Daejan Investments Ltd v Benson

Article

11 June, 2013

Daejan Investments appealed against a Court of Appeal decision where it was decided that because the landlord had failed to observe the consultation procedure they were unable to recover £270,000 of expenditure since the failure to follow the consultation procedure risked prejudice to the leaseholder. The Supreme Court allowed the appeal and dispensation was granted.

Background

Daejan appealed against the decision of the Court of Appeal who upheld the leasehold valuation tribunal's (LVT) refusal to grant dispensation under s.20ZA Landlord and Tenant Act 1985.

Daejan Investments owned a block of flats and Benson held long leases on a number of those flats. Daejan complied with the first two stages of the consultation requirements which are stated in Schedule 4 Part 2 Service Charges (Consultation Requirements) (England) Regulations 2003 as they notified Benson that they intended to carry out the works and sent them a specification. However, Daejan failed to comply with the third stage of the consultation requirement as they failed to send all of the tenders they had received to Benson. Daejan then applied to the LVT to dispense with the need to comply with the requirements so that they could recover the expenditure from Benson. The LVT refused to grant dispensation and stated that Dajean's failure to comply with the consultation requirements was a serious breach which resulted in significant prejudice to Benson. The LVT also rejected Daejan's offer to reduce the expenditure sought by £50,000. Daejan appealed against the decision of the LVT but the Court of Appeal agreed with the decision of the LVT.

Daejan then appealed against the decision of the Court of Appeal. The Supreme Court allowed the appeal and decided that the LVT should have granted dispensation on the basis that Daejan would reduce the expenditure sought by £50,000 and pay Benson's reasonable costs of the application. Dispensation was then granted on these terms.

Key Points of Supreme Court Judgment

  • The LVT should have focussed on how Benson were prejudiced by Daejan's failure to comply with the consultation requirements. The court stated that it was difficult to see why dispensation should not be granted where the failure to comply with the consultation requirements had not affected the extent, quality and costs of the works.
  • Dispensation is not to be refused simply because there has been a breach of the consultation requirements.
  • The main question, if not the only question, to ask when considering whether dispensation should be granted is what prejudice the leaseholders would suffer because of the breach.
  • Conditions can be imposed along with a grant of dispensation as long as those conditions are appropriate.
  • When considering the issue of prejudice, the legal burden of proof is on the landlord but the factual burden of proving some prejudice is on the leaseholders. Therefore, once leaseholders show they have a credible case for prejudice, it is for the landlord to disprove the allegations.
  • The LVT should have asked what relevant prejudice Benson has suffered because of Daejan's failure to comply with the consultation requirements.

Overview

This decision overturns the previous decision of the Court of Appeal where dispensation was refused because of the risk that the failure to follow the consultation procedure could cause prejudice to a leaseholder. Previously, the integrity of the consultation process was seen to be so important that no relief could be granted where the correct procedure had not been complied with. The Supreme Court, however, has now confirmed that the issue of overriding importance is whether or not any relevant prejudice has been suffered by leaseholders because of the landlord's failure to comply with the correct consultation procedures.

The decision does not undermine the importance of following the correct consultation procedure but it does grant some reassurance to landlords if, for some reason, that procedure is not followed. Relief will only be granted where the failure to comply does not cause relevant prejudice to the leaseholder. This would mean showing that the failure to comply did not effect the extent, quality and costs of the work which could be difficult to prove. Therefore, because of the difficulty in proving that there has been no relevant prejudice, applying for dispensation should not be seen as a substitute for following the correct consultation process.

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