Daejan Investments Limited v Benson and others

On an application to dispense with statutory consultation requirements for major works, the tribunal should normally focus on the relevant prejudice caused to tenants by the landlord’s non-compliance. The requirements protect tenants against inappropriate works and excessive cost; consultation is not an end in itself, and the gravity of the breach matters only so far as it bears on prejudice.

The tribunal may grant dispensation on appropriate terms, including a reduction in recoverable service charges sufficient to compensate prejudice and payment of tenants’ reasonable costs. The legal burden remains on the landlord, but tenants must identify a credible case of relevant prejudice. The tribunal should approach that issue sympathetically where the landlord’s breach has made reconstruction necessary.

The appellant landlord carried out major works to a block of flats. It failed fully to comply with the stage 3 consultation requirements in Part 2 of Schedule 4 to the Service Charges (Consultation Requirements) (England) Regulations 2003, principally by failing to provide a summary of observations and by making estimates unavailable when stated.

The Leasehold Valuation Tribunal refused dispensation under section 20ZA(1) of the Landlord and Tenant Act 1985. The Upper Tribunal and the Court of Appeal upheld that refusal. The landlord offered a £50,000 reduction in the recoverable charge if dispensation were granted.

The Supreme Court had to decide the proper approach to dispensation, whether it could be granted on terms, and how prejudice to tenants should be assessed.

1. Appeal allowed by a majority of three to two. Lord Neuberger, with whom Lords Clarke and Sumption agreed, held that the tribunal and the courts below had applied the wrong approach. Dispensation should be granted on terms reducing the respondents’ aggregate liability by £50,000 and requiring the landlord to pay their reasonable costs of testing the application and investigating relevant prejudice.
2. The purpose of sections 19, 20 and 20ZA of the Landlord and Tenant Act 1985 is to protect tenants from paying for unnecessary or deficient works and from paying more than is appropriate for necessary works. On an application under section 20ZA(1), the tribunal should therefore normally ask what relevant prejudice tenants would suffer if dispensation were unconditional. A landlord’s serious breach is not an independent reason to refuse dispensation, although its seriousness may make prejudice more likely. The financial effect on the landlord and the nature of the landlord are irrelevant.
3. The tribunal has power to grant dispensation subject to appropriate conditions. Conditions may require a reduction in recoverable service charges sufficient to compensate tenants for prejudice. They may also require payment of tenants’ reasonable costs. Such a term is a condition for statutory indulgence, rather than an impermissible free-standing costs order.
4. The legal burden of proof remains on the landlord. However, tenants must identify a credible case that non-compliance deprived them of an opportunity likely to reduce costs or secure another relevant advantage. The tribunal should resolve appropriate doubts sympathetically in tenants’ favour and should then look to the landlord to rebut the case.
5. On the evidence, the respondents had not shown relevant prejudice approaching £50,000. They had already had substantial opportunities to comment and had identified no additional point likely to have produced a greater benefit.

Lord Hope and Lord Wilson dissented. They would have preserved wider latitude for the specialist tribunal to refuse dispensation for serious non-compliance independently of quantifiable prejudice, and would have dismissed the appeal.

• United Kingdom Supreme Court: allowed the appeal, set aside the orders below, and granted dispensation on terms: [2013] UKSC 14.
• Court of Appeal: dismissed the landlord’s appeal from the Upper Tribunal: [2011] EWCA Civ 38; [2011] 1 WLR 2330.
• Upper Tribunal (Lands Chamber): dismissed the landlord’s appeal from the Leasehold Valuation Tribunal: [2009] UKUT 233 (LC); [2010] 2 P & CR 116.
• Leasehold Valuation Tribunal: found non-compliance with the consultation requirements and refused dispensation.