Beware boomerang bills

We all know that landlords must consult with leaseholders on any works in which the leaseholder’s contribution might exceed £250 or where the landlord plans to enter into a long-term agreement for the management and/or maintenance of its housing stock. Section 20 of the Landlords and Tenants Act 1985 sees to that. We also know that if a landlord fails to consult, the landlord can recover just £250 per leaseholder. Pretty draconian, right?

In fact, landlords can take comfort that where ‘it is reasonable’, they can get a dispensation from the Leasehold Valuation Tribunal, either before doing the works or afterwards. So if you make a mistake (for example, by consulting incorrectly), you can always ask the LVT to give a dispensation, right?

Wrong, actually. As the recent case of Daejan Investments Ltd v Benson and others highlight, the tribunal approaches such matters very strictly and there is no easy get-out for mistakes - however genuine.

In the Daejan case, five leaseholders (each facing a service charge of about £54,000) applied to the LVT to challenge the reasonableness of the charges. There was no major dispute that the work was required, but that the costs were high.

During the LVT hearing, it was argued that the landlord had not properly complied with stage two of the section 20 process (by cutting the 30-day notice period for tenants to make observations on estimates for the proposed works, and failing to provide copies of the all estimates).

The landlord applied for a retrospective dispensation from stage two at a second hearing. The LVT refused the dispensation on the basis that, even though there was little evidence of actual prejudice to the tenants and the loss to the landlord was very substantial, there was a material breach of the section 20 process (the landlord failing to properly understand its requirements and significance).

On appeal, the Lands Tribunal agreed with the LVT, and said it could not take into account the disproportionate financial consequences for the landlord. Accordingly, the landlord had to pay the shortfall - of £268,750.

How to get it right

• Appoint someone experienced to manage the process who understands the section 20 procedure
• Use the precedent notices in the Leasehold Advisory Service’s guidance notes rather than devising your own version
• Draw up a management timetable for the section 20 process and put key dates in your diary. Flag any that require urgent action
• Where emergency works must be carried out in a short time frame, apply to the LVT for a dispensation before the works start
• Don’t expect the LVT to excuse mistakes, even if it seems fair that they should do so.

mario.betts@lewissilkin.com

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