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Home | News & events | Legal updates | Upper Tribunal case review: Daejan Investment Limited v Benson and Others (2009) UKUT

Upper Tribunal case review: Daejan Investment Limited v Benson and Others (2009) UKUT

02 July 2010

This case concerned a dispute over service charges in respect of a property in Muswell Hill, London.

The landlord (Daejan) was seeking to recover £270,000 through the service charge of five tenants who had long leases in the building, in relation to Daejan carrying out major works.

In the third Leasehold & Shared Ownership Forum, Mark Robinson looked at the consultation requirements contained in Section 20 of the Landlord and Tenant Act 1985 (as amended by the Commonhold and Leasehold Reform Act 2010. These amendments took effect from 31 October 2003).

The statutory requirements are that before undertaking such works, the landlord is to:

Stage 1

• give notice to the tenants and any Recognised Tenants' Association (RTA) explaining why the proposed works are necessary and invite written observations from the leaseholders and any RTA

Stage 2

• obtain estimates
• issue a statement setting out the estimated cost from at least two of the estimates, together with a summary of the observations received from any leaseholders/RTA from the Stage 1 process and the landlord's response
• send a Notice with a statement of where and when all the estimates may be inspected and inviting leaseholders/RTA to make written observations. The consultation period is 30 days from the date of the Notice
• the landlord must have regard to any observations received

Stage 3

• give reasons to the leaseholders for the selection of a chosen contractor.

If the above process is not complied with and the Leasehold Valuation Tribunal (LVT) does not dispense with the consultation requirements, then the amount the landlord can recover from each leaseholder in relation to those works is £250.

In this particular case, Daejan gave the leaseholders notice of its intention to carry out the major works, but failed to comply fully with the statutory consultation requirements as a result of not:

• providing a summary of observations and the landlord's responses were not properly included
• making all the estimates available for inspection at a place, during office hours, and for the period specified in the notice
• giving the requisite period of 30 days' notice. The notice period was cut short before the leaseholders/RTA were provided with copies of the estimates and in order to enable them to make their observations.

Daejan applied to the LVT for dispensation with compliance with the consultation process.

The LVT considered that the failure to provide the leaseholders/RTA with the requisite 30 days' notice prevented the leaseholders/RTA having the opportunity to make observations on the estimates which Daejan was obliged to have regard to. This effectively thwarted the consultation process and caused substantial prejudice to the leaseholders.

Daejan appealed the decision to the Upper Tribunal, which found the evidence of prejudice to the tenants was weak. However, the Upper Tribunal held that the LVT was correct to regard the breach of the consultation process as serious, as their failure to undertake the Stage 2 consultation requirements meant the leaseholders' 'statutory right to make further representations were effectively nullified' and '... was enough that there was a realistic possibility that further representations [by the leaseholders/RTA] might have influenced the decision [of Daejan]'.

In the circumstances, Daejan's appeal was dismissed and the company was unable to recover the total sum of £268,750.

Comment

Even though this case involved a commercial landlord, it is likely it would have been decided in exactly the same way had the landlord been a registered provider.

The case demonstrates the need for landlords to comply with the consultation process when it decides to carry our major works, the cost of which it intends to recover from leaseholders through the service charge.

© Shoosmiths. This page is for general information: it is not legal advice. Please read our full terms and conditions for details of the disclaimers and exclusions which apply.

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Yetunde Dania

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T: 03700 86 4077
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