Charles Jamieson from the Dispute Resolution Department at Bishop & Sewell discusses the part prejudice may have to play in Tribunal decision making.

Maybe a year ago, I was asked to provide a note on Section 20 Major Works Charges and, as with these things, the starting point was to consider the process itself whilst considering what the ramifications were to the Landlord / benefits were to the Tenant for failures to comply.

Application for Dispensation

As with all of those pairings of the world: day having night; yin having yang; and my cup of tea having a biscuit; with any failure by the Landlord to comply with the consultation requirements, the Landlord has the opportunity to apply for dispensation.

Often this will occur when there is an emergency situation leading to immediate expenditure (if a portion of the wall is about to collapse it is hardly in anyone’s interest to wait several weeks before making it safe), but occasionally this may arise through a technical breach such as sending documents to the wrong address, failing to include a specific document in the pack, or just generally failing to comply with the service of notice provisions in a lease.

Given that the purpose of the Requirements is to ensure that the tenants are protected from (i) paying for inappropriate works or (ii) paying more than would be appropriate, it seems to me that the issue on which the [Tribunal] should focus when entertaining this application by a landlord under section 20ZA(1) must be the extent, if any, to which the tenants were prejudiced in either respect by the failure of the landlord to comply with the Requirements.

Lord Neuberger, Daejan Investments Limited v Benson & Ors [2013] UKSC 14 at para 44

Lord Neuberger’s approach toward the purposive nature of the 1985 Act very much turned upon its head the question of a strict liability approach / distinction on severity of breach toward these failures to comply which the courts previously considering this case had adopted. 

With litigation there are often nuances to each case distinguishing them from one another, so this is not a hard and fast rule, which Lord Neuberger accepted:

Thus, in a case where it was common ground that the extent, quality and cost of the works were in no way affected by the landlord’s failure to comply with the Requirements, I find it hard to see why the dispensation should not be granted (at least in the absence of some very good reason)… Ibid. at para 45.

What Powers Does the Tribunal Have?

So where does this leave the parties? 

Lord Neuberger determined that it was not a ‘binary choice’ of dispensation or no dispensation, and confirmed that the Tribunal are able to grant dispensation on terms they considered appropriate and fit (para 54).

Examples which were raised in this judgment of terms the Tribunal may find appropriate may include:

• The Landlord meeting the Tenant’s costs; or
• A reduction in the amount payable.

Before a Tenant thinks, on the back of the above, that it is a given they will recover their costs of resisting any application by the Landlord, this is hardly settled and will be very much considered on the facts of the case and matters in the round.

Things to Consider – What Prejudice?

Getting to the practicalities, you are a Tenant and your Landlord has failed to comply – what is your lawyer going to be asking you to bring with you to the first meeting? Probably the Lease, the Consultation documents you have, any demands you have received and, most importantly, evidence of prejudice.

Apart from forging a new path of purpose through the consultation process itself, Lord Neuberger lumped the burden of proving prejudice on the Tenant (not simply the Landlord proving there had been no prejudice):

As to the contention that my conclusion would place an unfair burden on the tenants…while the legal burden of proof would be, and remain throughout, on the landlord, the factual burden of identifying some relevant prejudice that they would or might have suffered would be on the tenants… Ibid. at para 67. But the story does not stop there, oh no:

…given the landlord will have failed to comply with the Requirements, the landlord can scarcely complain if the [Tribunal] views the tenants’ argument sympathetically, for instance by resolving in their favour any doubts as to whether the works would have cost less….if the tenant had been given a proper opportunity to make their points. Ibid.

The result:

…This does not mean that [the Tribunal] should uncritically accept any suggested prejudice, however far-fetched, or that the tenants and their advisers should have carte blanche as to recovering their costs of investigating, or seeking to establish, prejudice.  But, once the tenants have shown a credible case for prejudice, the [Tribunal] should look to the landlord to rebut it.  And, save where the expenditure is self-evidently unreasonable, it would be for the landlord to show that any costs incurred by the tenants were unreasonably incurred before it could avoid being required to repay as a term of dispensing with the Requirements. Ibid. at para 68

What Should I Do As a Tenant?

The reader can be forgiven for being slightly confused as to what, therefore, the overall situation is in relation to how to approach these forms of disputes. 

From a practical perspective:

• The first point is to consider before resisting any application (either at pre-action or post-issue) for dispensation by your Landlord is to question whether you think you have actually suffered some form of prejudice for the failure;
• Next, consider the question of proportionality, is the value of the prejudice worth fighting over or is this a point of principle which could in fact cost you more than any benefit you could hope to derive; and
• Also consider whether any costs you are incurring in investigating this matter are reasonably incurred, simply because the Landlord may have failed to comply with the Requirements does not mean you are definitively entitled to recover them.

The question of service charges will always be an area ripe for dispute, particularly when those demands could be 4, 5, 6 (or greater) figure sums. 

Leases themselves create their own arguments (‘you can’t have that!  That’s an improvement not a repair!’) and as the numbers get greater, there is more for the parties to dispute.  Before rushing out and incurring costs, delaying works, creating animosity which will have far greater reaching issues on the landlord-tenant relationship than just this particular demand itself has done, take some time to consider the matter from a commercial and pragmatic position.

Landlords and Tenants will always be able to find something to fight about if they look hard enough, and want it that much, and practitioners will be sat, like me, drinking a cup of tea, and asking the simple question: Where is the prejudice?

The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.

Charles Jamieson is an experienced solicitor in the Bishop & Sewell Dispute Resolution Department, taking instructions in Landlord & Tenant, Property, Commercial and Chancery disputes.  

If you would like to speak with Charles, or any member of the dispute resolution team, contact Bishop & Sewell by email to: [email protected]