Section 20ZA(1) of the Landlord and Tenant Act 1985 requires landlords to consult tenants before undertaking work above a certain value or entering into long-term agreements for the provision of goods or services to be included in residential service charges. The Service Charges (Consultation Requirements) (England) Regulations 2003 restrict the amount that tenants can be required to pay for work about which they have not been properly consulted to £250. The cap in respect of qualifying long–term agreements is £100.
The Leasehold Valuation Tribunal has the power to dispense with all, or any, of the consultation requirements if it is satisfied that it is reasonable to do so. In Daejan Investments Ltd v Benson [2013] UKSC 14 a landlord sought dispensation from the requirements, to enable it to recover £280,000 from five leaseholders for the cost of repairs to their building. It stood to recover only £1,250 from the tenants if its application was refused.
The case did not look promising. The landlord had dispensed with a stage of the consultation procedure and, although the evidence of actual prejudice suffered by the tenants was weak, it was widely believed that the dispensation procedure was intended to cover situations where consultation is not practicable (for example, for emergency work) and to avoid penalising landlords for minor breaches of procedure that do not adversely affect tenants’ interests. Nonetheless, the landlord pressed on, all way to the Supreme Court, where it obtained permission to recover most, but not all, of the service charge costs incurred.
The verdict was not unanimous. However, the majority ruled that the consultation requirements are a means to an end, and not an end in themselves. They were enacted to ensure that tenants do not have to pay for inappropriate work or to pay more than would be appropriate. Consequently, the Leasehold Valuation Tribunal must focus on the extent to which the tenants were prejudiced, in either respect, by the landlord’s failure to comply with the consultation requirements.
The court ruled that the tribunal should adopt a sympathetic (but not unrealistically sympathetic) attitude to tenants’ complaints. The tenants tried to persuade the court that the legislation requires the tribunal either to refuse to dispense with the requirements or to grant an unconditional dispensation. The Supreme Court disagreed. It ruled that the tribunal can grant a dispensation on such terms as it thinks fit. Consequently, it can grant dispensation, but require a landlord to reduce tenants’ service charge contributions by an amount that reflects any prejudice suffered.
The landlord had offered to discount the service charge costs by £50,000 to compensate the tenants for its omissions. The figure was “plucked out of the air”, but exceeded any prejudice suffered. Consequently, dispensation was granted on condition that the landlord discounted the cost of the works accordingly and paid the tenants’ reasonable costs in so far as they had reasonably tested the landlord’s application for dispensation.
The decision levels the playing field between landlords and tenants and will enable tribunals to do justice as between the parties in such cases, which must surely be the overriding objective in any judicial proceedings.
Allyson Colby is a property law consultant