Daejan Investments Ltd v Benson and others LRX/148/2008

One of the advantages (so we were told) of the Lands Tribunal moving to become the Upper Tribunal (Lands Chamber) was that members of the senior judiciary could be brought in for guest appearances, and so it is that we find Carnworth LJ (Senior President of Tribunals) sitting with Mr Rose FRICS, in the Upper Tribunal (Lands Chamber) on a case involving the consultation requirements in service charge cases.

If a landlord under a residential long lease wants to carry out works (or enter into contracts) in respect of which he will require leaseholders to contribute to via their service charges, then, by s.20 Landlord and Tenant Act 1985 and the regulations made thereunder, he will not be allowed to recover more than £250 per tenant (in the case of works) or £100 per tenant (in the case of a qualifying long term agreement, as service contracts are called in this context) unless he has either complied with the consultation requirements or has obtained dispensation from some or all of those requirements from an LVT (s.20ZA, 1985 Act).

The consultation requirements are – frankly – a nightmare. They serve a worthwhile purpose, but are poorly drafted and, as the Tribunal said in this case “leave something to be desired in terms of clarity” (at [4]). It is comparatively easy to make a small error and, hence, for a landlord to find itself in breach of the regulations and needing dispensation from an LVT.

In the present case, Daejan Investments Ltd sought to recover some c.£270,000 of service charges from five leaseholders in respect of works carried out to the building containing their flats. The LVT found that Daejan failed to comply with the following aspects of the consultation requirements:

(a) failed to set out a summary of the observations received and the landlord’s response to the initial notice;

(b) failed to ensure that the estimates were available for inspection at a place, during the hours and for the period specified in the notice;

(c) failed to give 30 days to enable leaseholders to make observations on the estimates.

The LVT concluded that it would be wrong to grant the landlord dispensation from the requirements. The leaseholders had been caused prejudice by not seeing the full estimates and having a shortened opportunity to make observations. The fact that the tenants had not identified what comments they would make was irrelevant, as one could not speculate what they would have done had they been given the full information. The landlord appealed to the Upper Tribunal (Lands Chamber).

The Upper Tribunal dismissed the appeal. The LVT had to focus on the scheme and the purpose of the consultation requirements. That a landlord would suffer financial prejudice if dispensation was not given was irrelevant. The most important aspect of each case wold be the extent to which the leaseholders were prejudiced or disadvantaged. The LVT should apply common sense to such matters and not be moved by “unsupported protestations” from either party.

There was also something to be said for taking a more rigorous approach to a landlord which was a commercial body or a public authority and a more relaxed approach where it was a lessee-owned company. However, it would rarely be appropriate to dispense with a whole stage of the consultation process.

On the facts, it was only really possible to say that the shortening of the consultation process caused any actual prejudice as it appeared that the landlord had effectively closed its mind to any further observations. Even then, however, the leaseholders did not identify any actual (as opposed to theoretical) prejudice. Despite this, the LVT had found that prejudice had been caused and it was not open to the Upper Tribunal to reverse that finding of fact.

For my part, if I were Daejan, I’d have a go at a second appeal on this one.