The case of Daejan Investments Limited v Benson and Others [2011] EWCA Civ 38 should be a warning to all landlords to make sure that they comply with the statutory consultation requirements in respect of service charges. JPC Law successfully acted for one of the Respondent lessees in the Court of Appeal.
If a landlord wants to carry out works which are above a certain value, or the landlord intends to enter into a long-term agreement for the provision of services to be claimed through the leaseholders’ service charge he is required to comply with consultation requirements under the Landlord and Tenant Act 1985 (L&T Act). This was introduced by the Commonhold and Leasehold Reform Act 2002.
The Facts
Daejan Investments Limited (“Daejan”) is the freehold owner of a block of flats and shops in Muswell Hill, London. Daejan gave notice to the lessees that it intended to carry out major works costing £270,000. Although Daejan had given notice to the Lessees of its intention to carry out the works, the Lessees contended that Daejan had not properly complied with its statutory obligations and could not recover all of its outlay.
The Statutory Provisions
1. Notice of Intention – the landlord must give notice to the leaseholders of their intention to carry out the works. The Notice must explain why the proposed works are necessary and invite written observations from the leaseholders.
2. Estimate – the landlord must seek at least 2 estimates.
3. Issue Statements – the landlord must issue a statement setting out the estimated cost from at least two of the estimates, together with a summary of observations that were received from stage 1 and his response.
4. Issue of Notice - the landlord must send a Notice with the Statement providing details of where and when all the estimates may be inspected, inviting the leaseholders to make written observations. The consultation period is 30 days from the date of the Notice.
5. Observations - The landlord must have regard to the observations.
6. Provide Reasons - The landlord must give reasons for the selection of the chosen contractor.
Dispensing with the Statutory Requirements
Section 20ZA(i) of the Landlord & Tenant Act 1985 allows the Leasehold Valuation Tribunal (LVT) to dispense with the consultation requirements “if satisfied that it is reasonable to dispense with the requirements”. This application can be made either prospectively or retrospectively.
If the landlord fails to carry out the consultation requirements fully and correctly and LVT does not dispense with the consultation requirements then the Tenant’s contributions are limited to £250 each.
The Case
Daejan applied for a dispensation from compliance with Section 20ZA(i). The LVT refused the Landlord’s application and so did the Land Tribunal on appeal to them. Daejan then appealed to the Court of Appeal whose decision was handed down on 28th January 2011.
The Outcome
The Court of Appeal found for the Lessees. In its decision the court:
Ø Confirmed that the financial consequences of the grant or refusal of dispensation are irrelevant to the exercise of discretion under section 20ZA;
Ø Held that significant prejudice to the leaseholders is a fundamental consideration in exercising the discretion to dispense;
Ø Emphasised the importance of the consultation requirements and that any failure to comply (unless of a minor or technical nature) amounts to significant prejudice; and
Ø Held that a landlord’s offer to apply a discount to the costs claimed from the leaseholders is not a ground for the grant of dispensation.
Daejan have applied to the Supreme Court for permission to appeal and we are awaiting the outcome.
The Health Warning
This case should be taken as a warning to all landlords that the legislation has no regard to the financial consequences for a landlord if the statutory consultation requirements are not complied with. Serving a Notice under Section 20ZA is only the first step. The consultation procedure must be genuine and a failure to comply with it may be fatal to recovery.
What should you do?
You must ensure that you seek legal advice if you are a Landlord that intends to carry out works in your block or a leaseholder that has been served a Notice under Section 20ZA of the Landlord & Tenant Act 1985. Landlords must ensure they and their agents and professional advisers do nothing to compromise the right of recovery. Leaseholders need to scrutinise the process carefully.
For further information and advice please contact:
Graham Jaffe John Mead
t. 020 7644 7260 t. 020 7644 7279
f. 020 7644 7272 f. 020 7625 7309
e. gjaffe@jpclaw.co.uk e. jmead@jpclaw.co.uk
