Monday, May 28, 2018
Text Size

Industry Updates

On 6 March 2013, the Supreme Court allowed the appeal of Daejan Investments Ltd (landlord), overturning the Court of Appeal's decision by a majority of 3:2.


The landlord, which owned the freehold of a block of shops and flats, gave notice to long leaseholders of the flats that it intended to carry out major works amounting to just under £280,000. However, it failed to fully comply with the statutory consultation requirements under section 20ZA(1) of the Landlord and Tenant Act 1985 (LTA 1985) (requirements). The Court of Appeal agreed with the refusal of the Leasehold Valuation Tribunal (LVT) to grant a dispensation from compliance. This meant that the liability of the tenants was restricted to £250 each. During LVT proceedings, the landlord offered a £50,000 deduction to the cost of the works.
The Supreme Court granted the landlord dispensation from the requirements on terms that the tenants' aggregate liability for the works be reduced by £50,000 and that the landlord pay the tenants' reasonable costs in relation to proceedings before the LVT.
In the leading judgment, Lord Neuberger stated that:
• The correct question was whether, if dispensation from the requirements was granted, the tenants would suffer any relevant prejudice. It is highly questionable whether such prejudice would have been suffered. Although there was a partial failure of the landlord to comply with stage three of the requirements, the £50,000 discount offered exceeded any possible relevant prejudice.
• The purpose of the requirements is to protect the tenants in relation to service charges. The right to be consulted under sections 20 and 20ZA of the LTA 1985 is not a free-standing right. As such, the lower courts gave undue weight to the landlord's failure to comply with stage three of the requirements, not only in view of the possible prejudice but as a free-standing matter.
• It is not convenient or sensible to distinguish between a serious failing, and a minor oversight, save in relation to the prejudice that it causes. This distinction could lead to uncertainty and unpredictable outcomes.
• The LVT has power to grant dispensation on appropriate terms, including the imposition of conditions such as a condition that the landlord pays the tenants' reasonable costs relating to the application for dispensation.
• In the absence of some good reason to the contrary, the LVT should require the landlord to reduce the amount claimed to compensate the tenants fully for the relevant prejudice. This permits the tenants to be in the same position as if the requirements have been satisfied. A fair balance is achieved between ensuring that tenants do not receive a windfall because the power is exercised too sparingly and ensuring that landlords are not cavalier in adhering to the requirements.
Lord Hope and Lord Wilson delivered dissenting judgments.
PLC Property will shortly publish a full update on the court's decision.
For more information on the Court of Appeal decision, see Legal update, Consequences of failure to comply with service charge consultation requirements (Court of Appeal).
Case: Daejan Investments Ltd v Benson and others [2013] UKSC 14 (6 March 2013).

Find us on Facebook
Follow Us