Service Charge Consultations - Residential Landlord Who Spent £270,000 On Repairs Only Recovered £1,250

A recent decision provides a clear warning to residential landlords to ensure they comply fully with service charge consultation requirements. This is particularly important where the works are major, as non-compliance can result in a drastic reduction in the amount a landlord can recover from its tenants.

The consultation rules apply to service charges payable under long leases of residential premises. They set out detailed requirements as to consultation which a landlord must adopt before carrying out major works. A landlord who fails to comply with these requirements will not be able to recover more than £250 from each tenant in respect of such works. However, the Leasehold Valuation Tribunal has power to dispense with the consultation requirements if it is satisfied that it is reasonable to do so.

In Daejan Investments Ltd. v. Benson, the landlords of a block of shops and flats gave notice to the long leaseholders of the flats that they intended to carry out major works amounting to £270,000. However, they failed to comply with the consultation requirements. The Court of Appeal ruled that:
• The Tribunal has power to dispense with the consultation requirements, as opposed to the sanction for non-compliance.
• The financial consequences for a landlord of a dispensation being refused will normally be irrelevant.
• The degree of prejudice suffered by the tenant is a relevant factor. In the present case, the tenants had suffered serious prejudice in being denied an opportunity to properly engage in the consultation process.

The clear message of this case is that landlords should make every effort to get the consultation process right. This message is reinforced by the examples given by the Court of Appeal as to when there need not be a consultation – such as where there is:
• A need to carry out emergency works;
• Only one, specialist, contractor realistically available; or
• A minor breach of procedure that causes no prejudice to the tenants.

To find out more, contact Caroline Wilton or Martin Banham-Hall.

Filed: 17/05/2011 10:53:31