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Legal costs

Lease Valuation Tribunal powers

The LVT has no general power to award costs other than when an application is dismissed as frivolous or vexatious, or otherwise an abuse of process or a party has acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably in connection with the proceedings. In such circumstances the costs are capped at £500. (CLRA 2002, Sch 12 para 10.)

A landlord may, however, be able to recover legal costs under the lease. Ordinary contractual principles apply. A landlord’s contractual right to legal costs is not restricted by CLRA 2002, Sch 12 para 10(4) (Schilling v Canary Riverside, unreported, Land Tribunal LRX/65/2005).

Costs are not recoverable in the LVT unless they are recoverable under the terms of the lease. Ordinary contractual principles apply.

Costs recoverable from individual lessee

Legal costs recovered directly from a defaulting tenant are an administration charge within the meaning of the CLRA 2002, Sch 11, para 1 and are, therefore, subject to the test of reasonableness. It should be remembered that an administration charge is only payable if the demand is accompanied by the summary of rights and obligations required by Sch 11 para 4.

Costs recoverable through the service charge

Such a provision is only likely to be relied upon if the landlord is unable to recover the costs directly from the defaulting tenant.

It has been suggested that the landlord should attempt to recover the expenses from the tenant before seeking to recover them through the service charge (Skilleter v Charles [1992] 1 EGLR 73).

The terms of the lease must be clear and unambiguous (St Marys Mansions Ltd v Limegate Investments Co Ltd
[2002] EWCA Civ 1491). L sought to recover legal costs of proceedings, incurred in the recovery of arrears of rent and service charges, as part of the service charge. Sought to rely upon clauses in the lease entitling L to recover the costs of all other services which the lessor may at its absolute discretion provide and for the reasonable and proper fees for the collection of rents general management of the building. Held: Neither of these provisions was sufficient.

Applications under s20C

An order under s.20C of the Landlord and Tenant Act 1985 may be made where it is just and convenient to do so. It does not automatically follow that that an order will be made if the tenant is successful in reducing the service charges recoverable. Weight must be given to the degree of success, that is the proportionality between the complaints and the determination and to the proportionality of the complaint, that is between any reduction achieved and the total of service charges on the one hand and the costs of the dispute on the other.

The principles by which the discretion under s.20C should be exercised are set out in two decisions by HHJ Rich QC: Schilling v Canary Riverside Development Pte Limited, LRX/26/2005, (unreported) and Tenants of Langford Court v Doren Limited (LRX/37/2000) (5th March 2001).

In Doren, HHJ Rich said:
    “In my judgement the only principle upon which the discretion should be exercised is to have regard to what is just and equitable in all the circumstances. The circumstances include the conduct and circumstances of all parties as well as the outcome of the proceedings in which they arise.” (para 28)

    “Where, as in the case of the LVT, there is no power to award costs, there is no automatic expectation of an Order under s.20C in favour of a successful tenant, although a landlord who has behaved improperly or unreasonably cannot normally expect to recover his costs of defending such conduct.” (para 30)
. In Schilling, HHJ Rich explained paragraph 30 in Doren:
    “The [Doren] appeal to the Lands Tribunal was by way of review only, and my decision was to uphold the LVT’s refusal to allow an order to “follow the event” of the tenants’ success, even in a case where the LVT’s decision necessarily meant that the landlord had been at least to some extent at fault. When therefore I referred in paragraph 30 of my Decision to “a landlord who has behaved unreasonably” I meant more than, for example, its being found that some costs had not been reasonably incurred so as to entitle the tenant to a declaration under s.19 of the Act of 1985. The ratio of the Decision is “there is no automatic expectation of an Order under s.20C in favour of a successful tenant.” So far as an unsuccessful tenant is concerned, it requires some unusual circumstance to justify an order under s.20C in his favour. (para 30)

