Daejan Investments Limited v Benson and others

Conditions attached to a dispensation from statutory service-charge consultation requirements must be satisfied before the landlord may rely on the dispensation and recover the relevant charges. Under section 20(1)(b) of the Landlord and Tenant Act 1985, the charges fall due no earlier than the date on which the dispensation becomes operative. Contractual interest therefore runs only after that date.

A tenant may also obtain an order under section 20C(1) preventing the landlord’s litigation costs from being included in future service charges. When an appellate court remits consequential questions to a tribunal whose decision was reversed solely on a point of law, the tribunal may use the original panel unless practical considerations favour a different panel.

In an earlier judgment, [2013] UKSC 14, the Supreme Court allowed Daejan Investments Ltd’s appeal by a majority of three to two. It held that Daejan should receive a dispensation under section 20ZA(1) of the Landlord and Tenant Act 1985, despite its failure to comply with consultation requirements governing major works. The dispensation was subject to a £50,000 reduction in the recoverable service charges and conditions concerning costs.

This further, unanimous judgment determined the disputed terms of the consequential order. The issues included the recoverable costs of the tenants, the costs of the successive appeals, a section 20C(1) order, the date on which the dispensation and contractual interest would take effect, and whether the remitted issues should be heard by the original tribunal panel.

1. Appeal and conditions. Lord Neuberger, with whom Lord Hope, Lord Clarke, Lord Wilson and Lord Sumption agreed, confirmed that the appeal was allowed and the decisions below were set aside. Dispensation was granted subject to the £50,000 reduction and the specified costs conditions. Unless and until the applicable conditions were determined and satisfied, Daejan could neither rely on the dispensation nor recover the relevant service charges.

2. Costs before the tribunals and courts. The tenants could recover reasonable costs incurred in investigating and establishing non-compliance, investigating prejudice and challenging the dispensation application. Such costs were not confined to expenditure after the application began and could include relevant expenditure connected with an earlier determination. There was to be no order for costs in the Upper Tribunal, the Court of Appeal or the Supreme Court. Although Daejan had ultimately succeeded, it had caused the proceedings through its default and had obtained permission to appeal on terms that it would not seek costs in the two appellate courts. Repayment of sums already paid under appellate costs orders was stayed pending determination of the parties’ costs liabilities, so that set-off could occur.

3. Exclusion from service charges. Daejan could not include in service charges its costs of resisting the tenants’ non-compliance application, supporting its dispensation application, or appealing against the refusal of dispensation. An order under section 20C(1) of the Landlord and Tenant Act 1985 was also granted. That order remained necessary because Daejan might theoretically elect not to take up the conditional dispensation.

4. Effective date and interest. Section 20(1)(b) meant that the relevant service charges became due on the later of their contractual due date and the date when the dispensation became operative. The dispensation would become operative only when all its conditions had been determined and, where appropriate, satisfied. Contractual interest at 14% could begin only 14 days after that date. Thereafter, absent special circumstances, Daejan retained its contractual right to interest on unpaid charges.

5. Remittal. The outstanding issues were remitted to the Leasehold Valuation Tribunal. The tribunal could use the original panel but was not required to do so. Reversal of that panel’s decision on a point of law did not make it actually or apparently unsuitable to determine the remaining issues.

1. United Kingdom Supreme Court: In [2013] UKSC 54, the court unanimously determined the disputed terms of the consequential order. This followed its majority decision in [2013] UKSC 14, which allowed Daejan’s appeal and granted a conditional dispensation.

2. Court of Appeal: In [2011] EWCA Civ 38, the court unanimously upheld the Upper Tribunal’s refusal of dispensation. Its decision was set aside.

3. Upper Tribunal (Lands Chamber): The tribunal upheld the Leasehold Valuation Tribunal’s decision. Its decision was set aside.

4. Leasehold Valuation Tribunal: The tribunal refused dispensation. Its decision was set aside, and the outstanding costs issues were remitted to the tribunal for determination.