Dispensing with the need to consult about service charges – at what cost?
The Supreme Court has changed the law about dispensing with the need for consultation for qualifying works or qualifying long term agreements where tenants of residential dwellings have to pay service charges: Daejan v Benson  UKSC 14.
The requirements for consultation in the 2003 Regulations (2003 SI 1987) are complex and lengthy. They vary according to the type of work, whether the landlord is a local authority and whether public notice needs to be given. The requirements are often difficult to satisfy and are often not complied with. Breach means that the landlord can usually only recover £100 per tenant as service charge towards the costs of the works or services. A landlord would have to bear the shortfall over £100 per tenant.
Non-compliance is sometimes inadvertent. Sometimes it is a calculated risk. Sometimes works need to be carried out urgently to avoid further damage or disrepair occurring. Sometimes works need to be carried out as an emergency. A landlord can apply for some or all of the requirements to be shortened or omitted either entirely or partially. An application can be made before during or after the works are being carried out. Applications for works carried out after October 2003 must be made to the Leasehold Valuation Tribunal (“the LVT”).
Evervone agreed that prejudice to the tenants is a critical factor in deciding whether the landlord should be excused from the requirements of the 2003 Regulations, when the landlord applied for dispensation.
Until recently the LVT had been required to take any serious failure to consult in accordance with the regulations as amounting to prejudice to the tenants which would lead to a refusal of dispensation to the landlord.
Now the Supreme Court has said that the main issue is whether the tenants have suffered prejudice as the result of failure to comply with the consultation requirements. This will usually mean the tenants have to show the works cost more or in some other way adversely affect them financially because of the failure to comply.
The Supreme Court has now said the LVT has the power to grant dispensation upon conditions. These might include limiting the cost of the works to the tenants and payment by the landlord of the tenants’ costs of considering and resisting the claim for dispensation, if the LVT finds it was reasonable to do so.
Lord Neuberger hinted that LVT’s might be sympathetic to tenants who found themselves arguing they had suffered financial prejudice because of non-compliance. How sympathetic the LVT will be and at what cost to the landlord remain to be seen.
© Howard Lederman
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Disclaimer: the above is not formal legal advice. Advice should be sought upon the specific circumstances of any case.
Howard Lederman and other members of the property team at 42BR Barristers London WC1R 4JL would be pleased to give further information and advice about this decision and all aspects of service charges and can be contacted on 0207 831 0222.
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