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Service charge consultation regime – costs fallout

    • Real estate dispute resolution


    Daejan Investments Limited v Benson and Others [2013] UKSC 54

    This long-running saga at last reaches what should be its ultimate conclusion, at least as far as the courts are concerned. Both landlords and tenants will have an interest in how the court has dealt with the question of costs.

    By way of reminder, in March 2013 the Supreme Court granted Daejan, on appeal, a dispensation from the service charge consultation requirements contained in the Landlord and Tenant Act 1985. The dispensation was conditional upon a deduction of £50,000 from the cost of the works, and certain terms as to the costs of the proceedings. The Supreme Court has now been asked to decide various matters which could not be agreed between the parties, principally as to costs.

    • LVT costs: Daejan had to pay the tenants’ costs of the LVT proceedings, and the Court adopted a form of wording putting it beyond doubt that this order related comprehensively to all of the tenants’ costs.
    • Upper Tribunal costs: at the first level of appeal, the normal rule that the winning party Daejan) would recover all of its costs from the losing party (the tenants) did not apply here because of the special circumstances in this case, including that it was Daejan’s failure to consult with the tenants that had necessitated the appeals in the first place. However, it was not appropriate for the tenants to recover their costs from Daejan either.
    • Court of Appeal and Supreme Court costs: Daejan was only granted leave to appeal on condition that if successful it should not recover its costs. There was no question, therefore, of a costs order in its favour. However, again it was not appropriate for the tenants to recover their costs, since they had ultimately lost.
    • Daejan was not permitted to recover its legal costs through the service charge, and as well as making this a condition of the dispensation, the Court made a direction to the same effect under s.20C(1) of the 1985 Act.
    • The dispensation would only be operative once the costs were quantified. Accordingly interest on late payment of the service charge would not begin to run until after the costs had been determined and the dispensation had become effective.

    This decision should serve as a warning to landlords that even where it successfully applies for a dispensation from the service charge consultation requirements it may be penalised through costs for a failure to consult. It also serves as a reminder that where a conditional dispensation is granted it will not take effect until the conditions are satisfied; this case, where the works were carried out in 2008 at around £270,000, and contractual interest would otherwise have been due at 14%, illustrates how important a factor this can be.

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