Landlords of residential property who carry out repair works to their property have been given a helping hand by the Supreme Court.
The law provides that landlords must consult with their tenants before they carry out works of repair, maintenance or improvement to a building which will result in any one tenant having to pay more than £250 towards the cost. Failure to comply with this consultation process will result in the landlord being able to recover a maximum of £250 from each tenant irrespective of the total costs of the works. The only way a landlord can avoid this process is if it is dispensed with by the Leasehold Valuation Tribunal (LVT).
Some LVTs have punished landlords who flout the rules by refusing to grant dispensation even where the tenants are not actually prejudiced, and that approach has now been challenged.
The Supreme Court, in Daejan Investments Limited v Benson and others  UKSC 14, has now handed down a decision which sets out guidance as to when it will be appropriate for the LVT to dispense with the consultation procedure for landlords.
What does this mean for landlords?
The purpose of the consultation requirements is to provide tenants with protection against having to pay works which are unnecessary or for paying more than is necessary for those works. Therefore, when considering a request for dispensation, the LVT should consider whether the tenants were prejudiced by the failure to comply with the consultation requirements. The seriousness of the breach of the consultation requirements is not in itself a determining factor in whether dispensation should be granted.
The LVT may grant dispensation on appropriate terms and has the ability to impose conditions on the grant of dispensation.
If tenants do suffer prejudice by a landlord's failure to comply with the consultation requirements, the landlord should reduce the amount it claims in service charge so as to compensate the tenants for any prejudice faced by the tenants. This would result in a fair balance between the interests of the landlord and the tenant.
Landlords have been greatly assisted by the Supreme Court's judgment. So long as its tenants are not prejudiced by a failure to comply with the consultation requirements a landlord may find that the LVT is more willing to grant dispensation.
The consultation procedure
The Supreme Court usefully summarised the four-stage consultation procedure as follows:
- Stage 1 – Notice of intention to do the works: Notice must be given to each tenant and any tenants’ association, describing the works, or saying where and when a description may be inspected, stating the reasons for the works, specifying where and when observations and nominations for possible contractors should be sent, allowing at least 30 days. The landlord must have regard to those observations.
- Stage 2 – Estimates: The landlord must seek estimates for the works, including from any nominee identified by any tenants or the association.
- Stage 3 – Notices about estimates: The landlord must issue a statement to tenants and the association, with two or more estimates, a summary of the observations, and its responses. Any nominee’s estimate must be included. The statement must say where and when estimates may be inspected, and where and by when observations can be sent, allowing at least 30 days. The landlord must have regard to such observations.
- Stage 4 – Notification of reasons: Unless the chosen contractor is a nominee or submitted the lowest estimate, the landlord must, within 21 days of contracting, give a statement to each tenant and the association of its reasons, or specifying where and when such a statement may be inspected.
This statutory consultation process must be followed unless it is dispensed with by the LVT. Pursuant to s20ZA(1) of the Landlord and Tenant Act 1985 the LVT may dispense with this consultation procedure if "if satisfied that it is reasonable to dispense with the requirements".
The case of Daejan
Daejan is the owner of Queens Mansion a block of flats in Muswell Hill, London. In 2005, Daejan decided to carry out a refurbishment of the property which would involve qualifying works. However, it only complied with part of the consultation requirements.
The LVT was asked to grant Daejan dispensation from the consultation requirements, so that Daejan would be entitled to recover just under £280,000 in total from the tenants, as opposed to £1,250 in the absence of dispensation (that is, £250 from each tenant). During the course of the proceedings, Daejan proposed a £50,000 deduction to the £280,000. The LVT had previously regarded Daejan’s failure to comply with the consultation requirements as serious and something which caused serious prejudice to the tenants. Accordingly, the LVT refused to grant Daejan dispensation. Two subsequent appeals by Daejan, one to The Upper Tribunal and the other to the Court of Appeal, had been unsuccessful. Both bodies had agreed with the LVT's refusal to grant dispensation.
The Supreme Court awarded dispensation against the consultation requirements. It held that the correct question in this case was whether, if dispensation was granted, would the respondents suffer any relevant prejudice, and, if so, what relevant prejudice, as a result of Daejan’s failure to comply with the consultation requirements.