Landlord and tenant — Service charges — Legal costs — Landlord incurring legal costs in leasehold valuation tribunal (LVT) service charge dispute hearing — LVT refusing to make order under section 20C of Landlord and Tenant Act 1985 — Landlord claiming legal costs as arrears of service charges — Construction of lease — Whether landlord entitled to legal costs — Effect of para 10(4) of Schedule 12 to Commonhold and Leasehold Reform Act 2002 — Whether para 10(4) precluding recovery of legal costs as part of service charge
The claimant landlord was the freehold owner of a building containing 27 flats and seven shop units. The defendant tenants held a long lease of one of the flats subject to the payment of service charges. In 2003, the first defendant and the tenant of another flat brought proceedings in the leasehold valuation tribunal (LVT) seeking to challenge service charges levied for the years 1997 to 2003. Save for one item of £239, the LVT dismissed the challenges and refused to make an order under section 20C of the Landlord and Tenant Act 1985 that would have prevented the claimant from recovering from the tenants its legal costs for the LVT hearing as part of the service charges. The claimant had incurred around £60,000 in legal costs in defending the applications before the LVT, and it included this sum in the service charge that would become payable by the tenants. The claimant issued proceedings against the defendants to recover £3,152.32, of which £2,562.59 related to a proportion of the £60,000. The defendants denied, on the proper construction of the lease and by virtue of para 10(4) of Schedule 12 to the Commonhold and Leasehold Reform Act 2002, that this sum was due.
Held: Judgment was given to the claimant. (1) By para 2(a) of the fourth schedule to the lease, the tenant was obliged to pay service charges in respect of “the services and amenities” specified in the seventh schedule. The heading to the seventh schedule referred to “costs, expenses and outgoings and in respect of which the tenant is to make a contribution”, and para 6 of that schedule provided for “the cost of employment of any managing agents legal or professional advisors or of any company or person for the collection of [service charge] rent of the flats”. On a proper construction of |page:46| those provisions, legal costs incurred by the claimant in defending the LVT applications were recoverable under the lease. (2) Where the LVT had already refused to make an order under section 20C of the 1985 Act, para 10(4) of Schedule 12 to the 2002 Act did not preclude the recovery of legal costs by a landlord as part of the service charges.
The following cases are referred to in this report.
Holding & Management Ltd v Property Holding & Investment Trust plc [1989] 1 WLR 1313; [1990] 1 All ER 938; [1990] 1 EGLR 65; [1990] 05 EG 75; (1989) 21 HLR 596, CA
Ionic Properties v Lessees of Melcombe Regis Court LON/00BK/NSI/2003/0109/01; LON/00BK/LSL/2003/0015 unreported 28 May 2004
Iperion Investments Corporation v Broadwalk House Residents Ltd (1996) 71 P&CR 34; [1995] 2 EGLR 47; [1995] 46 EG 188; (1995) 27 HLR 196
Sutton London Borough Council v Leaseholders of the Benhill Estate LON/00BF/LSC/2003/0011 unreported 17 July 2004
Tenants of Langford Court (El Sherbani) v Doren Ltd LRX/37/2000 unreported 13 February 2001, LT
This was the hearing of a claim by the claimant, Staghold Ltd, for £3,152.32 of service charge arrears, and of a Part 20 claim by the defendants, Hiko Takeda and Sue Matsue Takeda, for £189.39.
Michael Buckpitt (instructed by Comptons Solicitors) appeared for the claimant; and Martin Westgate (instructed by the Bar Pro Bono Unit) represented the defendants.
Giving judgment, Judge Levy QC said:
Introduction
[1] On 17 August 2004, Staghold Ltd (the claimant) issued a claim against Hiko Takeda and his wife Sue Matsue Takeda (the defendants) claiming arrears of service charge, legal costs and managing agents/surveyors’ fees. The sum claimed was £3,152.32. The amended defence included a counterclaim. In the defence, the defendants denied that the sum claimed was due. In the counterclaim, they claimed £189.39 on the basis that they had overpaid sums to the claimant in respect of payments made under the lease, to which I shall shortly refer. In view of the small amount claimed and counterclaimed, these proceedings would normally be determined as a small claim. Because he recognised that a serious point of principle was involved, the learned district judge transferred the matter to the multitrack. After a trial bundle of around 734 pages (most of it included at the request of the defendants acting in person) had been lodged and served and very shortly before the hearing was due to commence, Mr Martin Westgate, of counsel, accepted a brief to act pro bono for the defendants. When the claim was called on, he sought leave to amend the defence and counterclaim in the form of a draft that he had settled. His application to amend was opposed by counsel for the claimant. As, however, it brought into sharp focus the issues dividing the parties, I felt it appropriate to give leave to amend for reasons that I more fully expressed when I gave leave to amend. Before identifying those issues, it is desirable to state how this claim comes about.
