Service Charges. Landlords will be largely comforted by this recent decision of the Supreme Court as it makes the conditional dispensation of consultation requirements more likely and the issues more certain.
The Act requires a landlord to fulfil various consultation requirements prior to carrying out works to a property if it wishes to recover more than a small specified sum in respect of those works. A landlord can, however, ask for the consultation requirements to be dispensed with. The Act states that dispensation may be made “if it is reasonable”.
In this case the consultation process had been prematurely curtailed and the landlord sought dispensation. It was refused by the LVT, the Upper Tribunal and the Court of Appeal.
The approach of the tribunals below was supported by Lords Hope and Wilson. In strong dissenting judgments they considered that the seriousness of the breach was a proper factor for refusing dispensation.
However, the majority of the Supreme Court was clear that the consultation guidance was not an end in itself. Lord Neuberger (supported by Lord Clarke and Lord Sumption) emphasised that when hearing an application to dispense with consultation the focus should be on whether the failures caused prejudice – either through inappropriate works or paying more than would be appropriate. It is for tenants to show a credible case for prejudice which the landlord may seek to rebut. Whilst culpability of a landlord may be relevant – so that the more egregious a landlord’s failure to consult the more readily the LVT will find prejudice - it is the prejudice (or lack thereof) that is key. If there is relevant prejudice then in order to obtain dispensation the landlord should (absent some good reason to the contrary) reduce the amount claimed as service charge to compensate for that prejudice (knowing that LVT’s will adopt a sympathetic attitude to the tenants on this issue of quantum). In addition to fully compensating for the prejudice, to obtain conditional dispensation the landlord would also have to pay i) its own costs of making the application ii) the tenants’ reasonable costs in connection of investigating and challenging that application.
Elizabeth Haggerty / 1st Apr 2013
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