The recent Supreme Court judgment in the case of Daejan Investments Ltd v Benson has been extensively reported in the last month. Some say it is a welcome breath of common sense but others believe that the Supreme Court has ridden roughshod over the statutory consultation regime. In true lawyer fashion, my own view is somewhere in the middle. There are always criticisms that can be made of any decision and in this case I believe that in some cases the procedural failings can be so severe that a landlord should be punished for disregarding or failing to consult with the tenants. However, in the majority of cases the fact that the tenants have to show that they have been prejudiced is a difficult proposition to argue against.
What was the Supreme Court deciding? The facts of the case often get lost in the reporting. The case concerned Queens Mansion in Muswell Hill. A short summary of the relevant ponts are that the landlord commenced a section 20 consultation for some major works to the building. In error, part of the way through the consultation process the landlord indicated that the building contract had already been awarded (it had not but the tenants weren’t to know). The landlord went on to undertake circa £280,000 of works, the cost of which was to be split between the 5 leaseholders. The leaseholders raised objections to their liability for the service charges demanded because of the serious defect in the consultation procedure. They maintained that the £250 per leaseholder cap on recoverability for major works should apply and in response the landlord recognised its failing and sought dispensation from consultation from the Leasehold Valuation Tribunal. The landlord lost its case all the way to the Supreme Court, where it was largely successful.
In resolving the landlord’s appeal the Supreme Court took it upon itself to espouse some general principles as to how the LVT should exercise its discretion to grant or refuse dispensation from consultation. It added meat to the statutory bones of “reasonableness” which is the basis for the LVT exercise of discretion.
Firstly, as I hinted at above, procedural errors or omissions alone are no longer enough on their own to prevent a landlord from obtaining dispensation, no matter how serious they are. The tenants will have to show that they have suffered serious prejudice if they are to succeed in opposing a landlord’s application for dispensation. The Supreme Court directed the LVT to adopt a sympathetic approach to tenants who can show a credible case of prejudice arising from the landlord’s non-compliance. So e have said this is a landlords charter to ignore dispensation altogether as the tenants will always have an uphill struggle in showing sufficient financial prejudice to merit making a claim and may need expert evidence to prove that case.
Secondly, the LVT has an extraordinarily wide discretion as to the terms of the dispensation it can offer, if it chooses to exercise that discretion. This means that the received wisdom that the LVT had to adopt a binary, yes or no approach to a landlord’s application for dispensation was incorrect. The LVT can grant dispensation on terms and its discretion in this respect is almost unfettered. Despite its usually limited costs jurisdiction, the terms under which dispensation can be given by the LVT now extend to the costs of the application itself (one either side). no longer is the LVT bound to apply the £250 statutory cap for qualifying works. Indeed, in this case the Supreme Court imposed the terms under which dispensation should be given to the landlord which broadly accorded with an offer that the landlord had made at the outset of the proceedings. This development is possibly the most significant in its impact on the number of dispensation cases that will come before the tribunal as the days of tenant windfalls seem numbered except in exceptional cases.
Thirdly, the extent of the prejudice suffered by a landlord if dispensation is refused is not a relevant consideration when the LVT is asked to consider if it is reasonable to grant or refuse dispensation from consultation. This was because such a rule would operate inversely to the intention of the legislation in that the bigger the consequences of the landlords error the more likely that dispensation would be given.
My next blog on this case will look at the views of the dissenting judges.