Supreme Court ruling on Daejan v Benson gives freeholders the whip-hand and is ‘a judgment that tenants might consider disappointing’

The lawyers representing the leaseholders in the Daejan v Benson Supreme Court case earlier this week have given their analysis of the case.

Philip Rainey, QC, and colleagues at Tanfield Chambers, represented leaseholders at Queens Mansions, Muswell Hill, in north London, who had not been properly consulted on £280,000 of major works.

The freeholder, Daejan, part of the Freshwater group, had not provided full details of one of the shortlisted contractors tendering for the works.

In a majority ruling earlier this week, the Supreme Court ruled that the procedure for consulting the leaseholders was less the issue than the degree to which they suffered ‘prejudice’ as a result of the procedures not being carried out correctly.

“Consultation is a means to an end not an end in itself,” write the Tanfield barristers.

“It appears therefore that it does not matter whether the breach is serious or technical, minor or an excusable oversight, save in relation to the prejudice it causes.  In a stark departure from the judgment of the minority (Lord Hope and Lord Wilson), the majority (Lord Neuberger (giving the lead judgment), Lord Clarke and Lord Sumption) ruled that the conduct of the landlord is irrelevant no matter how flagrantly it might have behaved in failing to adhere to the consultation requirements, unless it can be shown that the conduct caused actual prejudice.

“In this regard Lord Wilson described the conclusion of the majority as, subverting the intention of Parliament.

“It appears that the approach to prejudice can now be characterised as a “but for” test.  The factual burden rests squarely on the tenants’ shoulders to establish (i) what steps or action they would have taken “but for” the breach; and (ii) in what way their s.19 rights have been prejudiced as a consequence of that lost opportunity.

“So if for example, a tenant is able to show that had he been invited to nominate a contractor at stage 1 he would have nominated a particular contactor who could have undertaken the work at a lower cost to that of the landlord’s appointed contractor, the tenant will have established prejudice.  It appears from Lord Neuberger’s judgment that prejudice falls to be measured at the date of the breach.

“In a judgment that tenants might consider disappointing, the majority of the Court has found that whilst decisions as to service charge expenditure remain in the hands of the landlord, transparency and accountability have no part in the consultation process in so far as they might be considered appropriate ends in themselves.“

Although the Daejan v Benson case was lost, Freshwater had to cut  its bill by £50,000 … and was left to pay its own legal costs, which would have amounted to hundreds of thousands of pounds.

Rainey represented the leaseholds pro bono, or ‘for free’ in ordinary language.

The full Tanfield Chambers’ analysis of Daejan v Benson can be read here