Frequently Asked Questions

This case brings out significant questions with respect to the statutory consultation requirements for major works under the Landlord and Tenant Act of 1985.

Daejan Investments Limited (Appellant) v Benson and Others [2013] UKSC 14

Summary

This case of Daejan Investments Limited, Appellant v Benson and others [2013] UKSC 14 brings out significant questions with respect to the statutory consultation requirements for major works under the Landlord and Tenant Act of 1985. This case has compelled the Supreme Court to decide on whether dispensation in respect of such requirement could be given to Daejan Investments Ltd and if this was possible then on what grounds. This case is of importance in elucidating how the strict compliance requirements for a consultation procedure can be balanced against the requirements for substantive fairness of the outcome for tenants.

Facts

Daejan Investments Limited (Daejan) was a landlord having a block of flats let to Benson and other respondents. Major works were proposed by Daejan in the property comprising various repairs and maintenance estimated at around £280,000. Before major works are done, the Landlord and Tenant Act 1985 requires that a landlord consult the tenants by proposing the works and inviting observations and even nominations of alternative contractors.

However, Daejan did not fully comply with consultation. On the basis that by doing so, the respondents argued that Daejan's failure deprived them of their statutory rights and objected to the service charge, which Daejan was seeking to recover the cost of the works. Daejan applied to the LVT for dispensation from the full consultation requirement under s.20ZA of the Act.

Issues

Before the courts were mainly the following issues:

1. Whether the statutory consultation requirements should be dispensed to Daejan.

2. If it had granted dispensation, what conditions, if any should be imposed to mitigate any prejudice suffered by the tenants due to failure to consult.

First Instance

The LVT refused at first instance to dispense Daejan. As Daejan had failed to consult, its holding was that valuable right of the tenants was deprived and that compliance with the consultation requirements was a sine qua non. It therefore observed that the tenants' statutory right to participate in the consultation had been viewed as an important factor in the scheme of the legislation.

Daejan appealed to the Upper Tribunal (Lands Chamber) which dismissed the appeal and confirmed the LVT decision. The Upper Tribunal focussed again upon the statutory consultation exercise and concluded that the prejudice to the tenants caused by Daejan's non-compliance had been significant.

Decision on Appeal

Daejan pursued its appeal to the Supreme Court. In a landmark judgment, the Supreme Court granted Daejan dispensation from the statutory consultation, but did so subject to conditions. The Supreme Court judgment gave rise to the following essential points:

1. Requirements of Consultation – Purpose: The Supreme Court elaborated that the prime purpose of consulting requirements is to protect the tenants from paying for unreasonable or non-essential works. Providing transparency and an opportunity for the tenant to participate in decision making has embedded a process of consultation.

2. Dispensation Test: The Court held that dispensation should be given unless the tenants can show substantial prejudice flowing from the landlord's failure to consult. The issue would be of a financial nature, and whether the tenants had actually suffered any prejudice in terms of cost and quality of the works.

3. Conditions on Dispensation: The Supreme Court laid down conditions for dispensation to ensure no prejudice is caused to the tenant. Daejan was directed to quantify the service charges by reducing them by £50,000 for non-consultation. This was to ensure that the service charge reflected any detriment that the tenant might have suffered by reason of the failure to consult.

Comments

The decision in Daejan Investments Limited v Benson and others has wide-ranging implications for landlords and tenants regarding the consultation requirements for major works. Several critical points are to be cherished in the light of decision in this case.

1. Balancing Compliance and Fairness: One cannot help but feel that the judgment of the Supreme Court represents a call to strike a balance between strict compliance with the statutory procedure and the need to ensure that the outcome is substantially fair. Less weight ought to be given to the consultation exercise and more to whether actual prejudice was suffered by the tenants flowing from non-compliance.

2. Prejudice Test: Another principle is that a "prejudice test" requires the tenant to prove substantial prejudice in case the landlord desires dispensation. This approach gives precedence to practical impact on the tenant over procedural formalities.

3. Conditions for Dispensation: Placing conditions for dispensation is to ensure that any possible disadvantage which may be caused to the tenants is adequately taken care of. By reducing the service charges, the Court had to ensure that the tenants were not put under undue burden on account of the landlords' failure to consult.

4. Future Cases: This judgment will decide the future of several cases on the basis of consultation requirements. If F landlords can establish that tenants have not suffered significant prejudice, they may be more likely to seek dispensation. However, they will need to be prepared for possible financial adjustments as a condition of dispensation.

5. Legislative Intent: It is emphasized that the judgment is designed to underscore the legislative intent behind consultation requirements, indemnifying tenants from unreasonable costs but in such a manner as to permit flexibility in enforcement. Applying the law in such a way as to ensure the protective purpose without imposing miscellaneous procedural burdens.

This thus ends the case of Daejan Investments Limited v Benson and others, which has been a valuable improvement in the interpretation and application of statutory consultation requirements. The guidance provided addresses how to approach requests for dispensation and how the tribunal/courts should approach such cases, especially with regard to the key consideration being the substantive impact on tenants.

Social