Daejan Investments Limited v Benson and others

Where a landlord seeks a dispensation under section 20ZA(1) of the Landlord and Tenant Act 1985 despite failing to comply with the consultation Regulations, the dispensation is not operative until the conditions attached to it are satisfied; interest on any service charge runs only from 14 days after the dispensation becomes effective. Costs relating to establishing non-compliance or prejudice are recoverable subject to the court’s directions and agreed limitations.

The appellant landlord sought a dispensation under Section 20ZA(1) of the Landlord and Tenant Act 1985 to recover service charges for repair works despite non-compliance with the consultation requirements in Part 2 of Schedule 4 to the Service Charges (Consultation Requirements) (England) Regulations 2003. The LVT, the Upper Tribunal (Lands Chamber) and the Court of Appeal rejected the application. The Supreme Court (majority) granted the dispensation on terms and remitted some issues to the LVT. The present judgment determines the consequential terms of the order: the scope and timing of costs, the effect and timing of the dispensation, interest on service charges, and the appropriate remit to the LVT.

Overall disposition

1. The appeal is allowed and the decisions of the LVT, the Upper Tribunal and the Court of Appeal are set aside; a dispensation is granted to the landlord subject to specified conditions and monetary adjustment.
2. The Court explains and directs the consequential terms of the dispensation and orders on costs, interest and remittal to the LVT.

Reasoning and key findings

1. Nature and effect of conditions: The conditions attached to a dispensation are properly regarded as conditions (rather than mere terms) and the dispensation does not become effective until those conditions have been complied with; until compliance the landlord may not give effect to the dispensation (see paras 6 and 21).
2. Timing of effectiveness and interest: Where statutory limitation on recovery applies, the service charge due date is the later of the contractual due date and the date on which the dispensation becomes effective; accordingly, contractual interest on late payment runs only from 14 days after the dispensation becomes effective (paras 21–24).
3. Scope of recoverable costs before the LVT: The respondents are entitled to recover reasonable costs incurred in reasonably investigating and establishing non-compliance with the Regulations, investigating or seeking to establish prejudice, and investigating and challenging the application for dispensation; this includes costs incurred before the formal application where that work was relevant to the later determination (paras 7–8).
4. Costs of appeals and higher courts: By reason of the terms on which permission to appeal was given and the particular circumstances of these appeals, there will be no order for costs in the Upper Tribunal, the Court of Appeal or this Court; the successful party is, however, to bear the special conditions attached to the dispensation including payment of certain reasonable costs at LVT level (paras 9–15).
5. Repayment and stay: Daejan may recover sums it paid to the respondents in respect of UT or Court of Appeal hearing costs subject to a stay pending determination by the LVT as to sums payable under the consequential costs order; the stay may be lifted on application if the respondents unreasonably delay (para 16).
6. Limit on landlord’s recovery of its own process costs via service charges: The order will prevent the landlord from including in service charges costs of resisting a determination of non-compliance, costs of supporting its application for dispensation (including payments to respondents), and costs of appealing from a refusal of dispensation (paras 17–18).
7. Remittal to the LVT: Outstanding costs and quantification issues are remitted to the LVT for determination; the LVT may or may not use the original panel (paras 25–26).

Orders

• The appeal is allowed; the decisions below are set aside and a dispensation is granted subject to (i) a £50,000 deduction and (ii) the conditions and cost directions outlined in the judgment.
• Directions as to costs: (a) Daejan to pay the reasonable costs of the respondents already incurred before the LVT insofar as properly within the defined scope; (b) further costs to be determined and, if payable, to be paid within 14 days of such determination; (c) no order for costs in the UT, Court of Appeal or Supreme Court; (d) stay on repayment of certain sums pending LVT determination, subject to lifting for unreasonable delay.
• Dispensation takes effect when all attached conditions have been determined and, where required, satisfied; interest runs from 14 days thereafter.
• Remit the outstanding issues to the LVT for determination; the panel may be the original panel but need not be.

• Supreme Court allowed the appeal and set aside the decisions below; granted a dispensation on conditions and remitted certain issues to the Leasehold Valuation Tribunal (this judgment) (see paras 1–4).
• Court of Appeal [2011] EWCA Civ 38 – unanimously upheld the decision of the Upper Tribunal (as described in this judgment) and was set aside by this Court (see paras 1, 2 and 11).
• Upper Tribunal (Lands Chamber) – upheld the Leasehold Valuation Tribunal and was in turn reversed by the Court of Appeal (as summarised in this judgment) (see para 1).