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Service Charges for Residential Leasehold Tenants

Landlords will welcome the recent decision of the Supreme Court in the case of Deajan Investments Ltd v Benson but should still proceed with caution when looking to recover service charge from residential tenants, particularly following the uncertainty cr

The Landlord and Tenant Act 1985 sets out the detailed restrictions and requirements which must be followed by landlords when recovering service charge from residential tenants (the statutory requirements). Unless each of the requirements is followed, or dispensed with by application to the Leasehold Valuation Tribunal (LVT), the landlord will not be able to recover more than £250 from each tenant in respect of the proposed works.

In Daejan the landlord failed to fully comply with the statutory requirements. The landlord's initial application to the LVT for dispensation from full compliance was refused on the basis that the landlord's breach was considered to be so serious that, notwithstanding an offer to reduce the service charge demand by £50,000, the breach should be assumed to have prejudiced the tenants. The Upper Tribunal and Court of Appeal upheld this decision. As a result, the total sum recoverable by the landlord was capped at £1,250 (applying the £250 per tenant statutory limit) rather than £280,000 (the actual cost of the works).

The Supreme Court has now, somewhat unexpectedly, overturned these earlier decisions on appeal and held that dispensation should be granted, subject to payment of the tenants' costs and a reduction of £50,000 in the service charge payable by the tenants. In doing so the Supreme Court has provided the following welcome clarification as to how the LVT should approach applications for dispensation:

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