Legal News

Daejan decision offers good news and bad for landlords

On 6 March the Supreme Court issued its eagerly-awaited decision in the case of Daejan Investments Ltd vs Benson, concerning the rights of leaseholders to be consulted over the cost of works to their buildings.

Daejan Investments Limited is the landlord of a block of shops with flats over in Muswell Hill in London. The case revolved around the fact that the company had failed to comply with the consultation requirements set out in the Landlord and Tenant Act 1985 for work carried out on the five flats in Queens Mansions.

The Act states that landlords must 'consult' with their tenants otherwise face the possibility of not being paid the full cost of works. The original decisions in the Leasehold Valuation Tribunal and Court of Appeal went in favour of the tenants (Benson and others), preventing the landlord from recovering over £200,000 in costs. The landmark decision by the Supreme Court has overturned that, albeit by a majority of three to two.

David Barrett, an associate and property dispute resolution expert at leading national law firm Thomas Eggar LLP, commented: “Landlords will be mightily relieved by the long awaited decision of the Supreme Court handed down. By a majority of three to two, the Supreme Court has overruled the decision of the Court of Appeal, Upper Tribunal, and Leasehold Valuation Tribunal (LVT).

“As a result of the decision, the Supreme Court has widened the discretion of the LVT to grant a landlord dispensation from the consultation requirements which relate to the costs of ‘qualifying works’ payable through service charges.”

In its landlord and tenant blog, Painsmith Solicitors (blog.painsmith.co.uk) said: “The Court has now ruled that, whilst agreeing with the Court of Appeal that the effect on a landlord was not relevant, it was pertinent to take account of the prejudice which any leaseholder may suffer. The Court made clear that the consultation requirements are part of the broader statutory regulation of service charges and ensure that leaseholders do not pay for inappropriate works or pay unreasonable amounts. This is different from transparency per se.”

Dissenting from the judgement, however, Lord Wilson stated: “Lord Neuberger’s conclusion…that the gravity of the landlord’s noncompliance with the Requirements is relevant to dispensation not of itself but only insofar as it causes financial prejudice to the tenant seems to me to subvert Parliament’s intention.”

David Barrett continued: “Whilst tenant advisory groups may feel that landlords will have carte blanche to ignore the statutory procedures, the detailed judgment, delivered by Lord Neuberger, takes a characteristically considered approach to the intention behind the procedures and seeks to clarify the discretionary powers open to the LVT when dealing with such applications.”

Painsmiths agreed: “In practice it seems that dispensation will remain very fact specific. Landlords would in our opinion be foolhardy to think they can simply flout the rules and then subsequently make an application for dispensation. That being said where there is a breach the well advised landlord will be looking to make an application at the earliest opportunity and to consider what reasonable conditions they should offer.”

A more practical spin on the story was offered by leasehold advisor Bernie Wales, who pointed out that the whole process could have been avoided had Daejan complied with the requirement to consult in the first place.

“Whilst this is an obvious disappointment for the leaseholders, who have to pay £46,000 each for major works, the Daejan v Benson case goes to show that not complying with Section 20 consultation procedures can cost a landlord dearly. Daejan can afford £50,000 plus their own costs, but it is a complete waste of money (and 7 or 8 years of legal argument) and could have been avoided.”