Section 20 dispensation: when a landlord can skip consultation

Section 20 consultation exists so that leaseholders get a say before big service charge bills are run up. But there is a way round it. A landlord can ask the First-tier Tribunal to dispense with some or all of the consultation requirements, and if the tribunal agrees, the landlord can recover the cost as if it had consulted properly.

That surprises a lot of leaseholders, and RMC and RTM directors sometimes assume a missed step is either fatal or harmless. It is neither. This guide explains how dispensation works, what the tribunal looks at, and what to do if an application arrives.

This covers England only. Wales has its own regulations and its own tribunal arrangements.

Why dispensation matters

Section 20(1) of the Landlord and Tenant Act 1985 limits what leaseholders can be charged for qualifying works or a qualifying long-term agreement unless the consultation requirements have been either:

• complied with, or
• dispensed with by (or on appeal from) the appropriate tribunal.

If neither happens, the landlord's recovery is capped. For qualifying works, the cap in England is set by the Service Charges (Consultation Requirements) (England) Regulations 2003 at £250 per leaseholder. Dispensation is the second route. It is how a landlord that has not consulted, or has consulted badly, tries to lift that cap.

The legal test is short

The power sits in section 20ZA(1). Where an application is made to the appropriate tribunal to dispense with all or any of the consultation requirements, the tribunal "may make the determination if satisfied that it is reasonable to dispense with the requirements."

Two things follow.

1. Dispensation can be partial. The tribunal can dispense with "all or any" of the requirements, so it might excuse one stage and leave the rest in place.
2. It covers both works and long-term agreements. Section 20ZA(1) applies to qualifying works and qualifying long-term agreements.

In England, "the appropriate tribunal" means the First-tier Tribunal (section 38 of the 1985 Act). In practice that is the First-tier Tribunal (Property Chamber).

Before or after the work

Dispensation is not only for landlords who have already gone wrong. In Daejan Investments Ltd v Benson [2013] UKSC 14, the Supreme Court said it is clear that a landlord may ask for dispensation in advance. It gave two obvious examples: works needed very urgently, and works that only became apparent while contractors were already on site doing something else.

The tribunal's form Leasehold 5 reflects this: it asks whether the works have started or been carried out, and whether a long-term agreement has already been entered into.

What the tribunal actually looks at: the Daejan principle

Daejan v Benson is the leading case. It was decided by the Supreme Court on 6 March 2013, by a majority of three to two (Lord Hope and Lord Wilson dissented). The majority judgment was given by Lord Neuberger.

The key points from the majority judgment:

• The purpose of the requirements is to protect leaseholders from paying for inappropriate works, or paying more than would be appropriate (para 44).
• The focus is prejudice. The tribunal should focus on the extent, if any, to which the leaseholders were prejudiced in either of those respects by the landlord's failure (para 44). Lord Neuberger described real prejudice as "the main, indeed normally, the sole question" (para 50).
• A serious breach alone is not enough to refuse. The court did not accept that dispensation should be refused solely because the landlord seriously breached the requirements. In its words, the requirements are "a means to an end, not an end in themselves" (para 46).
• The landlord's own position is not relevant. The financial consequences to the landlord of refusal, and the nature of the landlord, are not relevant factors (para 51).

Who has to prove what

This is where leaseholders need to pay attention. The Supreme Court said the legal burden stays on the landlord throughout. But the factual burden of identifying some relevant prejudice falls on the leaseholders (para 67).

So it is not enough to say "they didn't consult us properly". You need to point to what you lost. For example, a contractor you would have nominated, observations you would have made that might have changed the scope, or evidence that the work would have cost less.

The court also said the tribunal should view leaseholders' arguments sympathetically, given that the landlord is the one who failed to comply. Once the leaseholders have shown a credible case for prejudice, the tribunal should look to the landlord to rebut it (paras 67 and 68).

Dispensation on terms

The tribunal does not have to choose between "yes" and "no". Daejan confirmed that it can grant dispensation on such terms as it thinks fit, provided the terms are appropriate (para 54). Two kinds of condition stand out.

• Reducing the recoverable cost. Where leaseholders have suffered relevant prejudice, the tribunal should, at least in the absence of some good reason to the contrary, effectively require the landlord to reduce the amount claimed to compensate them fully for it (para 71).
• Costs. The tribunal can make it a condition that the landlord pays the leaseholders' reasonable costs incurred in connection with the application (para 59).

That last point is a reason for leaseholders to engage with an application rather than ignore it.

How an application is made

Applications are made on form Leasehold 5, "Apply to dispense with consultation requirements", published on GOV.UK. The current version is dated 07.26. According to that form:

• It is framed for landlords to apply, and the applicant's capacity is given as landlord or managing agent.
• Anyone who pays a service charge should be added as a respondent.
• The applicant must send a copy of the application to the respondents and any interested party.
• The application fee is £200, with an additional fee of £300 if a hearing date is set. Help with fees may be available.
• The tribunal may deal with the case on paper, without a hearing, and fast-track cases are usually heard within 10 weeks of application.

Check the current form on GOV.UK before relying on those figures, as fees and forms change.

One recent change to know about

The Building Safety Act 2022 amended section 20 so that dispensation is not available for "works to which section 20D applies". Section 20D deals with certain prescribed building safety remediation works. At the time of writing, legislation.gov.uk records the relevant amendment as in force only for limited purposes, namely making regulations. If your building has remediation works, take specialist advice on how this applies.

If you are a leaseholder: what to do when an application arrives

• Read it fully and note any deadline the tribunal sets for your response.
• Ask yourself what you lost. Would you have nominated a contractor? Raised a point about scope? Do you have evidence of a cheaper price?
• Gather that evidence early. Quotes, emails, photos and the original notices, if any, all help.
• Keep a record of your reasonable costs, in case the tribunal attaches a costs condition.

If you are an RMC or RTM director

If your company is the landlord, or acts for it, and the work is genuinely urgent, remember that an application can be made in advance. If a stage has gone wrong, deal with it openly rather than hoping nobody notices. The leaseholders the tribunal will be thinking about are your own members.

This article is general information, not legal advice. It covers England only. For a live dispute, speak to a solicitor or the Leasehold Advisory Service (LEASE), or contact the tribunal.