Is ‘Chapman’ the new ‘Daejan’?

COMMENT

By Joshua Dubin, the barrister who won for the leaseholders

The Aster Communities v Chapman decision does not entirely redress the balance which tipped in favour of landlords in the Daejan v Benson judgment. But it might go a little way to ameliorate the position of tenants. It is important to remember that in Benson the Supreme Court said that costs incurred by tenants would have to be shown to be unreasonable before a landlord could avoid paying them as a condition of dispensation (see [68]); that dispensation would be granted often on (three) conditions – that landlords bear their own costs, that they pay the tenants’ reasonable costs of investigating and challenging the application for dispensation, and that tenants are accorded a reduction [in service charges] to compensate them fully for any prejudice (see [73]). Lord Neuberger JSC also said that any conditions could be imposed that were ‘appropriate in their nature and effect’ (see [54]).

To that extent, HHJ Bridge was straightforwardly applying Benson. The conditions imposed by the FTT in Chapman fall within the Benson guidance. However, this was the first substantive decision of the UT on the conditions themselves. OM Property Management Ltd [2014] UKUT 9 (LC) looked at the Benson exercise of discretion in relation to the prejudice question but did not deal to any significant extent with the conditions point, because in that case there was no prejudice.

The two areas where Chapman treads on what may be new (and potentially fertile ground) are in the related areas of prejudice and evidence.

First, the tenor of Benson is that ‘prejudice’ means that the tenants can demonstrate that, absent the consultation failure, the works would have cost less (see particularly Benson [45], [46] and [67]), so that prejudice is measurable by the costs of the works. Chapman goes beyond this. The prejudice may lie in the tenant’s inability to say whether or not the works should cost less. Thus, in Chapman, the service charge cost is not the lodestone by which to judge prejudice, as Benson strongly suggested. The tenants may be prejudiced by an inability to test the landlord’s assertion that works are necessary. Key to this is that the landlord cannot argue that testing the appropriateness of the relevant works must be part of the reasonableness argument on a s.27A L&TA 1985 application, because being able to put off such an argument to a substantive application would almost wholly neutralise the statutory dispensation power. See Chapman at [68], [69].

Secondly, though Chapman accepts that the legal burden lies on the landlord but the factual burden to prove prejudice lies on the tenant, HHJ Bridge says that it is a fallacy to equate the factual burden with an evidential one. In major works cases particularly, the Tribunal dealing with the application to dispense may well already have heard much evidence from the parties on an s.27A or similar application. The Tribunal is entitled to take that into account. And moreover, where the landlord does not supply its evidence at the outset of the application, it cannot later complain that the tenants have not supplied rebuttal evidence. This is new, though it may not be a new principle.

In those limited ways, the Chapman decision shows that FTTs may apply and extend Daejan in a flexible way that meets a variety of prejudices.

There is also useful guidance at the very end of Chapman on how to turn a condition expressed by the FTT in very broad terms into a workable mechanism using both cooperation and the FTT’s power to give directions on paper application. This may come as news to some practitioners, but it really shouldn’t.

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