Martin Boyd looks at how leasehold owners have been damaged by the Supreme Court decision on Daejan
Huge problems are emerging in leasehold as a result of Lord Neuberger’s (left) Supreme Court decision in the Deajan case, which radically changed the law on s20 major works consultations.
A freeholder’s failure to consult only gives raise to any penalty if the leaseholders can show evidence of prejudice. Leaseholders must now retrospectively show that prejudice has arisen: that the costs of major works (costing more that £250 for a flat) or long-long term contracts (more than £100 per flat) are unreasonable and that an alternative option should reasonably have been chosen.
It is not clear if Lord Neuberger has realised that asking a builder to go back and give a complicated quote for major works which have already been completed and for which they may not have the detailed specification could be a little difficult.
Unwittingly, Lord Neuberger seems to have written a blank cheque for the return of some of the industry’s worst practices, allowing bad freeholders to get away with overcharging and only having to pay back if they get caught and if the leaseholder can now go on to prove they have been unreasonably charged.
Doing that may cost them a considerable amount of money and Lord Neuberger raises the difficult question of leaseholders’ costs potentially being recoverable (a novel concept under the LVT rules which applied at the time)
It is no understatement to say that the whole sector from landlords through to managing agents and to leaseholders is predicting chaos.
A number of LVT cases are emerging where a s20 consultation failure(s) are being excused.
One of the transitional cases is Wilson v Berrido, which started with Deajan at the appeal court stage and concluded with a refused appeal to the Upper Tribunal, which considered Deajan after the Supreme Court ruling.
In refusing permission to appeal the new president of the Upper Tribunal Sir Keith Lindblom concludes in case no LRX/15/2013:
“The tribunal took into account the decision of the Court of Appeal in Daejan Investments Limited v Benson and others [2011] EWCA Civ 38 (ibid.). I have considered whether its decision is consistent with the conclusions of the Supreme Court in that case ([2013] UKSC 14), and I am satisfied that it is.”
Quite how an appeal court ruling decided in one direction and then overridden by the Supreme Court facing in the other decision can both be considered as correct in the same case is not clear.
Another decision where Deajan causes problems is the retirement home Leasehold Valuation Tribunal case of John Payne and others v Wyndham Housing Association.
The leaseholders started the case prior to the Supreme Court decision, but by the time of the hearing the Supreme Court ruling had been published for a couple of months.
The s27 case included five s20 consultation breaches for which the freeholder sought retrospective dispensation.
The Leasehold Valuation Tribunal was put in the very difficult position of being obliged to follow Deajan, even though there would have been no reason for the leaseholders to include evidence of prejudice in their original submission.
Fortunately, the pensioners had sufficient evidence in the bundle to support their argument of unreasonable costs on a couple of the s20 matters.
In the past, Lord Neuberger has argued that bad statute leads to the generally undesirable position of judge-made law. But that is exactly what we now have.
Deajan seems to be a case of what the whole sector now sees as undesirable judge-made law.
Freeholders and leasehold professionals are deluging Whitehall that primary legislation needs to be considered to undo Lord Neuberger’s handiwork. Housing Minister Mark Prisk will no doubt be asking his civil servants what options he has.
As the result of the Deajan case, we would emphasise to all leaseholders that when bringing a s20 consultation case, or disputing the landlords request for dispensation under s20ZA, you must show evidence of prejudice i.e that the costs are unreasonably high or the quality unreasonably low.
Related posts:
Supreme Court ruling on Daejan v Benson gives freeholders the whip-hand and is ‘a judgment that tenants might consider disappointing’
Shouldn’t this case have been dealt with by a more senior court than the ‘low-cost’ property tribunal?
Court of Appeal ruling on Mundy case’s ‘inconvenient truth’ expected on Wednesday
Epic leasehold battle ends with victory of freeholder in the Supreme Court
Lord Best: You wanted to hear what homeowners think about property management, so here is 22,000 words!
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Let me see if i have understood correctly.
If a freeholder does not comply with the terms of the lease by issuing a section 20 notice for works, the freeholder is only liable for the amount that a leaseholder can prove would have been possible if the notice had been served. So if works costing £7,500 could have been done for £5,000 the freeholder’s liability would be £2,000.
Yet, if a leaseholder disputes a service charge for £7,500 they can forfeit an £800,000 property.
Hardly proportionate is it?
Typo, That Should be £2,500!
ME expect in very rare cases eg old Wimpey leases, a section 20 is a statutory requirement not a contractual one in the lease, if the LL want to recover his costs.
I cant help feeling that Daejan was a ham fisted and half drunk attempt to address Phillips and the possible need for a S20 notice for a new light bulb ( once £250 had been spent for any one flat on all qualifying works in the year) not to mention helping out the often clueless public sector and decent homes funding . We are therefore broaldy back where we are started except that a- leaseholders can dispute this and have their costs included in any decision and b- the proof of prejudice has been flipped for the LHs to show. As this runs contrary to the old S20, past court decisions, and the amendment itself in so far it was clear that a cap was legisltated, that future decisions will be brave and impose the legislative cap, perhaps as the measure of prejudice, in the worst cases where scaffold just appears. It is a horrible decision evidenced in that it arrvied at an amount that D offered at the outset! LHs are best advised to organise and ensure that the LL’s invest in stock surveys and 5 to 10 year plans, they form an RTA or TRA and if a workable relationship cannot be reached to exercise rights to gain control or ownership.
I thought the dispensation provisions were meant to get the Landlord off the hook in case of urgent works, or minor errors in the consultation procedure. The judges seem to have twisted parliament’s intentions into something completely different.
Surely the whole point of consultation was to ensure that leaseholders are kept reasonably informed and able to have some input on any onerous works or services proposed? On this score, the whole issue of the leaseholder having to prove prejudice is absurd, like asking a murder victim to prove that he wasn’t about to die anyway from some terminal disease!
Gill the principle in your example actually proves the underlying issue that if the building needed repair- the terminal disease- then there is not a lot for a leaseholder to argue about, other than the scope and cost being fair and reasonable, and to what extent a LH’s lost opportunty to comment or nominate might have affected that. I do agree that it does open the scope for the worst abuses, but at the same time, there have been comparable abuses where 1 or 2 LH’s misuse the process to forward their own petty and misplaced agendas holding the building to ransom and delaying needed works. This affects Resident led groups as well as the likes of Daejan. As worrying as it might be the average LVT will, I hope, recognise the evil FH and the selfish LH ( quote ; I am 75 and am not paying out for a new 40 yr roof) and award accordingly.
Its imperfect legislation- after all a LL can consult with all the dates right and still plow on, but the determination is still made on the same basis- what is F n R- but I dislike that the burden is now on the residents.