Daejan Investments Limited v Benson and others

The consultation requirement in section 20/20ZA is not an end in itself; an LVT deciding whether to dispense with consultation should focus primarily on whether the tenants suffered relevant prejudice as a result of the landlord’s non-compliance, but may, in appropriate cases, take the gravity of the breach into account and may grant a dispensation on reasonable terms to compensate for prejudice.

The landlord sought to recover service charges for major works. Statutory consultation requirements (Landlord and Tenant Act 1985, as amended, and the Service Charges (Consultation Requirements) (England) Regulations 2003) were partially breached. The LVT refused to dispense with the consultation requirements; the Upper Tribunal and Court of Appeal upheld that refusal. The principal issue on this appeal was the proper approach and scope of the LVT’s jurisdiction under section 20ZA to dispense with consultation requirements and whether dispensation may be granted on terms or only unconditionally. The court was asked to decide the role of prejudice and the relevance of the gravity of non-compliance in exercising the discretion.

Disposition

1. The appeal is allowed. The LVT’s refusal to grant dispensation should have been replaced by a grant of dispensation on terms: a £50,000 reduction in the aggregate recoverable service charge and payment by the landlord of the reasonable costs of the respondents in so far as they reasonably tested the dispensation application (see (6) below).
2. Section 20ZA(1) requires the LVT to be satisfied that it is reasonable to dispense with some or all of the consultation requirements, but the statute imposes no further rigid limitations on how that judgment is to be exercised; the tribunal must apply the statutory purpose in a practical way rather than apply fixed labels such as “serious” or “technical” as determinative.
3. The central focus for the LVT when deciding a section 20ZA(1) application is the extent to which the tenants were prejudiced, in the relevant sense, by the landlord’s failure to comply with the consultation requirements. If non-compliance produced no relevant prejudice the dispensation should normally be granted (subject to any good reason to the contrary).
4. The gravity of the landlord’s breach is material only insofar as it affects the question of relevant prejudice; adherence to the consultation requirements is a means to protect tenants from inappropriate or overpriced works, not an end in itself. The financial consequences to the landlord of refusal to grant dispensation are not a relevant factor for the LVT.
5. The LVT has power to grant a dispensation on terms appropriate to the circumstances (for example, a reduction of the recoverable cost or payment of the tenants’ reasonable costs), provided any terms imposed are appropriate in nature and effect. The tribunal may attach conditions as a precondition of conceding the indulgence of dispensation.
6. Applying those principles to the present facts, the Supreme Court found that, on the evidence presented to the LVT, any relevant prejudice to the tenants could not reasonably be valued at more than £50,000; the LVT therefore should have granted the dispensation on terms that the aggregate chargeable amount be reduced by £50,000 and that the landlord pay reasonable costs incurred by the tenants in challenging the application.
7. The LVT, Upper Tribunal and Court of Appeal took an approach that gave excessive weight to the characterisation of the breach (serious or technical) and treated speculative possibility of prejudice as sufficient to preclude dispensation; that approach was incorrect insofar as it made the gravity of breach a freestanding bar rather than a factor relevant to prejudice and proportionality.
8. Practical guidance: the LVT should be sympathetic to tenants' credible allegations of prejudice (resolving doubts in their favour), require landlords to rebut such allegations, and may require the landlord to pay tenants’ reasonable costs of investigating and contesting prejudice unless those costs are unreasonable.

• Supreme Court: [2013] UKSC 14 — allowed the appeal and granted dispensation on terms.
• Court of Appeal: [2011] EWCA Civ 38 — dismissed the landlord's appeal (order set aside by Supreme Court).
• Upper Tribunal (Lands Chamber): [2009] UKUT 233 (LC), [2010] 2 P & CR 116 — appeal from LVT dismissed (set aside by Supreme Court on this point).
• Leasehold Valuation Tribunal: LON/00AP/LSC/2007/0076 (8 August 2008) — refused dispensation (replaced by this court).