Where landlords of long leases (more than 21 years) wish to carry out works they must consult the leaseholders before they are entitled to a contribution towards these works. If the consultation process is not followed pursuant to s.20 Landlord and Tenant Act 1985 the landlord’s ability to recover monies is capped at £250 per leaseholder. The landlords can apply for a dispensation from these consultation requirements however this is subject to the LVT’s approval.
In Daejan Investments Ltd v Benson and others, Daejan sought to recover some £270,000 of service charges from five leaseholders in respect of the works to the common parts of the building containing their flats. However, unfortunately for Daejan, the LVT found that that it had failed to comply with the consultation requirements.
Specifically the LVT held that Daejan failed to:
1. set out a summary of the observations received and the landlord’s response to the initial notice;
2. ensure that the estimates were available for inspection at a place for the period specified in the notice;
3. give 30 days to enable leaseholders to make observations on the estimates.
The LVT held that it would be wrong to grant the landlord dispensation from the consultation requirements because it considered that the leaseholders had been prejudiced by not seeing the full estimates and having a shortened opportunity to make observations. This is despite the fact that the leaseholders had not identified what comments they would make, if any, if given the opportunity. Daejan appealed to the Upper Tribunal (Lands Chamber).
The Upper Tribunal dismissed the appeal and held that the LVT had to focus on the scheme and the purpose of the consultation requirements and any financial prejudice to the Landlord was irrelevant. However, the Tribunal confirmed that the extent to which the leaseholders were prejudiced or disadvantaged was relevant and a common sense approach should be applied when making any findings.
Daejan appealed unsuccessfully to the Court of Appeal. The Court of Appeal reiterated most of what was said by the LVT and emphasised that following the consultation process in the proper manner was the essence of the statutory scheme and curtailing consultation was a serious failing that could cause significant prejudice.
Whether or not and in what circumstances the LVT will grant dispensation, retrospectively or otherwise, is not clear following this judgment. However, where there has been no prejudice to the leaseholder due to a minor breach or where works have been carried out in a genuine emergency dispensation may be possible.