Daejan Investments Ltd v Benson

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Gross,Lord Justice Pitchford,Lord Justice Sedley
Judgment Date28 Jan 2011
Neutral Citation[2011] EWCA Civ 38
Docket NumberCase No: C3/2010/0267

[2011] EWCA Civ 38

IN THE HIGH COURT OF JUSTICE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM

Lord Justice Carnwath and Mr N J Rose

Before: Lord Justice Sedley

Lord Justice Pitchford

and

Lord Justice Gross

Case No: C3/2010/0267

LRX/148/2008

Between
Daejan Investments Ltd
Appellant
and
Benson & Ors
Respondent

Nicholas Dowding QC and Stephen Jourdan QC (instructed by GSC Solicitors) for the Appellant

Philip Rainey QC (instructed by K&L Gates LLP) for the First to Fourth Respondents

James Fieldsend (instructed by Jaffe Porter Crossick LLP) for the Fifth Respondent

Hearing dates: 18/10/10

Lord Justice Gross

Lord Justice Gross:

INTRODUCTION

1

This is an appeal, brought pursuant to s.13 of the Tribunals, Courts and Enforcement Act 2007 ("the 2007 Act"), by the Appellant ("Daejan"), against the decision of the Upper Tribunal (Lands Chamber), known as the Lands Tribunal ("LT"), dated 27 th November, 2009 ("the LT decision"). In that decision, the LT dismissed Daejan's appeals against two decisions of the Leasehold Valuation Tribunal ("LVT"), dated 11 th March and 8 th August, 2008 (respectively, the LVT's "March" and "August" decisions). Although the LT necessarily had regard to both the LVT's March and August decisions, the principal focus of the appeal before the LT – as indeed the appeal to this Court – concerned the LVT's August decision.

2

In a nutshell:

i) By its March and August decisions, the LVT held that Daejan had failed to comply with the Service Charges (Consultation Requirements) (England) Regulations 2003, SI 2003 No. 1987 ("the Consultation Regulations"), in respect of works to be done at Queens Mansions, Muswell Hill ("the works" and "Queens Mansions").

ii) By its August decision, the LVT declined to conclude that it was reasonable to dispense with the consultation requirements in the present case and so made no order for dispensation under s.20ZA(1) of the Landlord and Tenant Act 1985 as amended ("the Act"). The consequence is that Daejan failed in its claim to recover some £270,000 from the Respondents, five long leaseholders of flats in Queens Mansions, in respect of the works. Instead, pursuant to the statutory scheme (of which more below), Daejan's recovery from the Respondents was "capped" at £250 each. In reaching this conclusion, the LVT held that the financial effects of the grant or refusal of the application for dispensation on the landlord or tenant were irrelevant and were not to be taken into account. Further, the LVT held that Daejan's failure to comply with the Consultation Regulations had caused the Respondents "substantial" or "significant" prejudice.

iii) On appeal, the LT, whose constitution on this occasion included Carnwath LJ, Senior President, upheld the decision of the LVT. The LVT had been entitled both to conclude that Daejan had committed a "serious breach" and to refuse dispensation with the consultation requirements under s.20ZA(1) of the Act.

3

Before this Court, Mr. Dowding QC for Daejan essentially contended as follows. First, the LT erred in holding that the financial effects of granting or refusing dispensation were irrelevant. Secondly, the LT was wrong to hold that the nature of the landlord was relevant; that Daejan was a corporate landlord was irrelevant and did not justify the LVT adopting a more rigorous approach to non-compliance with the Consultation Regulations. Thirdly, the LT had erred in law, alternatively, reached a conclusion no reasonable tribunal could have reached ( Edwards v Bairstow [1956] AC 14), with regard to the question of whether the Respondents had suffered prejudice flowing from Daejan's failure to comply with the Consultation Regulations; it was for the Respondents to prove such prejudice; regardless of where the burden of proof lay, there was none; the only reasonable conclusion was that dispensation should have been granted.

4

The Respondents' case before us, presented by Mr. Rainey QC for the 1 st– 4 th Respondents and Mr. Fieldsend for the 5 th Respondent, was, in essence, that the decisions of the LT and LVT were correct for the reasons they had given. On a proper consideration of the statutory scheme, the financial effects of granting or refusing dispensation were irrelevant. While the nature of the landlord could be relevant, in that a distinction could be drawn between lessee-owned landlords and others, there was no separate point here in this regard and there had been no error of law on the part of the LT. As to prejudice, the LT had not erred as to the burden of proof but, in any event, there had been substantial prejudice to the Respondents, flowing from Daejan's failure to comply with the requisite consultation process. If need be, the 1 st– 4 th Respondents additionally relied on their Respondent's Notice ("the Respondent's Notice"), contending that the evidence of prejudice went beyond that found by the LT.

