Residential landlords have statutory consultation requirements under Section 20 of the Landlord and Tenant Act 1985 (as amended) whenever they seek to enter into 'qualifying long term agreements' or carry out ‘qualifying works’ and then recover such costs under their tenants' service charge obligations.
The intention of these obligations is to protect residential tenants in relation to the level of recoverable service charges. As a result the penalties for a non-compliant landlord are stark – unless the Leasehold Valuation Tribunal (LVT) grants dispensation, the landlord can only recover £250 from each tenant for works and £100 in relation to long term agreements.
Prior to 6 March 2013, the LVT did not readily grant dispensation and as a result, in some cases, relatively technical breaches had prevented landlords recovering the full amount of their expenditure.
However, this was changed by the Supreme Court in the case of Daejan Investments Limited v Benson and others [2013] UKSC 14.
The facts of Daejan demonstrate the potential injustice of adopting an overly-rigid approach to the consultation requirements. In that case there were five tenants and the landlord's works amounted to £280,000. Had dispensation been refused, Daejan would have only been entitled to recover £1,250 of this.
Lord Neuberger identified in his judgement that the correct question to be asked in a case of non-compliance was whether the decision to grant dispensation to the landlord would cause the tenants to suffer any relevant prejudice.
The court further suggested that, where tenants do suffer prejudice, the LVT should, in the absence of some good reason to the contrary, take that prejudice into account when deciding whether to grant dispensation. The LVT could therefore make any dispensation conditional on the landlord reducing the amount claimed by way of service charge by an assessed amount referable to the assessed prejudice the tenants have suffered.
It should be noted that Daejan had offered to reduce the amount it sought to recover from the tenants by £50,000 which may have influenced the court to grant dispensation in its favour.
So, in the post-Daejan world the competent residential landlord should still ensure strict compliance with the s20 regime, but the case of Daejan has at least allowed a window of fairness should the landlord fail to comply.
The author Andrew Cammish is part of Burges Salmon's Real Estate Litigation team.