Daejan Investments Ltd v Benson
| Jurisdiction | England & Wales |
| Judge | Lord Wilson,Lord Neuberger |
| Judgment Date | 06 March 2013 |
| Neutral Citation | [2013] UKSC 14 |
| Date | 06 March 2013 |
| Court | Supreme Court |
[2013] UKSC 14
Lord Neuberger, President
Lord Hope, Deputy President
Lord Clarke
Lord Wilson
Lord Sumption
Appellant
Nicholas Dowding QC
Stephen Jourdan QC
(Instructed by GSC
Solicitors LLP)
Respondent
Philip Rainey QC
Jonathan Upton
(Instructed by Excello
Law Limited)
Respondent
James Fieldsend
(Instructed by Jaffe Porter
Crossick LLP)
Heard on 4 December 2012
Lord Neuberger (with whom Lord Clarke and Lord Sumption agree)
Almost all long leases of flats contain an obligation on the landlord (or a service company) to provide services, such as repairing the exterior and common parts of the block, and a concomitant obligation on the tenants to pay service charges, ie a specified proportion of the cost of providing such services. The right of a landlord to recover such service charges obviously depends on the terms of the particular lease, but, since 1972, Parliament has imposed certain statutory requirements and restrictions on a landlord, which impinge on its ability to recover service charges.
The current statutory requirements are contained in the Landlord and Tenant Act 1985 ("the 1985 Act"), which has been frequently amended, most relevantly for present purposes by the Commonhold and Leasehold Reform Act 2002 ("the 2002 Act"). All references hereafter to sections are to sections of the 1985 Act as amended, unless the contrary is stated.
Section 20(1) provides that unless certain "consultation requirements" are (a) "complied with" by the landlord (or service company), or (b) "dispensed with" by the Leasehold Valuation Tribunal ("LVT"), the landlord cannot recover more than a specified sum in respect of works for which the service charge would otherwise be greater. The issue on this appeal concerns the width and flexibility of the LVT's jurisdiction to dispense with the consultation requirements, and the principles upon which that jurisdiction should be exercised.
Sections 18 to 30 are in a portion of the 1985 Act headed "Service charges". Section 18 is headed "Meaning of 'service charge' and 'relevant costs'". Subsection (1) defines "service charge" as being "an amount payable by a tenant of a dwelling … for repairs, maintenance … the whole or part of which varies … according to the relevant costs". Section 18(2) defines "relevant costs" as "the costs … incurred … in connection with the matters for which the service charge is payable".
Section 19 is headed "Limitation of service charges: reasonableness". Subsection (1) provides that relevant costs "shall be taken into account in determining the amount of a service charge … (a) only to the extent that they are reasonably incurred, and (b) … only if the … works are of a reasonable standard".
Section 20 is headed "Limitation of service charges: consultation requirements", and section 20ZA is headed "Consultation requirements: supplementary". By virtue of section 20(3), (4)(a) and (5) and section 20ZA(2), section 20 applies where the cost of qualifying works exceed "an appropriate amount set by regulations". Regulation 6 of the Service Charges (Consultation Requirements) (England) Regulations 2003, SI 2003/1987 ("the 2003 Regulations") sets that amount at a sum which results in the service charge contribution of any tenant to the cost of the relevant works being more than £250.
The centrally relevant provisions for present purposes are to be found in sections 20(1) and 20ZA(1).
Section 20(1) states that:
"… [T]he relevant contributions of the tenants are limited in accordance with subsection (6) … unless the consultation requirements have been either –
a) complied with in relation to the works …, or
b) dispensed with in relation to the works … by (or on appeal from) a [LVT]."
Section 20ZA(1) provides that:
"Where an application is made to [an LVT] for a determination to dispense with all or any of the consultation requirements in relation to any qualifying works …, the tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements."
Section 20(2) defines "relevant contribution" as being, in effect, the amount due under the service charge provisions in respect of the works, and section 20(7) limits the contribution to £250 per flat – see regulation 6 of the 2003 Regulations.