5

Against this background, the principal issues on the appeal to this Court can conveniently be grouped under the following headings:

i) Are the financial consequences for the landlord or tenant relevant to the grant or refusal of dispensation under s.20ZA(1) of the Act? ("Issue (I): Financial consequences").

ii) Is the nature of the landlord relevant to the grant or refusal of dispensation under s.20ZA(1) of the Act? ("Issue (II): The nature of the landlord").

iii) What is the correct approach to prejudice allegedly suffered by a tenant in consequence of the landlord's failure to comply with the Consultation Regulations? ("Issue (III): Prejudice").

I return to these Issues below and will then deal with them in turn.

THE STATUTORY SCHEME

6

It is next convenient to outline the statutory scheme, with which this appeal is concerned.

7

The background was helpfully explained by Mr. Rainey in his skeleton argument:

"One of the singular aspects of most long leases of flats is that the landlord covenants to repair and maintain the block but the tenants covenant to meet the cost through a service charge. Often, service charges extend beyond repair to cover improvements. How, when and by whom and at what cost the work is done is decided by the landlord, despite the fact that where leases are long, the tenants effectively own the block. (A 99 year term is usually thought to be worth c.99% of freehold value.) The landlord decides how to spend his tenant's money and at common law there is little control or basis for complaint by the tenants. Statutory consultation under ….[the Act]….fills this gap. Its importance must not be understated."

8

The particular position of long leaseholds merits additional emphasis. As observed by Baroness Hale of Richmond in Majorstake Ltd v Curtis [2008] UKHL 10; [2008] 1 AC 787, at [22] – [23], by the 1980s, long leaseholds had become an increasingly common form of tenure of flats. The relationship between leaseholders under such leases and the freehold owners was no longer akin to that of an ordinary landlord and tenant relationship. Long leaseholders not only faced what Baroness Hale termed "the wasting asset problem" but might also encounter poor management and high service charges.

9

Accordingly, legislative policy has sought to strengthen the position of long leaseholders by regulating service charges. How the legislature has sought to do so was summarised in Paddington Basin Developments v West End Quay [2010] EWHC 833 (Ch); [2010] 1 WLR 2735, by Lewison J, as follows:

"26. ….there are two separate strands to the policy underlying the regulation of service charges. Parliament gave two types of protection to tenants. First, they are protected by section 19 [of the Act] from having to pay excessive and unreasonable service charges or charges for work and services that are not carried out to a reasonable standard. Second, even if service charges are reasonable in amount, reasonably incurred and are for work and services that are provided to a reasonable standard, they will not be recoverable above the statutory maximum if they relate to qualifying works or a qualifying long term agreement and the consultation process has not been complied with or dispensed with. It follows that the consultation provisions are imposed for an additional reason; namely, to ensure a degree of transparency and accountability when a landlord decides to undertake qualifying works or enter into a qualifying long term agreement…..

27. One other general point needs to be made. The relevant provisions of ….[the Act]… do not prohibit a landlord from entering into whatever contract he pleases for the carrying out of works or the supply of services. They merely prevent him from passing on the cost of the works or services to the lessees unless he has satisfied the statutory requirements about price, quality and consultation….."

10

Turning to the detail, s.18 of the Act defines "service charge" to mean:

"(1)…..an amount payable by a tenant of a [dwelling] as part of or in addition to the rent –

(a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord's costs of management, and

(b) the whole or part of which varies or may vary according to the relevant costs."

11

S.19 of the Act contains the first of the two strands of protection described by Lewison J (supra):

"19. Limitation of service charges: reasonableness

(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period –

(a) only to the extent that they are reasonably incurred, and

(b) where they are incurred on the provision of services or the carrying out of works, only if...

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  • Daejan Investments Ltd v Benson
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    • Supreme Court
    • 6 March 2013
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1 firm's commentaries
  • Daejan Investments Ltd v Benson And Others
    • United Kingdom
    • Mondaq United Kingdom
    • 1 November 2011
    ...Tenant Act 1985 ("s.20") is vital in order to recover the costs of major works. In Daejan Investments Ltd v Benson and others [2011] EWCA Civ 38 ("Daejan"), the leaseholders and the recognised tenants' association applied to the LVT for a determination as to the reasonab......
1 books & journal articles
  • The Right to Buy, the Leaseholder, and the Impoverishment of Ownership
    • United Kingdom
    • Journal of Law and Society Nbr. 38-4, December 2011
    • 1 December 2011
    ...id., paras. 33±35.64 The Court of Appeal recently confirmed this understanding of the law in DaejanInvestments Ltd v. Benson and Others [2011] EWCA Civ 38.65 LB of Haringey v. Various Leaseholders of the LB of Haringey LON/00AP/LDC/2007/0003 and 0004.ß2011 The Author. Journal of Law and Soc......

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