[2023] UKUT 174 (LC)

The FTT also required, as a condition of dispensation, that the landlord would not seek to recover its legal costs in the dispensation from the leaseholders by way of service charge. The reasons FTT gave for imposing the costs condition (in its paragraphs 23 to 26, quoted above) were the same as those given for the inappropriate condition about the waking watch and the condition appears therefore to have been intended as a further expression of disapproval of the landlord’s failure to consult about the waking watch. On that basis the costs condition was inappropriate and is set aside.

I have to consider whether the Tribunal should substitute its own decision that a similar costs condition should be imposed, in circumstances where it is clear that the respondents have not suffered any relevant prejudice as a result of the failure to consult.

In Daejan, as we saw, the Supreme Court contemplated that a relevant condition for dispensation might be that the landlord would pay the leaseholders’ costs of the dispensation application. Some further explanation was added at paragraph 61:

“The condition would be a term on which the LVT granted the statutory indulgence of a dispensation to the landlord, not a free-standing order for costs, which is what para 10 of Schedule 12 to the 2002 Act is concerned with. To put it another way, the LVT would require the landlord to pay the tenants' costs on the ground that it would not consider it “reasonable” to dispense with the Requirements unless such a term was imposed.

In the present case the condition imposed was not that the appellant pay the leaseholders’ costs but that it should be unable to recover its own as a service charge under the lease. The appellant argues that that would be inappropriate since the landlord was not seeking an indulgence. The haste to get the fire alarm in, without consulting, was in order to stop the cost of the waking watch, which was accruing at the alarming rate of £10,000 a week. It was in the leaseholders’ interest that the landlord obtain the dispensation, and the costs incurred in getting the dispensation (despite their opposition) were for their benefit. So, said Mr Mullin, the landlord should not be penalised by being prevented from recovering its costs as a service charge.

There is some force in that submission. Another way of looking at it is to bear in mind that this was a case where the leaseholders suffered no relevant prejudice from the absence of consultation. In that circumstance, would it be right to impose a condition that took away the landlord’s contractual right to recover its costs from the leaseholders, whether only in favour of the 17 respondents or (as the FTT seems to have decided) in favour of all 174 leaseholders in the development? I am not convinced that it would be appropriate in circumstances where, whoever in the end pays for the waking watch, it was clearly sensible and in everyone’s interests to get the fire alarm system installed; in that sense this was not a petition for an indulgence but a matter of practical importance for all concerned.

Accordingly, I decline to impose any condition upon the dispensation about the payment of costs.