Daejan v Benson case falls at the final hurdle …
The seven-year legal battle over a £280,000 major works contract ended today in defeat for the leasehold residents at the Supreme Court.
But it was a Pyrrhic victory. Freeholder, Daejan, a part of the Freshwater empire, which had failed to follow the correct consultation procedure, was ordered to lop £50,000 off the bill and pay the leaseholders’ legal costs. With their own costs – both sides were employing leading lawyers – the whole litigation will have cost hundreds of thousands.
The result is bitterly disappointing for leasehold residents at Queens Mansions in Muswell Hill, North London.
“A freeholder is now able to disregard the section 20 consultation regulations and apply for dispensation, in the full knowledge that the leaseholder will have the onerous, speculative and often impossible task of proving financial prejudice,” said the Queens Mansions Residents’ Association.
“In effect the freeholder is now able to buy dispensation from the consultation regulations.”
The dispute began in 2005-6 when the building’s managing agents, Highdorn, which is also part of Freshwater empire, began to consult residents over external and internal refurbishment of the Victorian building. There are seven flats, with shops below.
Residents were told that two companies, Rosewood Building Contractors and Mitre Construction, had submitted competitive tenders. Daejan chose Mitre, and provided the leasehold owners with priced specification.
But it failed to do the same for Rosewood. As a result, Daejan failed to observe the consultation process that required the residents’ association to see a summary of observations on the estimates, responses to them and a notice where they were available for inspection.
As the residents had not been consulted correctly they argued successfully at the Leasehold Valuation Tribunal, the Land Tribunal and the Court of Appeal, that they did not need to pay more than the consultation limit of £250 a flat.
The residents say that they were always prepared to pay a fair price for the works, which they claim were long overdue.
In short, the freeholder’s mistake over the regulations would win them a £280,000 windfall in improvement works.
Daejan did offer a deduction of £50,000 at the LVT, but this means of settling the dispute failed. The offer was originally made as a damages settlement against neglect, although it was later repurposed off-the-cuff when the LVT made it clear that Daejan had failed the consultation and would need a retrospective dispensation.
Daejan v Benson (the name of a resident) headed for the Supreme Court showdown involving some of the most expensive QCs in leasehold law: Nicholas Dowding and Stephen Jourdan, for Daejan, and Philip Rainey, acting pro bono for the residents. The solicitors for the residents were Milton McIntosh.
The judgement of Lord Neuberger, president of the Supreme Court and Master of the Rolls, was backed by two other law lords, but opposed by two others, including Lord Hope, the deputy president of the Supreme Court.
Neuberger’s ruling was concerned less with compliance to regulations and more the degree to which the residents had actually suffered “any relevant prejudice”.
“All in all, it appears to me that the conclusions which I have reached, taken together, will result in (i) the power to dispense with the Requirements being exercised in a proportionate way consistent with their purpose, and (ii) a fair balance between (a) ensuring that tenants do not receive a windfall because the power is exercised too sparingly and (b) ensuring that landlords are not cavalier, or worse, about adhering to the Requirements because the power is exercised too loosely.
The residents furiously disagree and are indignant that works that were, they claimed, the result of 40 years neglect are described as a “windfall”.
“This decision is a massive set back for the three million leaseholders throughout England and Wales,” said a spokesman for the residents’ association. “The leasehold system in this country is an out-dated mode of property tenure and is extraordinarily landlord-centric.
“As demonstrated by our case no ordinary leaseholder is able to take on a huge property company who has deep pockets and is able to bulldoze its way through the court system.”
The full judgement can be read here, with a simplified press summary here
For once, some leaseholders got lucky in litigation with a freeholder calling all the shots, and for a moment it looked like they might get a total refurb of their building for £250 a flat.
All thanks to the giant Freshwater – unaccountably called ‘Pond Life’ on some Internet forums – messing up the consultation procedure on major works.
Lord Neuberger considered the degree to which residents had been ‘prejudiced’ by the mistake, rather than opting for the letter of the law.
Very generous. And so very unlike most leasehold litigation where freeholders and their battalions of expensive lawyers routinely trip up lay applicants with points of the most extreme pedantry. Such as ‘right to manage’, for example, where just about any excuse conceivable is adopted to frustrate and capsize the right – the right! – of leaseholders to manage themselves.
Needless to say, Freshwater owned the freehold here and was the managing agent.
Meanwhile, the EU has fined Microsoft €561m for “accidentally” not complying with the letter of the law (an anti-trust settlement). The EU upholds the letter of the law while the superficially Solomonic Neuberger actually throws UK leaseholders under the bus. Where is the justice in a rigged market where leaseholders are compelled to purchase goods and service by a landlord who stands to profit as result of conflict of interest and who isn’t even accountable for compliance with the law?
Presumably the leaseholders could not exercise a right to buy?
LKP: please publish details of the turnover and profits and companies owned by Freshwater so that we can assess the relative likely impacts of the decision and enable people to identify companies to avoid doing business with.
I know of landlords and managing agents who have been PUNCTILIOUS about compliance with Section 20 process requirements because of the potential consequences of failure to do so. Where such a failure was over a minor technicality some dispensation would be understandable but this does not seem to be over a minor technicality at all. A proper set of competitive quotes is a fundamental part of a procurement process with any integrity. How does the leaseholder know that the job wasn’t knocked down on favourable terms with a second company invited to submit a token offer? What controls are in place to ensure that this can’t happen?
Currently leaseholders are being denied the Right to Manage their properties on grounds of trivial technicalities. It seems there’s one law for freeholders and another for leaseholders.
S 20 is a statutory code and should not be used peice meal. You cannot pick and choose what bits you want to use.
Lord Neuberger had two other Lords of Appeal agreeing with him. Two Law Lords disagreed. The likelihood is that the next case will be decided differently.
In any future case the leaseholders could also claim (with proper evidence from an expert witness) that the works were not done properly.
And maybe (with evidence) allege that there was connivanence between the freeholders and the contractor companies – but only if that was the case.