Daejan v  Benson: Comment from the Leaseholders’ Legal Team

Stephen Crossick, Managing Partner at JPC Law, the firm of solicitors who represented one of the leaseholders, told News on the Block:

“Contrary to first impressions, this case spells neither disaster for lessees nor triumph for landlords. Most importantly, lessees may be able to recover their reasonable costs incurred in pursuing the consequences of the Landlord’s default so they do not suffer loss. The circumstances and extent of this may yet be the subject of further submissions by the parties to the Supreme Court.

Dispensation is not a “black and white” issue and the LVT can now look in a more rounded way at prejudice to enable lessees to be put in the position they ought to have been had the process been carried out correctly.

Landlord’s meanwhile should be encouraged to offer compensation where they have failed to comply to avoid lengthy litigation as it is no longer a “win or lose” situation and the LVT can take that into account.

But process is merely a set of external rules, it does not necessarily reflect intention. Is it now time to look at the consultation provisions and give them more teeth?”

James Fieldsend, a barrister at Tanfield Chambers, was instructed by JPC Law.  He  explained to News on the Block:

“The approach to dispensation applications has been radically altered.  The “new” approach ties consultation directly with s.19 reasonableness.  It can perhaps be characterised as a “but for” test; what action would the tenants have taken but for the breach.  If the tenants can identify a course of action that they would have taken had there been a complaint procedure and if they demonstrate, whether by themselves or with the assistance of advisors, that as a consequence of that lost opportunity they are faced with an unreasonable service charge (in the s.19 sense), then they will have been prejudiced and it will be necessary for the landlord to identify how that prejudice can be remedied before a dispensation order is made.  If the relevant prejudice can be remedied then the landlord can expect to obtain an order subject to terms.  The similarities of this approach and claims for relief from forfeiture will not be lost on landlord and tenant practitioners; in each type of case (as the Supreme Court appears to have confirmed) a balance is to be struck between remedying the damage caused by the breach and avoiding what might be considered a disproportionate windfall.

The breadth of the LVT’s power to impose conditions as a term of any dispensation order has not been defined; as Lord Neuberger emphasised it was not the intention of the Court to fetter the tribunal’s exercise of discretion or impose rigid rules.  It therefore remains to be seen how far LVTs will go to redress any actual prejudice suffered by tenants when ordering dispensation and (going further) whether they will view the judgment as support for imposing conditions when exercising any of their other discretionary powers, for example to adjourn hearings or to allow parties to rely on material produced late in proceedings.

As a final point, if as a consequence of the Court’s judgment dispensation orders will be more readily granted (certainly with more frequency than under the approach to dispensation endorsed by the Upper Tribunal and Court of Appeal) then it falls to be asked, what impact if any will that have on the valuations in enfranchisement cases following on from what was said by the Upper Tribunal in City & Country Properties v Yeats?”

In the Yeats case, the Upper Tribunal indicated that an additional 0.25% should be added to the deferment rate used to calculate the cost of the freehold “to reflect the potential actual burden of management ...".  So, if the Supreme Court decision means that management is less burdensome, then it may also mean it is cheaper for leaseholders to buy their freehold. To borrow one of Lord Neuberger’s own phrases (from his Court of Appeal judgement in Hosebay) - this may be the “law of unintended consequences”.