Forgive me for what may turn out to be a silly question, but this is something I’ve been thinking about recently and wanted to see what everyone else thought.
Leasehold property and legal costs
A well-drafted lease will usually contain a provision requiring the tenant to pay the landlords legal costs in the event that the landlord has to take action regarding a breach of covenant (e.g. failure to pay service charges). There is, as you might imagine, considerable scope for individual variation from lease to lease (e.g. does the right to costs arise only if the landlord ? Can the costs be billed personally or via the communal service charge), but, for present purposes, that broad description will do.
Now, if the landlord exercises such a right, what sort of charge is he imposing? I would have said that a landlord who bills legal costs via the lease is imposing a service charge on the leaseholder(s). I say this because:
(a) it is clear that legal costs can (on a properly worded lease) amount to a “cost of management” so as to make them a service charge within the meaning of s.18, Landlord and Tenant Act 1985 (see e.g. Iperion Investments Corp v. Broadwalk House Residents Ltd (1994) 27 HLR 196, CA; Re Forcelux Ltd LRX/33/2003, LT)
(b) section 20C, Landlord and Tenant Act 1985 (power of LVT/county court to prevent landlord enforcing a contractual right to costs) is expressly predicated on those costs being a service charge).
Commonhold and Leasehold Reform Act 2002
Now, Sch. 11, para 1(1)(d), Commonhold and Leasehold Reform Act 2002 defines, inter alia, an administration charge as a charge “…in connection with a breach (or alleged breach) of a covenant or condition in his lease.” Is this supposed to be a reference to legal costs billed under a lease? The LVT certainly seems to think so in various cases that have come before it.
This is quite an important distinction, since the regulation of administration charges is much weaker than for service charges:
(a) administration charges (unlike service charges) do not have to be reasonably incurred;
(b) administration charges (again, unlike service charges) do not have to be demanded within 18 months of being incurred;
(c) there is no right to challenge administration charges until they have been demanded;
(d) the LVT/county court has no power equivalent to s.20C, LTA 1985, in respect of administration charges.
Is this right?
So, we seem to have three possible situations:
(a) legal costs are a service charge – Iperion, etc;
(b) legal costs are an administration charge – e.g. Davies v Drayton Park Management Ltd LON/00AU/LSC/2008/0164;
(c) legal costs are both a service charge and an administration charge – e.g. Shersby v Grenehurst Park Residents Co Ltd CHI/43UF/LVA/2010/0001.
That surely can’t be right. Has anyone else (other than FJMD, who I’ve already debated this with) come across this? Any thoughts?