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Major Works — A question of Prejudice

A summary of the Supreme Court’s judgment in the leading case (Daejan Investments Ltd v Benson and others)
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Below I have set out a summary of the Supreme Court’s judgment in the leading case (Daejan Investments Ltd v Benson and others) relating to applications for dispensation from Major Works Consultation requirements. The judgment sets out what the Tribunal should consider in relation to requests for dispensation.

We get asked to advise on the strength of possible dispensation applications quite regularly, and there is one big question to bear in mind – what prejudice has/or will be suffered as a result of the non-compliance? If there is a strong enough reason to apply for dispensation, then often the applications can be made on paper with no need to attend a hearing – although this doesn’t mean that they are easy. So, here we go…

Long leases usually provide an obligation on the landlord/managing agent to provide services such as repairing exterior and common parts. They also provide obligations on the leaseholder to pay for those services by way of service charges.

S20 of The Landlord and Tenant Act 1985 provides consultation requirements concerning expenditure for Major Works projects. If consultation is not followed or “dispensed” with then the sum able to be recovered is restricted subject to s20(1) of the Act. Consultation is required where the service charge contribution per leaseholder in relation to the works will be more than £250.

S20ZA(1) allows the First Tier Tribunal to decide that the consultation requirements can be dispensed with if it is satisfied that it is reasonable to do so.

The consultation requirements include putting leaseholders on notice of proposed works, providing estimates, allowing proposals from leaseholders, and having regard to their observations.

The leading case about dispensation is Daejan Investments Ltd-v-Benson and others. The judgment on this case was handed down by The Supreme Court and so is binding for the foreseeable future.

The block of flats in question only consisted of 7 apartments of which 5 held long leases. The overall cost of the works in question was over £400,000. The stakes were therefore high for all involved.

Originally appearing in the LVT in 2008 it was concluded that some of the consultation requirements had not been fully complied with – in particular the stage 3 notices did not contain and “summary of observations” and “the estimates were not available for inspection as stated….”. The LVT decided that it should not dispense with the consultation requirements as the loss of opportunity for the leaseholders to make observations and amounted to “significant prejudice.”

• Deajan appealed the decision to the Upper Tribunal (Lands Chamber).

This court agreed with the LVT about the non-compliance with the consultations but thought that it was a relatively minor breach which caused no prejudice to the leaseholders. However, it found that there was a more serious breach in that “the consultation process was for all practical purposes curtailed” – although again – could only find limited evidence as to any actual prejudice. They also stated that it was for Daejan to show that they had not suffered prejudice.

• Although they disagreed with some of the LVTs findings, they decided that the overall decision should be respected and rejected the appeal.

• Daejan was permitted to take the appeal to the Court of Appeal.

• The Court of Appeal also dismissed the appeal.

• Daejan was allowed to appeal to the Supreme Court.

The Supreme Court is the final court of appeal for civil cases in the UK.
The court reiterated that the purpose of the s20 consultation requirements “is to ensure that tenants are protected from (i) paying for inappropriate works or (ii) paying more than would be appropriate….”

With the above purpose in mind, it provided clear commentary to the LVT regarding the importance of focusing on the extent that the tenants had been prejudiced by a failure to comply with the consultation requirements.

It went on to say that in this particular case the extent, quality, and costs of the work were in no way affected. In addition, Daejan had complied with the majority of the consultation requirements and therefore it could see no reason why dispensation should not be granted. It went further to say that it could see no reasons why the LVT could not attach conditions to the dispensation.

A Landlord must apply for dispensation if the consultation requirements have not been complied with fully.

If the tenants are to suffer any prejudice as a result of non-compliance, then the LVT should reduce the amount claimed accordingly to compensate.

The tenants should be in the same position as if the requirements had been met.

However, there is a warning to Landlords – A Landlord should not see a dispensation application as an easy route to avoid consultation, as it must;
• pay its own costs of the application
• pay the tenants reasonable costs in meeting the application and
• provide any compensation for any prejudice caused.

In this particular situation, The Supreme Court felt that the LVT had concentrated too much on the severity of Daejans breaches as opposed to the evidence of any prejudice.

Subsequently, Daejans appeal was granted, and the dispensation was given.

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