    “so far as the actual [tenant] applicants are concerned the outcome is to be given weight in considering whether to make an Order and may affect whether the right of recovery should be limited to part only of the costs incurred by the landlord ... In service charge cases, the “outcome” cannot be measured merely by whether the applicant has succeeded in obtaining a reduction. That would be to make an Order “follow the event”. Weight should be given rather to the degree of success, that is the proportionality between the complaints and the Determination, and to the proportionality of the complaint, that is between any reduction achieved and the total of service charges on the one hand and the costs of the dispute on the other hand.” (para 14)
Staghold Ltd v Takeda
Central London County Court, Jude Levy QC
[2005] 47 EG 146

A tenant thinks that his service charges are unreasonable. He takes the landlord to the leasehold valuation tribunal and loses. He asks the LVT to make an order under s20C of the 1985 Act, ie preventing the landlord from adding the legal costs of the defending the proceedings to subsequent service charge accounts, and loses. The landlord then adds those costs to a later service charge demand. The legal costs are £60,000. The service charge demand is £3,152.32, of which £2,562.59 relates to the tenants proportion of the £60,000. All the other tenants pay up but the tenant who went to the LVT refuses so the landlord sues in the county court. In that case the tenant argues two points (1) that the lease does not allow landlord to add the legal costs to the service charge demand. However, the lease is quite clear so that does not prevent the landlord from recovery. (2) It is the second argument that is of more interest. The tenant argues that the landlord is prevented from recovering the legal costs by a well hidden provision of the Commonhold and Leasehold Reform Act 2002; para 10(4) of Schedule 12 to the Act. The argument is unsuccessful and the tenant must pay his share of the legal costs. Here are the arguments:

Section 20C of the 1985 Act, so far as relevant, states:
    A tenant may make an application for an order that all or any of the costs incurred, or to be incurred, by the landlord in connection with proceedings before a leasehold valuation tribunal .. are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the tenant ..
As stated above the tenant made such an application in the proceedings that he lost, and also lost the s20C application. On the face of it therefore the landlord was entitled to add the legal costs that it incurred in defending the LVT proceedings to a subsequent service charge demand.

However, para 10 of Schedule 12 to the 2002 Act states as follows:
    (1) A leasehold valuation tribunal may determine that a party to proceedings shall pay costs incurred by another party in connection with the proceedings in any circumstances falling within sub-paragraph (2).
Sub-paragraph (2) essentially states that costs can only be made where the party against whom the costs are sought has acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably. And even then there is a limit is 500, or such other amount as may be specified in regulations. Subsection (4) continues:
    (4) A person shall not be required to pay costs incurred by another person in connection with proceedings before a leasehold valuation tribunal except by a determination under this paragraph or in accordance with provision made by any enactment other than this paragraph.
The tenant argued that the wording of sub-section (4) prevented the landlord from recovering the costs, not only in the LVT proceedings themselves, but also in any subsequent proceedings. The county court judge rejected the argument. Any such argument would deprive s20(C) of any effect and would be unjust.
    The present claimant has been forced into litigation by the defendants, in which the defendants were almost wholly unsuccessful. It has incurred considerable costs in so doing and it is, in my judgment, prima facie inequitable that it should not be entitled to recover them per the terms of the leases with residential tenant of the block. Other such tenants have been charged, and have paid their appropriate percentage charge of the litigation based upon the landlords bill of costs, as part of their service charge. I cannot think that parliament had intended that a tenant whose behaviour had in no way contributed to the claimant incurring costs in the LVT proceeding was properly required to pay, by way of service charge, a proportion of those costs, a tenant whose actions had led to the costs being incurred should be excused from paying his or her appropriate proportion.
Article: "Having your cake and eating it (or how to lose, but win on costs)" by Matthew Marsh and Zia Bhaloo - Explains s20C of the Landlord and Tenant Act 1985 which allows a tenant to make an application to the LVT for an order that some or all of the legal costs incurred in connection with proceedings are not to be regarded as "relevant costs" to be taken into account when determining a service charge. (Landlord and Tenant Review, Vol 10, Issue 3, May/June 2006, p65).

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