Recovering the Cost of Major Works

Recovering the Cost of Major Works to Residential Leasehold Property

KEY ISSUE: Landlords should take care to fully comply with the requirements to undertake statutory consultation prior to commencing any major works where it is intended to recover the cost of the works from the tenants through the service charge. Failure to comply can render the costs incurred irrecoverable.

Daejan Investments Ltd v Benson & Ors [2011] EWCA Civ 38

This case highlights the importance of complying with the statutory consultation requirements and the consequences of failing to do so. The landlord company in this case was seeking to recover costs totalling £270,000 from its tenants via the service charge mechanism.

• Major works were required on the property and a notice of intention to carry out the works was sent to the tenants. Priced tenders were received by the landlord but only one priced tender was provided to the tenants for consultation purposes. A second notice was then served on the tenants by the landlord. The tenants requested sight of the priced tenders but these were not provided to the tenants until after the contract for the works had been awarded and the statutory consultation process had ended.

• The LVT held that the landlord had failed to comply with the statutory consultation requirements and that this failure had caused the tenants “substantial” or “significant” prejudice. It was acknowledged that the landlord had carried out extra-statutory consultation, but this did not preclude the landlord from providing the estimates to the tenants for inspection and allowing the tenants an opportunity to make observations.

• The LVT concluded that the landlord had committed a serious breach and declined to dispense with the consultation requirements under LTA 1985. This decision was upheld by the Upper Tribunal. The landlord appealed to the Court of Appeal

• The Court of Appeal dismissed the landlord’s appeal and upheld the decision of the LVT. The Court held that significant prejudice to the tenant was an important consideration in exercising the discretion and that the landlord’s non-compliance in cutting short the consultation was a serious failing causing serious prejudice to the tenants.

• As a result of the landlord’s non-compliance, it was unable to recover the total sum of £268,750 – each of the 5 leaseholders were only required to contribute £250 each.

This decision highlights the importance of landlords complying fully with the statutory consultation procedure prior to commencing any works to residential leasehold property where the landlord intends to recover the cost of the works from the tenants through the service charge.  Failure to comply with the requirements can mean that the landlord is only able to recover £250 from each leaseholder and will leave them bearing the costs themselves.

For more information or advice on compliance with the statutory consultation procedure, please contact either Vanessa Joll or Kristine Ng by emailing Vanessa or Kristine by calling them on 08450 990045.

This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.

15 August 2011