More good news for developers

The High Court has ruled that a long term agreement for services to a building, entered into before a landowner has granted any leases, is not subject to the statutory consultation requirements. Michael Donnellan and Douglas Rhodes analyse the case.

In BDW Trading Limited and another v South Anglia Housing Limited [2013] WLR (D) 282, the Claimant property developer had entered into a 25 year agreement with a contractor for the provision of hot water and electricity to a newly constructed estate of residential flats in Hatfield, Hertfordshire.

Where an agreement for works or services is entered into by a landlord for a term of more than twelve months (known as a "Qualifying Long Term Agreement"), in order to recover more than £100 per tenant per accounting period the landlord is required to follow the strict consultation procedure as set out in section 20ZA of the Landlord and Tenant Act 1985 and the Service Charges (Consultation Requirements) (England) Regulations 2003, or to apply for dispensation from those requirements.

BDW Trading Limited claimed that because they had no leaseholders at the time of entering into the agreement, they were not a landlord and therefore the consultation requirements did not apply. South Anglia Housing relied upon the fact that the 2003 Regulations were clearly drafted on the basis that the consultation requirements could apply even if there were no tenants when the agreement was entered into.

The High Court ruled that it would not be a sensible construction of the provisions of the 1985 Act and 2003 Regulations if an owner of land was required to consult with its tenants, where none exist. The Court found that the 2003 Regulations appeared to have been drafted "without much attention to the statutory provisions and therefore carry no weight or conviction as evidence of the legislative intention". Accordingly, the Court held that the consultation requirements do not apply to an agreement which is entered into when a landowner has no tenants.

This is a significant decision for anyone involved in residential property development, such as registered providers who may be acting as developer or buyer depending on the nature of the development site. For property developers, there is now the attractive prospect of avoiding the consultation requirements entirely by entering into long term agreements before any leases have been granted.

For prospective purchasers of multiple units on residential and mixed use developments, it will be even more important to carry out due diligence to discover which agreements have been entered into to ensure that those terms are commercially acceptable and consider how the full costs can be passed down to leaseholders. This is a particular challenge on estates where there is a communal heating and power scheme, as in the present case.

One remaining grey area is that the decision did not rule upon whether a landowner is required to consult where agreements for lease have already been entered into with prospective tenants. Landowners in this situation would be wise to err on the side of caution and consult.

Michael Donnellan is a partner and Douglas Rhodes is an associate at Trowers & Hamlins. Michael can be contacted on 020 7423 8578 or by This email address is being protected from spambots. You need JavaScript enabled to view it..