Freeholders of 69 Marina, St Leonards-on-Sea v Oram and another [2011] EWCA Civ 1258

A case on costs of LVT and county court proceedings, and quite an important one at that. 69 Marina is a building in St Leonards-on-Sea. It has been converted into 6 flats, five of which were let on long leaseholders. Four of the leaseholders were registered as freeholders and held the freehold on trust for all the leaseholders. In 2005, works totalling £19,031.36 were done to the property to remedy some water penetration. The freeholder sought to recover the costs via the service charge, but the two leaseholder defendants did not make the payments sought. The landlord applied to the LVT for a determination that the service charges were payable and for dispensation from the consultation requirements (see s.20, Landlord and Tenant Act 1985). The LVT determined that some £17,691.36 was payable and granted dispensation. The leaseholders did not pay the sums claimed and so the freeholders issued proceeings in the county court and, in those proceedings, sought an order for the costs of the LVT, as well as the county court. The DJ and, on appeal, CJ, allowed the claim, including the costs and the leaseholders appealed to the Court of Appeal.

The case turned on cl.3(12), which was a form of the usual forfeiture costs clause:

To pay all expenses including solicitors’ costs and surveyors’ fees incurred by the Landlord incidental to the preparation and service of a notice under Section 146 of the Law of Property Act 1925 or incurred in or in contemplation of proceedings under Section 146 or 147 of the Act notwithstanding in any such case forfeiture is avoided otherwise than by relief granted by the Court and to pay all expenses including solicitors’ costs and surveyors’ fees incurred by the Landlord of and incidental to the service of all notices and schedules relating to wants of repair of the premises whether the same be served during or after the expiration or sooner determination of the term hereby granted (but relating in all cases to such wants of repair that accrued not later than the expiration or sooner determination of the said term as aforesaid)

The reference to s.146, 1925 Act is, of course, a reference to forfeiture. In outline, a landlord cannot forfeit a lease for breach of a covenant (other than a covenant to pay rent) without serving a notice in accordance with s.146. In addition, no notice under s.146 may be served in respect of a failure to pay service charges unless the LVT, court or arbitral tribunal has determined that the amount is payable by the tenant (or he has admitted the same): s.81, Housing Act 1996. Similar provisons exist for other breaches of covenant: s.168, Commonhold and Leasehold Reform Act 2002.

In the view of the Court of Appeal, the proceedings in the LVT and the county court fell within the socpe of these provisions. They were preconditions for any s.146 notice and hence fell within the terms of the covenant. This was a highly desirable conclusion, as any other result mean that the leaseholders as a whole had to pay the legal costs via the service charge.

*Deep breath*

Ok. Where to start:

(a) There is actually quite a lot of law on whether leases allow for legal costs to be recovered and, in general terms, the CA has previously made clear that you’d need pretty clear words to allow for such a result: see, e.g. Sella House v Mears [1989] 1 EGLR 65; (1989) 21 HLR 147. Not only was Stella House not mentioned in the judgment, but, given that a lease will almost invariably contain a clause like that in cl.3(12), the CA has, at a stroke, turned most leases into full costs recovery leases;

(b) The CA has looked at this argument before (i.e. that s.81, 1996 Act means that all costs of the LVT are recoverable) and, to put it bluntly, wasn’t impressed by the argument. In Contractreal v Davies [2001] EWCA Civ 928, the CA appears to have doubted that s.81 could help with the interpretation of a covenant like this where the lease pre-dated the coming into force of s.81, 1996 Act (presumably on the basis that no-one could have contemplated such a meaning when the lease was granted). In Mohammadi v Anston Investments Ltd [2003] EWCA Civ 981, there is also some discussion about how s.81 works and how it needs to be approach (‘tho I accept Mohammadi isn’t as relevant as Contractreal). Were these even cited to the CA? We can’t know at the moment, but neither are found in the judgment.

(c) There is, again, quite a lot of law on whether one set of proceedings (e.g. in the LVT) can ever be incidental to another (e.g. in the county court claim for possession following the s.146 notice). Most people would say that they can’t: see, e.g. Wright v Bennett [1948] 1 QB 601.

I’m surprised, to put it mildly, that none of these points seems to have been considered. I can’t know what was argued, so don’t intend any criticism of any party (counsel or solicitor), but these are not obscure or cunning points. The main works (Housing Ency, Woodfall, etc) raise these arguments in one form or another. But they just don’t seem to have troubled their Lordships. Why not? This is too important an issue not to warrant detailed, nay forensic (and Herculean, for those fellow Dworkin fans out there), analysis and I fear that we didn’t get it here. I was initially quite angry when I read this judgment, but now I just want to weep. Law, particularly in a common law system like ours, only works when the relevant decisions are discussed and considered. And I can’t be sure that they were. But we seem to be stuck with the decision now.