Landlord granted dispensation as Supreme Court Allows Major Works Appeal

>> Landlord awarded £230,000 for cost of major works
>> Each flat owner liable for £46,000
>> Landlord to pay flat owners’ legal costs

The Supreme Court has upheld an appeal of the Landlord today in the long-running case of Daejan v Benson.  But it was not an outright victory, as the Supreme Court reduced the amount the Landlord was claiming by £50,000 and ordered that the Landlord pay the leaseholders legal costs.

The case involved just under £280,000 of major works at Queens Mansions, in Muswell Hill, North London.  The block of 7 flats and some shops beneath is managed by Freshwater Property Management and owned by Daejan (which is also part of the Freshwater Property Business). Five long leasehold flat owners who were all members of the residents association in the building claimed that Daejan had failed to follow the statutory major works Consultation Regulations in 2005/6 and was not entitled to legal dispensation from adhering to them.  The LVT, Upper Tribunal (Lands Chamber) and Court of Appeal all agreed with the flat owners - limiting their liability to just £250 flat.

However, the Supreme Court disagreed and by a slim majority of three to two, allowed the Landlord’s appeal, and granted Daejan dispensation from the major works consultation requirements.  It was not an outright victory for the Landlord though.  The Supreme Court reduced the amount the Landlord was seeking by £50,000 and ordered that the Landlord pay the leaseholders its legal costs in relation to the proceedings before the LVT.  The cost to each flat owner for the major works is therefore £46,000, and the Supreme Court decided that this is a “fair outcome” because it put the flat owners in the same position as they would have been if the consultation requirements had been satisfied.

In explaining their reasoning, the majority in the Supreme Court, Lord Clarke, Lord Sumption and, Britain’s top judge, President, Lord Neuberger (who delivered the judgement) said the correct legal test was: - “Would the flat owners suffer any relevant prejudice, and if so, what relevant prejudice, as a result of the Landlord’s failure to comply with the requirements?”.  

In the present case, the Supreme Court ruled: “It is highly questionable whether any such prejudice would have been suffered”. The majority of their Lordships decided that the only prejudice that may have been suffered by the flat owners was that they had lost the opportunity of making out the case for using an alternative contractor.  In financial terms, this could not have been worth more than £50,000 - a sum which had already been offered by Daejan during the course of legal proceedings.

The Supreme Court also gave useful guidance on the purpose of the major works consultation requirements which they explained were there to ensure that flat owners are protected from “paying for inappropriate works, or paying more than would be appropriate”.  It was further explained that the reuqirements are a means to an end, and not an end in themselves.

Lord Neuberger also made clear that “This conclusion does not enable a landlord to buy its way out of having failed to comply with the Requirements, because a landlord faces significant disadvantages for non-compliance....[it] achieves a fair balance between ensuring that tenants do not receive a windfall, and that landlords are not cavalier about observing the Requirements strictly.”

Dissenting, Lord Hope and Lord Wilson, in the minority, considered that the approach of the LVT and the Upper Tribunal (Lands Chamber) was correct. Their Lordships explained that the gravity of non-compliance was the determining factor and that “substantial non-compliance with the Requirements entitles the LVT to refuse to grant dispensation”.  In this case, Daejan’s termination of the consultation process “...represented serious non-compliance with the Requirements.”

The majority in the Supreme Court had argued against this minority approach on the basis that it was “neither convenient nor sensible” and may lead to uncertainty and “inappropriate and unpredictable outcomes”.   

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