RECOVERING COSTS IN THE LVT. CIH Home Ownership & Leasehold Management Conference & Exhibition 5 and 6 February 2013

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1 RECOVERING COSTS IN THE LVT

2 INTRODUCTIONS MARK OAKLEY

3 Why is it important? How else would the costs be paid? Do you really want to? Funding litigation

4 Typical Scenarios Lessee Application regarding service charges Transfer from County Court of a debt recovery claim Landlord s Application for a determination regarding service charges incurred or to be incurred Determinations for breach of lease

5 LVT Cost Rules Note currently: No general power to award costs Up to 500 in costs can be ordered to be paid by a party who has made an application which is dismissed as frivolous, vexatious or an abuse of process An Order may be made if a party has acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably (Para 10(2) of Schedule 2 to a Commonhold and Leasehold Reform Act 2002)

6 LVT PROPOSED NEW RULES The Tribunal Procedure (First-Tier Tribunal Property Chambers) Rules 2013 currently in draft for consultation Provides for unless orders and automatic strike outs together with a provision to strike out where there is no reasonable prospect of an Applicant s case or part of it succeeding Power to order wasted costs to be paid and for such costs to be assessed. Wasted costs could arise on non-compliance or if a party has acted unreasonably in bringing or defending a case.

7 The Answer If the Lease provides for the recovery of costs, then to the extent that the costs are reasonable, such costs can be recovered unless limited by a Court or Tribunal.

8 The Individual Elements The Lease Reasonableness Section 20C of Landlord & Tenant Act 1985

9 If the Lease provides for recovery Costs recovered directly from a defaulting lessee Costs recovered as part of the service charge

10 Direct recovery from a lessee Typically a Lease will provide a direct covenant from a lessee to pay costs in defined circumstances.

11 Sample Clauses To pay all proper costs charges and expenses (including proper and reasonable legal costs and surveyors fees) properly incurred by the Landlord in any proceedings or service of any notice under Sections 146 and 147 of the Law of Property Act 1925 including the reasonable costs charges and expenses aforesaid of and incidental to the inspection of the Demised Premises the drawing up of schedules of dilapidations and notices and any inspection to ascertain whether any notice has been complied with and such costs charges and expenses shall be paid whether or not forfeiture for any breach shall be avoided otherwise than by relief granted by a court.

12 Sample Clauses To pay to the Lessor all expenses (including Solicitor s costs and Surveyor s fees) (a) incurred by the Lessor in or in contemplation of any proceedings under Sections 146 and/or 147 of the Law of Property Act 1925 notwithstanding that forfeiture is avoided otherwise than by relief granted by the Court and (b) incurred by the Lessor incidental to the preparation and service of a Schedule of Dilapidations at the end of the term hereby granted (howsoever determined) in respect of the Demised Premises

13 Sample Clauses To pay all proper and reasonable costs charges and expenses (including solicitors costs and architects and surveyors fees) incurred by the landlord for the purposes of or incidental to the preparation service or enforcement (whether by proceedings or otherwise) of : Any notice under Section 146 or 147 of the Law of Property Act 1925 (as amended) requiring the tenant to remedy a breach of any of the tenants covenants herein contained notwithstanding forfeiture for such breach shall be avoided otherwise than by relief granted by the court Cont d...

14 Sample Clauses Any notice to repair or schedule of dilapidations accrued during the term or accrued at or prior to the end or sooner determination of the term whether or not served during the term The payment of any arrears of the rent, interim charge or service charge or interest payable thereon Any application by the tenant for the landlord s consent whether such consent is granted, refused or made subject to any conditions and in default of payment all such sums shall be recoverable as rent in arrears.

15 Matters to note for direct recovery against the lessee Is the service charge reserved as rent? A demand is raised for the amount of the costs Non-payment is itself a breach of the Lease A Lessee can apply to the LVT for a determination that the costs are reasonable (as an administration charge). Enforcement by determination of the LVT and subsequent Section 146 Notice and forfeiture proceedings

16 Recovering Costs as part of the service charge These costs are not recovered directly from an individual leaseholder but are calculated and shared equally amongst a group of leaseholders in just the same way as other annual repair and maintenance expenses. Recoverability turns upon the wording of the Lease

17 Note I find that [other] cases turn upon the precise terms of the Leases, and they do not help solve the problem confronting this Court. Our task is to construe this Lease... Quote from Lord Justice Ward in St Mary s Mansions Limited v Limegate Investment Co Limited

18 Sample Clauses The payment of all legal charges incurred by the landlord; - In the running and management of the building and in the enforcement of covenants, conditions and regulations contained in the Leases granted of the various premises in the building and In making such applications and representations and taking such action as the landlord shall reasonably think necessary in respect of any notice or order or proposal for a notice or order regulation or by-law in respect of the building or any part thereof or the curtilage thereof

19 Sample Clauses Typically a service charge is calculated by a reference to the costs incurred by the landlord in respect of activities for example: - To employ managing agents and chartered accountants to manage the building and to discharge all proper fees... and expenses payable to such agents or other person who may be managing the building including the cost of computing and collecting the rents... in respect of the building Cont d...

20 Sample Clauses To employ all such surveyors, builders, architects, engineers, tradesmen, accountants or other professional persons as may be necessary or desirable for the proper maintenance, safety and administration of the building.