The "consultation requirements" are defined in section 20ZA(4) as being "requirements prescribed by regulations", which section 20ZA(5) states "may in particular include provisions requiring the landlord" to take certain steps. Those steps include providing details of the proposed works to the tenants, obtaining estimates, inviting the tenants to propose possible bidders, and having regard to the tenants' observations on the proposed works and estimates.
The consultation requirements applicable in the present case are contained in Part 2 of Schedule 4 to the 2003 Regulations. A summary of those requirements were helpfully agreed between the parties in the following terms (which I have slightly abbreviated):
Stage 1: Notice of intention to do the works
Notice must be given to each tenant and any tenants' association, describing the works, or saying where and when a description may be inspected, stating the reasons for the works, specifying where and when observations and nominations for possible contractors should be sent, allowing at least 30 days. The landlord must have regard to those observations.
Stage 2: Estimates
The landlord must seek estimates for the works, including from any nominee identified by any tenants or the association.
Stage 3: Notices about Estimates
The landlord must issue a statement to tenants and the association, with two or more estimates, a summary of the observations, and its responses. Any nominee's estimate must be included. The statement must say where and when estimates may be inspected, and where and by when observations can be sent, allowing at least 30 days. The landlord must have regard to such observations.
Stage 4: Notification of reasons
Unless the chosen contractor is a nominee or submitted the lowest estimate, the landlord must, within 21 days of contracting, give a statement to each tenant and the association of its reasons, or specifying where and when such a statement may be inspected.
Sections 20A to 20C set out certain further "Limitation[s] of service charges", and sections 21 to 23A give rights to tenants and impose obligations on landlords with respect to the provision of information about service charges. Sections 26 to 30 contain other ancillary provisions with regard to service charges.
Queens Mansions ("the building") is a building in Muswell Hill, north London, the freehold of which is owned by Daejan Investments Ltd ("Daejan"), the appellant in this appeal. The building consists of shops on the ground floor and seven flats on the upper floors. Five of the seven flats are held under long leases, and each of those leases is held by a respondent to this appeal (collectively "the respondents"). Each lease includes an obligation on the landlord to provide services, including the repair and decoration of the structure, exterior, and common parts of the building. Each lease also includes an obligation on the tenant to pay a specified fixed proportion of the cost of providing, inter alia, the services which the landlord is obliged to provide.
The five respondents were, at all material times, members of the Queens Mansions Residents Association ("QMRA"), which is chaired by Ms Marks, who is the partner of one of the respondents. The building is managed by Highdorn Co Ltd, which, like Daejan, is part of the Freshwater group of companies, and which carries on business under the name of Freshwater Property Management ("FPM").
By early 2005, it was clear that major works were required to the building, and, in February that year, FPM told the respondents and QMRA that Daejan intended to carry out such works. Three weeks later, FPM sent QMRA a specification in respect of the proposed works. Thereafter, pursuant to a request from Ms Marks, FPM appointed Robert Edward Associates ("REA"), who had been advising QMRA on the proposed works, as contract administrator.
In his judgment at para 98, Lord Wilson has given a fairly full account as to what then happened. A briefer summary is as follows.
REA prepared a fresh specification, which was sent to QMRA and the respondents on 30 August 2005, a few weeks after a stage 1 notice of intention to carry out works had been sent, on 6 July 2005. This specification was then the subject of discussion with Ms Marks, some of whose observations were then incorporated into the specification.
Following that, tenders were sought, and priced tenders were received by REA from four contractors. In a fairly full report sent to the respondents on 6 February 2006, REA stated that two of those tenders appeared to be the most competitive. One was from Rosewood Building Contractors ("Rosewood"), who had quoted £453,980 for a 24-week contract period; the other was from Mitre Construction Ltd ("Mitre"), who had quoted £421,000 for a 32-week contract period, although its tender did not comply entirely with the tender directions. The respondents and QMRA were only provided with the priced specification submitted by Mitre and not that submitted by Rosewood.
During 2006, Ms Marks was pressing FPM for the opportunity to inspect the priced tenders, and, although this request had not yet been satisfied, FPM was indicating a preference for instructing Mitre. In the meantime, in a letter of 14 July 2006, Ms Marks made a large number of fairly detailed points about the proposed Works to FPM, making it clear that those...
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