Regular contributors Phil Parkinson & Katie Edwards of specialist property solicitors JB Leitch, provide insight and comment on the subject of dispensation from consultation requirements, discussing key caselaw which highlights the significance of procedure and the importance of establishing what is reasonable or subject to financial prejudice.
Failure to follow the consultation procedure for major works or when entering a long-term agreement, as set out within s20 of the Landlord and Tenant Act 1985 (LTA 1985), can result in a landlord being limited to a £250 contribution per leaseholder towards the works in question or £100 per annum towards a long-term contract. Unquestionably this could be catastrophic for a landlord – particularly where the works or contract are high value. In such circumstances, leaseholders may challenge a landlord’s claim for costs in excess of these amounts by way of an application to the First-tier Tribunal (Property Chamber) (FTT) under section 27A LTA 1985 and such an application would be for a determination that payment of the service charge is limited to either £250 or £100 (depending on whether the charge relates to works or an agreement) due to the landlord’s failure to consult.
In circumstances were the consultation procedure has not, or could not, be followed, pursuant to s 20ZA(1) LTA 1985, a landlord may apply to the FTT in England or the Leasehold Valuation Tribunal (LVT) in Wales, for an order authorising it to dispense with all or any of the consultation requirements, for example where works are required urgently or where the contracting requirements disenable full the full consultation procedure to be followed. The FTT/LVT have the authority to grant dispensation from all, or some, of the consultation – if it considers it reasonable to do so. Whilst there is no statutory definition as to what is reasonable, the caselaw in the area has developed to provide assistance in interpretation.
Caselaw & the Creation of Financial Prejudice
In Daejan v Benson [2013] UKSC 14, the Supreme Court confirmed, by virtue of a narrow majority of three judicial votes to two, that a dispensation application ought not be refused solely because the landlord had seriously breached, or departed from, the consultation requirements. This decision changed the landscape of the area and the relationship, and powers, of the parties involved. No longer was the right to be consulted a free-standing right. The Supreme Court steered the common law away from previous decisions of the lower courts. The prior requirements of ‘transparency and accountability’ set out in Paddington Basin Developments v West End Quay [2010] All ER (D) 139 (Apr) was incorrectly found as the legislation was not concerned with public law issues or public duties.
Instead, the Supreme Court made a finding that the purpose of the regime was to ensure that leaseholders were protected from paying for inappropriate works, or paying more than would be appropriate. In considering dispensation applications, it found that the tribunal should focus on whether the tenants suffered any prejudice by the failure of the landlord to comply with the consultation requirements. It was neither convenient nor sensible to distinguish between a serious failing and a minor oversight, save in relation to the prejudice it caused. The implications of the decision were such that where the scope, quality and costs of the works were not negatively affected by the landlord’s failure to comply with the requirements, dispensation should generally be granted. Neither the financial consequences to the landlord of not granting dispensation, nor the nature of the landlord, were relevant factors for the LVT in considering how to exercise its jurisdiction. While the legal burden was on the landlord to demonstrate that the dispensation would be reasonable, the factual burden of identifying some relevant prejudice falls on the tenants. Once they have shown a credible case for prejudice, the tribunal should look to the landlord to rebut it and should be sympathetic to the tenants’ case.
Conditions
A further aspect of the Daejan v Benson decision that was relatively novel and certainly noteworthy, was the finding that a Tribunal was not limited to granting dispensation unconditionally or refusing to grant it. It had the power to grant a dispensation on such terms as it thought fit—provided the terms were appropriate in their nature and their effect. Insofar as the tenants would suffer relevant prejudice, the LVT should, in the absence of some good reason to the contrary, effectively require the landlord to reduce the amount claimed to compensate the tenants fully for that prejudice. It could also require the landlord to reimburse the tenants for their costs of dealing with the application for dispensation.
The position was considered and developed further within Aster v Chapman[2021] EWCA Civ 660, in which the Court of Appeal restated the breadth of the power to impose conditions when granting dispensation from consultation requirements, so long as such conditions are appropriate in their nature and effect and related to prejudice suffered by the leaseholders.
A condition may compensate tenants retrospectively or prospectively for costs yet to be incurred, particularly where the relevant issue could not have been determined in the application. A condition requiring the landlord to pay the leaseholders’ costs of the application is often ordered where communications emanating from the landlord is minimal or insufficient. A Tribunal is entitled to find that tenants would have acted differently, thereby establishing relevant prejudice, even if no tenant argued the issue of defective consultation, or that no tenant made observations on the relevant item of work. Furthermore, where one tenant establishes prejudice, all tenants affected by the prejudice are entitled to the benefit of the same condition.
The Tribunal’s approach in such cases was considered and the analysis gave various practical points and pitfalls. A landlord is required to ensure that adequate and sufficient technical evidence is disclosed at an early stage and that communication in that regard in clear, no issues are deferred for later determination if they are able to be dealt with together with dispensation and an expectation exists that landlords should expect to contribute towards their leaseholders’ costs of responding to a dispensation application. Furthermore, tenants should, if at all possible, inspect the landlord’s technical data during the consultation process and make representations.
The position set out within caselaw does require some work and consideration on the leaseholders’ part, however. Credible evidence of the financial prejudice suffered and actions that would have been taken should the consultation have been undertaken must be investigated and ventilated.
Conclusion
With building safety still very much at the forefront of industry action, public and political attention and legislative reform, the drive to ensure that works are conducted with urgency, underpinned by clear justification, remains apparent. This issue of establishing prejudice requires contextual and credible argument. As the case law highlighted above illustrates, in essence there is a burden of proof with leaseholders to answer a key question: what they would have done differently and what financial prejudice have they suffered.
