Landlord stung by failure to comply with service charge requirements

In Daejan Investments Ltd v Benson and others [2009] UKUT 233 (LC), the Freeholder/landlord who owned a block of shops and flats gave notice to the leaseholders of the flats that it intended to carry out major works amounting to £270,000.

The landlord failed to comply with the statutory service charge consultation requirements leading to a service charge dispute. The Leasehold Valuation Tribunal (LVT) refused to grant a dispensation from compliance. This net result of the decision was that the service charge liability of the five leasehold owners was limited to £250 each.

At appeal, the Lands Chamber of the Upper Tribunal agreed with the Leasehold Valuation Tribunal that it could not take into account the disproportionate financial consequences for the landlord when deciding whether or not to make an order for dispensation: the statutory consequences of the failure to comply were an intrinsic part of the law relating to service charges, and there to be followed.

This decision should be seen as a warning to landlords to comply fully with the detailed service charge consultation requirements. This is particularly important in the case of major works, as non-compliance can result in a drastic reduction in the amount that the landlord can recover from the leasehold owners.