Service charges, costs and the FTT(PC)

Service charge disputes in the FTT(PC)/LVT are generally regarded as a “no” or “low” costs proceedings. The Tribunals have very limited powers to award costs. In general terms, the FTT(PC) can award unlimited sums in respect of either wasted costs or unreasonable behaviour (r.13, FTT(PC) rules), whilst the LVT (as it remains in Wales) can award up to £500 for unreasonable behaviour (Sch.12, CLRA 2002). In reality, I have to say, the exercise of these powers is very rare.

But that isn’t the end of the matter. Almost all leases will provide one or other contractual right for a landlord to recover legal costs from a leaseholder under the terms of the lease. This can take the form of a personal indemnity for costs associated with a breach of covenant, or a right to put costs through the service charge.

A very common example of the first of these (i.e. personal indemnity) is the s.146 costs clause, i.e.

Pay to the Landlord all costs charges and expenses (including legal costs and fees payable to a surveyor) which may be incurred by the Landlord in or in contemplation of any proceedings under sections 146 & 147 of the Law of Property Act 1925.

In Freeholders of 69 Marina v Oram [2011] EWCA Civ 1258; [2012] H.L.R. 12, (link to our note) the Court of Appeal held that this sort of clause would usually allow a landlord to recover legal costs incurred in proving a breach of covenant (e.g. obtaining a judgment for service charge arrears). The reason for this is that, by s.81, Housing Act 1996 and/or s.168, Commonhold and Leasehold Reform Act 2002, you cannot forfeit a residential lease unless the breach has been proved or admitted. In 69 Marina itself, the Court of Appeal was also ok with the idea that you could sue in the county court to recover costs incurred in the FTT/LVT if those FTT/LVT proceedings were to prove a breach.

Now, 69 Marina had a fair few critics (including us, if you read our note). Most important of those critics was Martin Rodger QC, Deputy President of the Upper Tribunal (Lands Chamber), who tried to row back from 69 Marina in Barrett v Robinson [2014] UKUT 332 (LC); [2015] L&TR 1 (link to our note)* and limit the circumstances in which it could be used, but, ultimately, the Court of Appeal are binding on the UT, so we’re stuck with it.

Which brings us, in a round about way, to Chaplair Ltd v Kumari [2015] EWCA Civ 798. It seems that Chaplair Ltd had sued various leaseholders, including Mrs Kumari, for unpaid service charges. Those cases were allocated to the small claims track and then transferred from the county court to the LVT (as it was then) and heard in 2011 (the LVT decision is, I think, this one). Chaplair Ltd was broadly successful but, as is normal, no order for costs was made.

The case then came back to the county court. Chaplair sought its costs, including the costs incurred in the LVT, contending that they were contractually due. It’s not clear from the judgment of the Court of Appeal exactly which clauses were relied upon, so I’ve set them out in full (just changing numbering for consistency – I think it must be (a) or (e)):

(a) To pay to the Landlord all costs charges and expenses (including legal costs and fees payable to a surveyor) which may be incurred by the Landlord in or in contemplation of any proceedings under Sections 146 and 147 of the Law of Property Act 1925 notwithstanding forfeiture may be avoided otherwise than by relief granted by the Court

(b) To pay all proper and reasonable 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 to the Flat 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)

(c) To pay all reasonable expenses of the Landlords its Managing Agents or Solicitors in respect of any requests for information previously provided…

(d) To comply with all requirements whatsoever of any local or other competent authority corporation or others in relation to the demised Premises and to comply at the Tenant’s own expense with any notices whatsoever served by any such authority or others whether on the Landlord or the Tenant in relation to the Demised Premises

(e) At all times hereafter to indemnify the Landlord from and against all actions proceedings costs losses expenses claims and demands arising out of any failure by the Tenant to observe or perform any of its obligations under this Lease in relation to any legislation for the time being in force and non-compliance with any of the provisions herein contained in general or any matters referred to in sub-clause (a) and (b) hereof in…

Two issues arose. Did the county court have power to award costs incurred in the LVT? Did the fact that the case was a small claim restrict the contractual power to award costs?

Did the county court have power to award costs?

Given the decision in 69 Marina, the answer is, surely, “obviously, yes”. Yet, for reasons which escape me, 69 Marina isn’t cited. Instead, the argument focuses on a very fact specific issue concerning what was – and was not – agreed before the LVT, which was resolved in favour of Chaplair Ltd.

Since no-one argued this point, I do want to say that there is a very real argument that the county court cannot do this. The county court only has such costs powers as are prescribed by statute. Those powers are in s.51, Senior Courts Act 1981:

51.— Costs in civil division of Court of Appeal, High Court and county courts.

(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in

(a) the civil division of the Court of Appeal;

(b) the High Court; and

(c) any county court,

shall be in the discretion of the court

Quite simply, why are the costs incurred in one forum “incidental” to another? I understand that they can be (see e.g. Department of Health v Envoy Farmers Ltd [1976] 1 WLR 1018, QBD) but isn’t that the real issue? It really does undermine the “no/low costs” nature of the LVT/FTT to allow costs to be recovered through the county court like this.

Anyway, no-one took this point, so the issue was resolved in favour of Chaplair Ltd

But it was a small claim?

This, I think, is the more substantive issue (‘tho technically, this part of the case is only an unsuccessful application for permission to appeal). The case had been allocated to the small claims track and that would normally mean that, absent unreasonable behaviour, there would be no order for costs (CPR 27.14). How did that fit with the contractual right to costs? Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 and Church Commissioners v Ibrahim [1997] EGLR 13 are authority for the proposition that, where a party has a contractual right to costs, the court should normally give effect to that right, albeit with “anxious scrutiny” of those costs: O’Beirne v Hudson [2010] EWCA Civ 52.

There is a county court case (Graham v Sand Martin Heights Residents Co Ltd OBQ12347), which has held that the small claims regime trumps the contractual right, but, frankly, I’ve never been persuaded by that. It purports to decide that an earlier High Court case was wrong and did not need to be followed (a course of action which is not open to the County Court, see, e.g. Howard de Walden Estates v Aggio [2007] EWCA Civ 499; [2008] Ch. 26; [2008] HLR 1, at [86]-[95]) and is inconsistent with decisions of the Lands Tribunal (Canary Riverside Pte Ltd v Schilling LRX/65/2005), Upper Tribunal (Lands Chamber) (Christoforou v Standard Apartments Ltd [2013] UKUT 586 (LC); [2014] L. & T.R. 12) and other county court decisions (e.g. Staghold Ltd v Takeda [2005] 3 E.G.L.R. 45), all of which explain (in a related context) that a rule of procedure (such as CPR 27.14) cannot trump a contractual right.

Anyway, without referring to any of those authorities, the Court of Appeal comes to the same conclusion. A contractual right to costs trumps the restrictions in CPR 27.14, such that, even in a small claim, a landlord with a contractual right to costs can recover them from the tenant.

Conclusion

So, what to take away from this? Don’t litigate against someone who has a contractual right to make you pay the costs.

 

 

 

 

 

 

 

 

  • Barrett v Robinson is off to the Court of Appeal I am told. Does anyone know anything about this? It doesn’t appear that either side was represented in the UT. Any chance the Bar Pro Bono Unit will be asked to step in?

About J

J is a barrister in London. He loves service charges and all things leasehold law related. He also likes beating rogue landlords and mortgage companies.
Posted in Housing law - All, Leasehold and shared ownership, leases and others, Mortgage possession.

12 Comments

  1. Hi J, I found your analysis regarding Landlord cost recovery from Leaseholders very enlightening. I am in a similar situation and have found your analysis very useful. Thank you so much. Just to be clear, in Chaplair v Kumari, the county court was able to award costs;- was this because the FTT proved that there was a breach? Also, if an FTT and UT decides that a major works cost is reasonable, would the Leaseholder be seen as having breached on their service charge?

    • The CC can award costs – whether relating to costs in the CC or the LVT/FTT – if the underlying claim falls within a contractual right to costs. Most leases have a s.146 forfeiture costs clause that landlords will rely on. As to whether it can be used in any particular case, see Barrett v Robinson.

      A s.19 LTA 1985 reasonableness decision in favour of the landlord isn’t necessarily evidence of a breach of the lease, but if the money was contractually due and not paid, then it is likely that there has been a breach.

    • Thanks for your reply. Can you clarify please, if the Landlord can claim for costs under their contractual rights, then can failure to claim such costs at the FTT or UT be construed as a waiver of such contractual rights? Also, does a contractual right to claim costs subject to the Landlord providing evidence that a breach of the lease has occurred?

      If a leaseholder informs the landlord in writing, that it will not appeal a decision of the UT and agree they are liable to pay the amount the UT has stated is reasonable, and proposes a payment plan. Does that constitute a breach?

    • No need to raise at FTT or UT.

      Contractual claim depends on the lease clause. A claim under a ‘costs preparatory to s.146 notice’ clause would require a breach.

      ON the last point, depends entirely on what the lease provides for in terms of when payment was due. If payment not made at that point, there will have been a breach.

    • Oh dear. On the last point, I am concerned. Will a breach be seen to havee occurred if the amount was already included in the Leaseholder’s service charge account and Leaseholder was making monthly payments on the account? These monthly payments were on-going throughout the period of the hearings at the FTT and UT?

    • Cathy, this is now a matter of individual advice, and we can’t do that via the blog. Anyway, it will be entirely a matter of what the lease says and the nature of any agreement for monthly payments.

    • If this cannot be done via the blog. Please propose other means? I need proper legal advice at this point and citizens advice bureau have not helped.

    • Thanks. At this stage, I need a lawyer who is knowledgeable in this subject matter. Unfortunately, I was not impressed with the two that I have seen so far and paid. Any recommendation will help.

    • Yes, sadly this is now moving into the realms of specific advice about an actual case. We can’t do that via the blog for many reasons (for one, our respective professional indemnity insurance companies would not like it!). LEASE are a good source of initial advice or, as Giles says, you need a specialist solicitor. If the potential costs of legal advice concern you then look at your household insurance policy (or other insurance policies) and see what legal expenses insurance you have already got included as part of the package.

  2. A s.19 LTA 1985 reasonableness decision in favour of the landlord isn’t necessarily evidence of a breach of the lease, but if the money was contractually due and not paid, then it is likely that there has been a breach.

    What if the breach is a direct result of disrepair and breach of the covenant for Quite Enjoyment by the landlords managing agent?

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