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Costs of proceedings

This content applies to England

How landlords can pass on the costs of court proceedings to tenants through service charges in certain circumstances.

General position

The Commonhold and Leasehold Reform Act 2002 provides that one party to proceedings in the First-tier Tribunal (Property Chamber) (formerly the Leasehold Valuation Tribunal) only has to pay the costs of the other party where the application was in some way an abuse of process, for example it was frivolous or vexatious.[1]

This does not rule out the requirement to pay the other party's costs where the lease specifically allows for this. However, the Tribunal has the power to determine whether some or all of these costs are not recoverable from the other party.[2]

Landlord recovering costs through service charge

There is often a clause in the lease that allows landlords to pass on the costs of court proceedings to tenants through service charges. The Upper Tribunal has held that although such a clause need not specifically mention the recovery of legal costs, it can only be given its 'natural meaning' where it is clear and unambiguous. Thus the Tribunal considered that a clause stating that 'all other expenses (if any) incurred by the Lessors....[in] the maintenance and proper and convenient management and running of the Development' was not sufficiently clear to allow the freeholder to recover the costs of bringing proceedings to enforce the obligations of an individual leaseholder. It did allow that the term 'management' could include the costs of getting legal advice and in some circumstances the costs of litigation.[3]

However, where a tenant has successfully applied to the county court or First-tier Tribunal (Property Chamber) to exclude the costs incurred by a landlord in the First-tier or Upper Tribunal, or in connection with arbitration, from service charges, the court or tribunal may consider it unfair if they have to meet the landlord's costs via service charges.[4] This is especially likely to be the case when these costs are recoverable through insurance.

In one case, the Upper Tribunal (Lands Chamber) held that an application to limit the service charges in respect of court or tribunal proceedings necessarily included an application to determine whether there was any contractual power to claim these costs from the tenant, and made an order preventing the landlord from recovering costs through any future service charge demands.[5] In another case, the Upper Tribunal held that the jurisdiction to make an order restricting the costs that the freeholder could recover through service charges only extended to those tenants who had made an application for limitation, or had been named in someone else's application. Tenants who had not made or been named in an application could not benefit from any restriction of the landlord's costs made by the Tribunal.[6]

It is common for a lease to include a clause that allows a landlord to recover costs in connection with the enforcement of the terms of the lease. To avoid liability for such costs it could be advisable for a leaseholder to pay a disputed service charge and then to challenge the validity of the amount charged in the First-tier Tribunal (Property Chamber).[7]

Disputing service charges for recovery of legal costs

Generally, a dispute about service charges will involve many tenants, and they could consider pooling resources and instructing a common solicitor to act for them all. Some solicitors specialise in acting for groups of tenants in such disputes. There are also surveyors willing to take on cases, and as these are usually before the First-tier Tribunal (Property Chamber), they are permitted to do so.

The Leasehold Advisory Service (LEASE) can advise both tenants and landlords of their rights and obligations.

Wales

The information on this page applies only to England. Go to Shelter Cymru for information relating to Wales.

[1] para 10(4), sch.12, Commonhold and Leasehold Reform Act 2002.

[2] s.20C Landlord and Tenant Act 1985; Christoforou and Anor v Standard Apartments Ltd [2013] UKUT 586 (LC); Chaplair Ltd v Kumari [2015] EWCA Civ 798; Primeview Developments Ltd v Ahmed [2017] UKUT 57 (LC).

[3] Geyfords Ltd v O'Sullivan & Ors [2015] UKUT 683 (LC); see also Fairbairn v Etal Court Maintenance Ltd [2015] UKUT 639 (LC), Francis v Philips [2014] EWCA Civ 1395.

[4] Assethold Ltd v NM Watts & Ors [2014] UKUT 537 (LC) Iperion Investments v Broadwalk House Residents Ltd (1994) 27 HLR 196.

[5] Akorita v Marina Heights (St Leonards) Ltd [2011] UKUT 255 (LC).

[6] In the matter of an appeal by SCMLLA (Freehold) Ltd [2014] UKUT 58 (LC).

[7] see for example 87 St George’s Square Management Ltd v Whiteside [2016] UKUT 438 (LC).

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