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Commercial property lawyers welcome Supreme Court’s ‘common sense’ ruling

Landlord did not cause prejudice to tenants for failing to provide details of planned building works

7 March 2013

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A landlord will be allowed to recover more than a quarter of a million pounds after the Supreme Court ruled the business did not breach the law by not giving tenants detailed notification of planned building works.

Daejan Investment Limited, which owns the freehold of Queens Mansions, instructed a contractor to carry out works on the building worth £280,000 without, as required by law, issuing the seven tenants with a statement containing a summary of observations on the estimates, its responses to them, and notice of where they would be available for inspection.

The landlord also failed to obtain dispensation from the Leasehold Valuation Tribunal, which considered that Daejan’s failure was a serious breach of the statutory requirements which caused a serious prejudice to the tenants. That decision was upheld by the Court of Appeal.

By a 3:2 majority, the Supreme Court found this morning in Daejan Investments v Benson and Ors [2013] UKSC 14 that it was highly questionable that the tenants would have suffered a prejudice if dispensation had been granted.

Natasha Rees (pictured), a partner at Forsters, said the decision was “on the whole good for landlords” because it will limit tenants’ ability to challenge service charges purely on procedural irregularities.

“The LVT can now take a more common-sense approach. It can consider the financial implications of a landlord’s failure to consult and it can also impose conditions which will allow them to dispense with the consultation requirements,” Rees said.

“One down side of this is that it will now be a more subjective approach which may lead to more uncertainty and therefore more disputes.”

John de Waal, barrister with Hardwicke chambers agreed with Rees’s comment, saying the LVT “will now be able to take a more common-sense approach to these applications and look at the question of what really matters – has the tenant been prejudiced by the landlord’s procedural failures? – as opposed to punishing the landlord for failing to stick to the black letter law of the regulations made under the Act”.

Meanwhile, James Souter, partner at Speechly Bircham LLP, said the decision was “unlikely to encourage landlords to behave less responsibly as most will want to avoid the time and cost of the dispensation process”.

“The Supreme Court also made clear the Leasehold Valuation Tribunal should look sympathetically on the tenants and will, where possible, reduce the amount a landlord can recover to take account of points that might have been raised by the consultation process, had it been properly followed,” Souter added.

Landlords are required by the Landlord and Tenant Act 1985 and the Statutory Service Charges (Consultation Requirements)(England) Regulations 2003 to issue tenants with summary observations on work estimates, their responses to them, and notices of where they would be available for inspection.

Alternatively, they can apply to the Leasehold Valuation Tribunal for a dispensation.

Failing to comply with this requirement or obtain a dispensation means landlords may only recover up to £250 from each tenant.

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