The decision of the Chancellor of the High Court in Phillips v Francis left the property management world rather shell shocked. Prior to Phillips v Francis the leading authority on qualifying works was Martin v Maryland Estates  2 EGLR 53. In that case, the Court of Appeal held that, when identifying qualifying works, a common sense approach was required, and the Court of Appeal endorsed the “sets” approach.
However, then along came Phillips v Francis.
At some point during 2008, Mr and Mrs Francis purchased the freehold of a holiday park in Cornwall. In their desire to upgrade the park, they carried out various works. These works resulted in a sharp increase in the service charge subsequently demanded from each chalet owner.
The chalet owners challenged those service charges.
It was accepted that consultation had not been undertaken in accordance with Section 20 of the Landlord and Tenant Act 1985, as supplemented by the Service Charges (Consultation Requirements) England Regulations 2003.
At the first instance, the Judge adopted the “sets” approach following the Court of Appeal in Martin. It agreed that the improvement works Mr and Mrs Francis proposed to undertake were not a single set of works but were, instead, various sets of works.
The chalet owners appealed this decision.
Decision of the High Court
The Chancellor of the High Court, in his now infamous decision, held that the approach to qualifying works was an “aggregated” approach rather than a “sets” approach. In his view, the correct approach was to aggregate all works in any given year, and if the collective sum of those works exceeded £250 then consultation should be undertaken.
This view was completely at odds with how qualifying works had previously been approached. Up until the decision of the High Court, consultation has been undertaken for each “set” of works where those works exceeded £250 per leaseholder.
This decision therefore turned the property management world on its head.
After much to-ing and fro-ing, the decision was appealed to the Court of Appeal.
Decision of the Court of Appeal
The Court of Appeal disagreed with the High Court. They agreed that the “aggregated” approach was wrong. This was not a sensible approach, and it was an approach that parliament could not have intended because of the practical problems that it would create.
The correct approach to assessing qualifying works is, instead, to adopt a “set” approach. Separate sets of works should be identified for the purpose of establishing whether the relevant costs exceed the recoverable limit, and therefore trigger the consultation process.
The Court of Appeal identified that the real source of protection for leaseholders is Section 19 of the Landlord and Tenant Act 1985. Section 19 provides that costs must be reasonable and reasonably incurred.
How should “sets” be approached?
In addition to the thoroughly sensible decision of the Court of Appeal and the restoration of the “set” approach, the Court of Appeal also provided some useful guidance on the circumstances that should be taken into account when determining what comprises a single set of qualifying works.
Although it was emphasised that it is not an exhaustive list, the likely relevant factors are:
- the location of the items of works to be carried out. Are the works physically separated from each other? or are they contiguous?
- are the works the subject of one contract?
- are the works to be done at more or less the same time, or at different times?
- are the items of work different in character from each other?
Ultimately, the question of what comprises a set of qualifying works is a question of fact.
However, Phillips v Francis is not an invitation to landlords to dissect works artificially.