Daejan v Benson: Supreme Court Major Works Industry Reaction

Whilst the dust settles on the Supreme Court ruling in Daejan v Benson, reaction from around the industry has been forthcoming.  Cass Zanelli, from Brady Solicitors, told News on the Block, the “...outcome leaves a bitter taste for the leaseholders involved but essentially brings a healthy dose of common sense to property management law-making. Daejan sets a precedent for considering the degree of prejudice suffered by the leaseholders rather than the degree to which the consultation requirements were breached. Essentially it moves on decision making from the black or white ‘dispensation or no dispensation from consultation’ and considers the actual outcome and impact upon the leaseholders concerned.”

Natasha Rees, 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.”

Similarly, David Barrett, an Associate with Thomas Eggar solicitors, commented: “Landlords will be mightily relieved“ and explained, “...the detailed Judgement, delivered by Lord Neuberger, takes a characteristically considered approach to the intention behind the procedures..... Tenants may find that as a condition of the LVT granting dispensation, the costs of works may be reduced and Landlords may have to pay the tenants legal costs.”

The composition of the Supreme Court involved not only some of the best lawyers in the land, but also both the President and Deputy President of the Supreme Court.  Therefore, it is perhaps revealing that the President and Deputy President were not in agreement on the decision, which was handed down some time after the expected period of 6 weeks, and it was made with only the slimmest majorities of three to two.  As David Barrett, again, observes: "Of the dissenting Judgments, Lord Wilson stated that the finding by Lord Neuberger that the gravity of non-compliance by a Landlord is only relevant if it causes financial prejudice to the tenant “seems to me to subvert Parliament’s intention”.

Sue Thompson, a senior associate in Osborne Clarke’s property litigation team, also pointed out that: “The decision is a stark departure from existing LVT jurisdiction and it will be interesting to see how it carries out the new approach.”  She also mindful of flat owners feelings following the decision, “Tenants will find the decision disappointing. The Court was clear that the Leasehold Valuation Tribunal must be sympathetic to the tenant’s case, but this is unlikely to be enough to compensate for the loss of the central plank of many tenant’s cases. Effectively, it means that minor administrative breaches will no longer give tenants carte blanche to argue against dispensation. If prejudice is shown to have existed, the LVT will decide how it can be remedied either through a conditional dispensation or by requiring the landlord to reduce the amount claimed.” David Barrett added: “...as a condition of the LVT granting dispensation, ...Landlords may have to pay the tenants legal costs.”

It is, of course, unusual for Landlords to pay for the tenants legal costs as well as their own and in this sense some may interpret the Supreme Court decision as going some way to redress the balance on legal fees in favour of leaseholders. Whether this will lead to similar rulings on legal expenses in other areas of leasehold practice remains to be seen.

Similarly, on the practical implications of the decision, Cass Zanelli offered this insight: “We see it as a victory for common sense and fairness for both landlord and leaseholder. As Lord Neuberger states in part 57 of his judgement: if a landlord were to carry out major works to the value of £1m but failed to comply with the consultation requirements to a small extent, eg in ‘accidentally not having regard to an observation’, it would be ‘grossly disproportionate’ to refuse the landlord dispensation. Instead, the degree of prejudice caused by the failure must be considered and the leaseholders’ contributions adjusted accordingly.

Whilst minor breaches of the consultation requirements have often gone unpunished, this SC ruling reinforces the importance of considering each case on its own merits.

More importantly however it should serve as a reminder to managing agents that they need to act at all times in the best interests of their leaseholders: only by demonstrating no or minimal adverse effect on leaseholders can a breach of the requirements be defended. Leaseholder communications must be impeccably and genuinely transparent, with landlords and managing agents making every effort to consult and engage with their leaseholders.”

Meanwhile, James Souter, a partner at Speechly Bircham LLP, also took a stoical view of the practical implications saying 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”.

Finally, barrister Justin Bates, from Arden Chambers referred to the decision as “an incredible result”.  His full analysis will be available in the next edition of the LVT Bulletin (subscribers only).