21 Sample Clauses To manage the property for the purpose of keeping the property in a condition similar to its present state and condition

22 Sample Clauses All costs charges and expenses incurred and expended... in carrying out or in pursuance or furtherance of or in intended pursuance or furtherance of the obligations or rights of the corporation under this Lease to or in relation to the block

23 Sample Clauses The Costs incurred by the Corporation in the Management of the Block

24 Sella House Ltd v Mears [1989]1 EGLR65 Whether the Landlord could recover as part of the service charge legal expenses incurred in recovering rent from other tenants The service charge was based on the expenditure incurred by the Landlord in carrying out obligations To employ managing agents and chartered accountants to manage the building and to discharge all proper fees and expenses payable to such agents or other person who may be managing the building including the cost of computing and collecting the rent... in respect of the building

25 The fees of Solicitors and Counsel were outside the contemplation of the provisions and the absence from those provisions of any specific mention of lawyers, proceedings or legal costs was noted. The scope of the provisions was concerned with management maintenance, safety and administration.

26 Sella House Ltd v Mears [1989] 1EGLR 65 On the [Landlord s] argument a tenant paying his rent and service charge regularly would be liable by the service charge to subsidise the Landlord s legal costs of suing his co-tenants, if they were all defaulters. For my part I should require to see a clause in clear and unambiguous terms before being persuaded that the result was intended by the parties

27 Iperion Investments Corporation v Broadwalk House Residents Ltd [1995] 2 EGLR 47 These proceedings concerned a dispute between a Lessee and Landlord regarding unauthorised works of alteration, forfeiture and application for relief from forfeiture including applications for injunctions. On the due construction of the Lease, the litigation costs incurred by the Landlord were costs to be included in the Landlord s costs and so recoverable from Lessees by way of the service charge.

28 The Landlord s costs means all costs, sums, payments, charges and expenses properly incurred by the Landlord in carrying out its obligations under the Seventh Schedule and also under the covenants... and in the proper and reasonable management of, in and about [Broadwalk House]. The items comprising and including in the Landlord s costs are set out but not by way of definition in the Eighth Schedule

29 The relevant paragraph in the Eighth Schedule was The proper costs of management of Broadwalk House I find it difficult to draw a satisfactory line between the costs of enforcing tenants covenants and of claiming an injunction on the one hand and the costs of forfeiture proceedings on the other. All such costs may be described as costs incurred in managing the property and it matters not whether the rights enforced are rights under covenants prohibiting certain acts by tenants or rights conferred by the condition for reentry

30 Plantation Wharf Management Company Ltd v Jackson & Irving [2011] UKUT488 (LC) Were the Landlord s legal costs of recovering service charges payable under the terms of the Lease. The service charge was defined in respect of the costs and expenses incurred by the Landlord carrying out works and providing services and the costs included The fees, charges, salaries and expenses of the managing agents and all other contractors, agents, consultants, professional advisors and others performing and carrying out the matters specified in each category of services shall be added to and form part of the aggregate expenditure...

31 Category of services included the cost of: - The enforcement whenever and as often as the Lessor or the Company shall think fit of any covenants or conditions contained in the Lease under lease, licence or agreement relating to any unit or units within the building and any part thereof wherein the opinion of the Lessor and/or the Company such enforcement will be in the interest of good estate management

32 Therefore to put it all together the Lease says that the service charge includes the fees charges... and expenses... of professional advisors engaged in the enforcement... of any covenants... relating to any unit... in the interest of good estate management clearly the enforced collection of the covenanted service charges from tenants who are refusing to pay them may be in the interest of good estate management because otherwise there will not be enough money to manage the estate properly. Cont d...

33 A primary, if not the only, proper method of the enforcement of covenants against a tenant is by bringing legal proceedings. It is extremely difficult to contemplate the bringing of legal proceedings in most circumstances, without also contemplating the employment of lawyers, whether Solicitors or Counsel and whether advising, drafting or acting as advocates. Although it is true that the words legal costs or the costs of legal advisors do not appear in the Lease, it seems to me to be overwhelmingly clear that such costs are indeed included on any fair construction.

34 Reasonableness Section 19 of Landlord & Tenant Act 1985

35 Administration Charges Section 158, Schedule 11 CLARA 2002 a variable administration charge is payable only to the extent that the amount of the charge is reasonable

36 Section 20C (1) 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 court, Residential Property Tribunal or Leasehold Valuation Tribunal, or the Upper Tribunal, or in connection with arbitration proceedings, 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 or any other person or persons specified in the application. (2)... (3) the court or tribunal to which the application is made may make such order on the application as it considers just and equitable in the circumstances

37 How should the Section 20C discretion be exercised? The principles by which the discretion under S20C should be exercised are set out in two decisions by HHJ Rich QC: Tenants of Langford Court v Doren Limited (LRX/37/2000) (5th March 2001) Schilling v Canary Riverside Development Pte Ltd,LRX/26/2005, (unreported)

38 Tenants of Langford Court v Doren Limited In my judgment 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. Where, as in the case of the LVT, there is no power to award costs, there is no automatic expectation of an order under S20C 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.

39 Schilling v Canary Riverside LRX/26/2005 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 The ratio of the Decision is there is no automatic expectation of an Order under S20C in favour of a successful tenant. Cont d

40 So far as an unsuccessful tenant is concerned, it requires some unusual circumstance to justify an order under S20C in his favour. 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