Residential Service Charge Recovery: Supreme Court’s ruling starts to show results for landlords

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Summary: Two reported cases following the Supreme Court’s ruling in Daejan Investments Limited v Benson [2013] UK SC 14 (“Benson”) demonstrate how the major changes in approach required by that ruling are now being followed and adopted by the courts in applications to them for dispensation.

You should read this update if you hold or manage multi occupational residential real estate in England and Wales.

The 20-second summary

Two reported cases following the Supreme Court’s ruling in Daejan Investments Limited v Benson [2013] UK SC 14 (“Benson”) demonstrate how the major changes in approach required by that ruling are now being followed and adopted by the courts in applications to them for dispensation.

Background

The ability to recover contributions from residential tenants through service charge machinery to the costs of works of repair, maintenance and improvement to their buildings (“qualifying works”), without prior consultation with them, is severely constrained by statutory regulation.  Where the consultation requirements are triggered but are not undertaken or not undertaken fully, the penalty is to limit recoverability per residential tenant to £250 each (the “statutory cap”).

At the same time, there is a statutory jurisdiction to dispense with compliance with these consultation requirements and in Benson the Supreme Court made at least four major changes to the approach formally taken by tribunals and courts in considering dispensation requests.

The cases

The first decision which illustrates this new guidance in action is Jastrzembski v Westminster City Council [2013] UKUT 0284 (LC) where the court acknowledged that, post Benson, the central issue for it to determine was whether the leaseholder has suffered prejudice, not whether the specific failure to comply with the statutory consultation requirements was a technical oversight or a serious failing.

The court determined that the specific compliance failure was a technical oversight and that no prejudice had been suffered.  The landlord had, in fact, consulted with the leaseholder, given him an opportunity to make observations on the proposed works and nominate a contractor (the very matters which the initial notice (which the landlord had failed to send) was designed to deal with).

In the second decision, Re OM Property Management [2014] UKUT 9 (LC), the landlords were successful in overturning an earlier decision in the proceedings which had concluded that the failure to comply with the statutory requirements, being a substantial one, it was not necessary to look at whether actual prejudice had been suffered by the leaseholders.

On appeal, again applying the guidance in Benson, the court looked carefully at whether the leaseholders had in fact suffered actual prejudice from the specific compliance failure to provide full access to details of two tenders out of the four in total obtained by the landlords and concluded in the negative.

In relation to a further specific compliance failure, to provide notice to all the leaseholders of the responses received to the initial consultation notice, again, the court ruled on appeal, applying Benson, that no real prejudice had been suffered by the leaseholders; the compliance failure had no impact on the scope of the works proposed or their cost.

These cases will be welcome news to landlords.

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