

RIGHTS OF APPEAL

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

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

C. If the [NAME] is not made within the 28 day time limit, such [NAME] must include a request for extension of time and the reason for not complying with the 28 day time limit; the Tribunal will then look at such reason and decide whether to allow the [NAME] for permission to appeal to proceed despite not being within the time limit.

6

D. The [NAME] for permission to appeal must identify the decision of the Tribunal to which it relates (i.e. give the date, the property and the case number), state the grounds of appeal, and state the result the party [NAME] the [NAME] is seeking.