Landlord pays high price for failure to consult tenants on works to building

14th February 2011
In the case of Daejan Investments Ltd v Benson & Ors [2011] [1]The Court of Appeal held that in deciding whether to grant dispensation from the notice requirements in the Service Charges (Consultation Requirements) (England) Regulations 2003[2] (The Regulations) a leasehold valuation tribunal should not take into account the financial effect of the grant or refusal of dispensation on the Landlord.
The Law
The Landlord and Tenant Act 1985 requires landlords to consult their tenants before incurring certain items of service charge expenditure. Where the item consists of works, the landlord must consult the tenants if the costs to be incurred exceed an amount which will result in the tenants contributing more than £250 each.
Under the Regulations a leasehold valuation tribunal may dispense with any or all of the consultation requirements where it considers this reasonable.   If the consultation requirements are not complied with and the tribunal does not grant dispensation the contribution of each tenant is capped at £250.
The Facts
The Landlord was the owner of a block comprising of shops and flats. Five of the flats were let under long leases. The block needed major works amounting to over £270,000.00 and the Landlord had hoped to pass the cost of the works onto the tenants through the service charge.  In order to do this the Landlord was required to consult the tenants in accordance with the Regulations.
In July 2005 the Landlord sent the tenants a notice of intention in accordance with the Regulations and went on to obtain tenders for the works from four contractors. Under the Regulations the Landlord was required to serve a notice on the tenants setting out at least two of the estimates and to make all of the estimates available for inspection by the tenants. That notice should also have invited the tenants to make comments on the estimates within 30 days.
In July 2006 the landlord served a notice purporting to comply with the Regulations but not all of the estimates were made available to the tenants.  Further before the 30 day period for consultation had expired the Landlord awarded the contract.
On March 11th 2008 the leasehold valuation tribunal decided that the Landlord had not complied with the consultation requirements and the landlord applied for dispensation.
The leasehold valuation tribunal concluded that the Landlord’s failure to comply with the consultation requirements resulted in substantial prejudice being suffered by the tenants. It also concluded that the financial effects of the grant or refusal of the Landlord for dispensation on the landlord are not to be taken into account. It therefore refused to grant dispensation.
The decision was upheld by the Upper Tribunal (Land Chamber) and Court of Appeal.
By Louise Richardson
Commercial Property Solicitor

[1]  EWCA Civ 38, January 28, 2011 Sedley, Pitchford and Gross LJJ
[2] (SI 2003/1987)