Dispensation guidance – what happens when multiple leaseholders are involved?

In Aster Communities v Chapman and others [2021] EWCA Civ 660, the Court of Appeal revisited the judgment handed down in Daejan Investments Ltd v Benson [2013] UKSC 14 and provided further guidance on the approach to considering “relevant prejudice” in applications to dispense with the consultation requirements under s.20 Landlord and Tenant Act 1985.

The case concerned five blocks of flats, each requiring a substantial scheme of works and together totalling circa £4.7m. At the time the Notice of Intention was sent, it was not anticipated that works to the balcony asphalt would be required. When seeking tender submissions, it became apparent that the balcony asphalt had failed in several locations and the estimates received from contractors had provision for balcony asphalt repairs, at a cost of almost £300,000. The Stage 2 notice gave details of the tenders received and listed the proposed works, again with no reference to balcony asphalt. The tenders were available for inspection and did include the cost of balcony works.

As leasehold practitioners will know, Daejan & Benson is the leading authority on the interpretation of s.20ZA Landlord and Tenant Act 1985 and the correct approach to be taken by the Courts when considering applications to dispense with the consultation requirements. Tribunals should not approach the question whether or not to grant dispensation as a binary one. The focus should be on the extent to which the tenants have been prejudiced by either having to pay for inappropriate works or by having to pay more than would be appropriate as a result of the landlord’s failure to consult. Dispensation should then be granted on such terms as may be necessary to compensate the tenants for any relevant prejudice identified.

The factual burden of identifying some relevant prejudice rests with the tenants and they are expected to identify what they would have said had they been given the opportunity to participate in the consultation process but the Tribunals have the power to grant dispensation on such terms as are appropriate in their nature and effect.

In Daejan, there were only five leaseholders in the building, all part of a recognised tenants association and so the Court considered their prejudice jointly, without having to differentiate between prejudice suffered by individuals.

In the Aster case, one of the complicating factors was that there were 114 leaseholders, very few had participated in the consultation exercise and only a third participated in the dispensation application and of those only one had actually sought to identify that they might have acted differently had the balcony asphalt works been included in the s.20 consultation documents.

One of the questions that the Court of Appeal had to consider was the extent to which a tenant rely on the fact that another tenant might have acted differently if the consultation requirements had been complied with, notwithstanding that they themselves had not engaged with the process?

The Court of Appeal held that consultation was a group process, which requires the landlord to provide the relevant notices to every tenant that is entitled to receive them. Furthermore, when a landlord seeks to dispense with the consultation requirements, it seeks dispensation against all tenants together. Any reduction in the scope or cost of works that might have resulted had full consultation been effected would have accrued to the benefit of all tenants and so if dispensation is granted, the totality of the prejudice should be addressed. 

In respect of imposing conditions to granting dispensation, the Court of Appeal held that the decision in Daejan should not be considered in strict terms. The Court acknowledged that, in Daejan, Lord Neuberger spoke of dispensation being conditional on the landlord paying the tenants’ reasonable costs incurred in connection with the dispensation application and in connection with investigating and challenging that application. However, the Court recognised that Lord Neuberger also observed that the circumstances surrounding dispensation applications are “infinitely various” and that the principles handed down should not be regarded as rigid rules and that each case had to be decided on its own merits. However, the Court accepted that Aster paying for the lessees to obtain an expert report to consider the necessity of replacing the balcony asphalt was in effect ‘the price of the indulgence’ that Aster was seeking.

As the cost of the report that Aster will pay for is likely to be around 1% of the value of the works omitted from the consultation, one might view the ‘price of the indulgence’ as being quite a reasonable sum.

Comment

This case emphasise the importance of listing all intended works in a Notice of Intention. Where a scheme of works changes over the life of the project, landlords should revisit their s.20 consultation letters to ascertain if additional consultation might be needed. This case confirms that failure to consult on the entire scheme of works being contemplated is not fatal to recovery and that Tribunals should grant dispensation from the consultation requirements in appropriate circumstances, but this will almost certainly come at a cost.

Clive Adams, Partner acted for Aster throughout this case.