Daejan Investments Ltd v Benson & Ors

When deciding whether to dispense with statutory service-charge consultation, the tribunal must focus on the circumstances of the non-compliance and its effect on the consultation’s purpose. The financial consequences for landlord or tenants, including the size of the charge or the statutory cap, are not relevant considerations, although they form part of the statutory context. Significant prejudice is a consideration of first importance. A serious curtailment of the tenants’ opportunity to examine estimates, make representations and have them considered may itself establish significant prejudice. The nature of the landlord may be relevant context, but it does not justify applying a different statutory standard to a corporate landlord.

Daejan appealed under section 13 of the Tribunals, Courts and Enforcement Act 2007 from an Upper Tribunal (Lands Chamber) decision dated 27 November 2009. The Upper Tribunal had dismissed appeals from Leasehold Valuation Tribunal decisions dated 11 March and 8 August 2008.

The LVT found that Daejan had failed to comply with the consultation requirements for major works at Queens Mansions. It refused dispensation under section 20ZA(1) of the Landlord and Tenant Act 1985, limiting recovery to £250 per tenant. The appeal concerned the relevance of financial consequences, the nature of the landlord and the correct approach to tenant prejudice.

Disposition and appellate approach

1. The appeal was dismissed unanimously. Under sections 13 and 14 of the Tribunals, Courts and Enforcement Act 2007, the appeal could succeed only if the Upper Tribunal’s decision involved an error of law. The Court began with the LVT’s decision, because the LVT was entrusted with deciding compliance and dispensation, while giving appropriate, issue-sensitive weight to the Upper Tribunal’s specialist appellate view.
2. Financial consequences. The statutory discretion under section 20ZA(1) concerns whether it is reasonable to dispense with the consultation requirements. It does not permit dispensation from the statutory consequences of non-compliance. The size of the service charge, and the resulting financial loss or benefit to the parties, was therefore irrelevant, save as part of the statutory context. The amended provision no longer required the landlord to have acted reasonably, but that did not make financial effects relevant. The approach in Camden LBC v The Leaseholders of 37 Flats at 30-40 Grafton Way LRX/185/2006 was approved.
3. Nature of the landlord. The identity and relationship of the parties could be relevant context. A less rigorous approach might sometimes be justified where lessees were effectively their own landlord. That did not alter the statutory standard applicable to a corporate or local-authority landlord.
4. Prejudice. Consultation was substantive protection for tenants. Daejan’s conduct had prematurely closed the consultation process and removed the opportunity to make informed observations on the estimates. That was a serious failure and itself constituted significant prejudice. The LVT was entitled to refuse to speculate whether further representations would have changed the contractor’s selection. Although a landlord might in some cases demonstrate that non-compliance caused no prejudice, such arguments required careful scrutiny. The Court left the burden of proof unresolved because it did not affect the result. The proposed £50,000 discount did not justify dispensation.

• Court of Appeal (Civil Division) dismissed Daejan’s appeal under section 13 of the Tribunals, Courts and Enforcement Act 2007.
• Upper Tribunal (Lands Chamber) dismissed Daejan’s appeals on 27 November 2009 from the LVT’s March and August 2008 decisions.
• Leasehold Valuation Tribunal found non-compliance with the consultation requirements and refused dispensation under section 20ZA(1) of the Landlord and Tenant Act 1985.