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Residential landlord recovers majority of costs despite failure to consult over works

A residential landlord who failed in his duty to consult before carrying out works did not automatically lose the right to recover the whole costs of those works from its tenants because of the failure. He was required to compensate them only to the extent they had been prejudiced by the failure.

Under s20 of the Landlord and Tenant Act 1985, residential landlords who carry out works cannot recover more than £250 from each tenant through their service charges unless they have consulted with the tenants or the Lands Valuation Tribunal has granted dispensation from doing so.

A landlord of a residential block failed to consult correctly with the five tenants before carrying out major works costing £270,000. It tried to recover the whole cost from the tenants through their service charges. The Land Valuation Tribunal (LVT) and the Court of Appeal both ruled that the landlord’s failure to consult meant it could only recover the statutory minimum of £250 from each tenant – a total of £1,250. The landlord argued that the LVT should have exercised its discretion to dispense with the requirement to consult.

The Supreme Court agreed, ruling that the requirement to consult is to stop tenants being prejudiced, for instance because the proposed works are inappropriate, or the tenants are in danger of being overcharged. Failure to consult was not a prejudice in itself, even if it was a deliberate and major failure.

The LVT should have considered the extent to which the failure had prejudiced the tenants when deciding the extent to which the landlord could recover the service charges from them.

In this case, the only prejudice to tenants from the failure to consult was that they had not had the opportunity to propose a different, cheaper contractor. If they had, it was possible the costs would have been less, but not by much. In fact, the landlord had already offered to reduce the tenants’ service charge liabilities by £50,000. The Supreme Court said this more than covered any reduction in costs that the tenants could have achieved had there been a consultation.

As a result of the Supreme Court overturning the earlier rulings, the landlord eventually recovered around £230,000. The court also made clear it was open to the LVT to make dispensations from the requirement to consult subject to conditions. These could include a condition that landlords pay their tenants’ legal costs of applying for a dispensation and ordered the landlord to do so.

Recommendation

Landlords subject to the obligation to consult before carrying out works should ensure they do so, or risk being unable to recover the full extent of their costs from tenants.

Case ref: Daejan Investments Ltd v Benson and others [2013] UKSC 14

Jonathan Waters is the founder of Helix Law. Before qualifying as a Solicitor he worked in industry and in investment banking for over a decade. He was also the Partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. Jonathan has wide experience of helping and advising businesses to avoid or to deal with commercial disputes and in particular construction disputes.

This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of  this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice.