Service charge disputes and recovery of costs

Bretby Hall Management Company Ltd v Pratt [2017] UKUT 70 (LC)

This was an appeal to the UT on various issue arising from an FTT decision. We will not dwell on the issue of specific charges not being consulted on under s.20, but not – as the UT found, overturning the FTT – subject to a Qualifying Long Term Agreement, because the more general point concerned the landlord having put some £11,000 of legal costs on the drawn out service charge disputes through on the service charge (not, we should note, as an administrative charge).

The FTT had held that these costs were not recoverable under the lease. The relevant lease clause said:

All other expenses (if any) incurred by the Manager in and about the maintenance and proper and convenient management and running of the development including … any legal or other costs reasonably and properly incurred by the Manager and otherwise not recovered in taking or defending proceedings (including any arbitration) arising out of any lease of any part of the Development…

The relevant background was

  1. Mr Pratt was a director of BHMC between 2006 and 2010 when he resigned as a result of disagreements with his fellow directors.
  2. In November 2011 Mr Pratt gave notice of his intention to challenge the service charge through a review carried out by a surveyor – Mr Edwards. This eventually led to a dispute over Mr Edwards’s fees which is alleged to have cost BHMC £1,300.
  3. In September 2012 Mr Pratt sought the appointment of a further surveyor – Mr Corns – to examine the service charge challenge. No agreement was reached between BHMC and Mr Pratt as to the terms of reference of Mr Corns’s appointment. At no stage did BHMC agree to pay any part of Mr Corns’s fees.
  4. On 31 March 2014 Mr Corns invoiced Mr Pratt £11,664 and having received payment from Mr Pratt published a document outlining the conclusion of his enquiries. One of the conclusions was that BHMC should pay Mr Pratt the £11,664 and should also credit his service charge account with the relevant proportion of the service charge that he had disallowed.
  5. Mr Pratt sought to recover the £11,664 from BHMC. In so doing he instructed solicitors who entered into correspondence with solicitors instructed by BHMC. On 8 September Mr Pratt’s solicitors sent BHMC’s solicitors a formal letter of claim including a draft Particulars of Claim which were to be issued in the County Court. The basis of the claim was paragraph 4 of 7th Schedule of the Lease which was said to contain an arbitration agreement. It is clear from the prayer for relief that Mr Pratt claimed:1)  The sum of £11,664
    2)  A declaration that Mr Pratt was entitled to have the sums disallowed in Mr Corns’s determination credited to his service charge.
    3)  An order permitting Mr Pratt to set off the sums disallowed against future service charges.
  6. In the event no proceedings were ever instituted by Mr Pratt. However, BHMC incurred substantial legal costs in relation to the dispute. These comprise Counsel’s fees of £2,000 plus £400 VAT and Solicitor’s fees of £7,250 plus £1,450 VAT making a total of £11,100 inclusive of VAT.

The landlord argued that this clause was wide enough to cover threatened as well as actual legal proceedings and duly claimed the full legal bill for the previous dispute.

Mr Pratt argued that the legal fees fell within the Tribunal’s power to exclude costs in section 20C of the Landlord and Tenant Act 1985 alternatively that the costs were unreasonable under section 19 of the same Act.

The UT disagreed.

To my mind the first part of the clause is wide enough to cover the costs of intended proceedings so it is unnecessary to decide whether they are also included within the example set out in the second part of the clause. It was, to my mind, plainly contemplated that the reasonable costs of managing the development should be recoverable under the service charge. Subject to the question of reasonableness the costs of defending threatened proceedings would seem to me to fall squarely within such a definition. I can think of no reason why the parties should have intended that the costs would only be recoverable under the service charge if proceedings were actually commenced.

And the costs did not fall under s.20C, as that only applied to costs in proceedings before a court, tribunal or arbitral tribunal. There had been no proceedings here – at last as far as the costs at issue were concerned.

The reasonableness of the costs had, however, been put in issue and not determined by the FTT. This issue was remitted to the FTT. No s.20C order on the costs of the appeal, which could be put through the service charge.

Comment

While the legal costs were here put though the service charge, and are therefore apportioned so that Mr P will only pay a share, this is yet another reminder that contractual costs provisions in leases are often fatal for the leaseholders and need to be considered carefully before entering into a dispute, let alone before proceedings.

As a service charge, the reasonableness falls to be considered by the FTT. But this will also be the case for Administration charges (under a s.146 clause, for example), under the Housing and Planing Act 2016, incurred after 6 April 2017.

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Housing law - All, Leasehold and shared ownership and tagged , , , .

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