Factual background
[2] By a lease dated 12 September 1986, (the lease), the claimant leased to the defendants a flat, 23 Churston Mansions, 179-190 Gray’s Inn Road, London WC1 (the flat) for a term of 125 years from 24 June 1986 in consideration of payment of £66,000 with provision for the defendants to pay: (i) ground rent; and (ii) “the additional further rent payable under the provisions of paragraph 2 of the Fourth Schedule”. The claimant is the freehold owner of Churston Mansions (the block), which is of Edwardian design. It comprises 27 flats above seven shop units at road level. All but three of the flats are let out on long leases.
[3] There have been disputes between the claimant and the defendants (more particularly the first defendant, who has been chairman and is now secretary of the residents’ association formed by the defendants to be concerned with the service charges and other management matters for the long lessees in the block). By an application (the original application) dated 5 August 2003 to the leasehold valuation tribunal (LVT), the first defendant and the tenant of another flat in Churston Mansions sought to challenge, under section 19(2B) of the Landlord and Tenant Act 1985 (the 1985 Act), the service charges levied for the year to 23 June 2003 (the year 2003-2004 ). They also applied for an order, under section 20C of the 1985 Act, that the claimant be precluded from adding costs of the LVT proceedings to the service charge. On 30 October 2003, a further application was made by the same parties, under section 27A of the 1985 Act (as amended by the Commonhold and Leasehold Reform Act 2002 (the 2002 Act) with effect from 30 September 2003), in respect of the service charges for the years 1997 to 2003. By orders dated 14 and 24 November 2003, the lessees of a further 10 flats were joined as parties to the application.
[4] A hearing took place between 15 and 18 March 2004 before a tribunal chaired by Professor JT Farrand. At the hearing, it was accepted that the original application should be treated as having been made under section 27A of the 1985 Act, which had come into force on 30 September 2004, as it had apparently been intended by the applicants. The hearing of the applications lasted for some four days. The tribunal faced around five bundles with more than 2,000 pages. A determination of the tribunal dated 26 March 2004 resulted in an almost total success for the claimant, in that none of the challenges to its fees succeeded, save for a credit of £239, which had been conceded as being hot-water provision provided to the shops free of charge. The LVT refused to make a section 20C order in respect of costs of the LVT proceedings.
[5] The application by the first defendant to appeal the LVT’s decision was refused by the LVT on 27 April 2004. An application for permission to appeal and for permission to appeal out of time against the decision was made by the defendants and Mrs Brenda Eckman to the president of the Land’s Tribunal. Both applications were refused on the ground that there was no reasonable prospect of success on any of the grounds raised. The costs to the claimant in dealing with the LVT proceedings were in the region of £60,000. The claimant sought to recover a portion of that sum as attributable and payable by the defendants in the present claim. The entitlement to that claim was among the matters strongly challenged in the original defence and counterclaim. That pleading was simplified and clarified by the helpful amended pleading produced by Mr Westgate, which well identified the matters to be determined in this hearing.
Issues arising on the pleadings
[6] Of the sum of £3152.32 made by the claimant, the figure of £2,562.59 relates to the proportion of the £60,000 of the costs of the LVT proceedings for which the claimant seeks judgment against the defendants. In the amended defence, there are two grounds for denying that that sum is due. They are, first, that, on the true construction of the lease, no provision was made for the defendants to pay for the costs incurred in those proceedings, and, second, that such costs are in any event irrecoverable by reason of para 10(4) of Schedule 12 to the 2002 Act
[7] Two further small sums were disputed: (i) a sum of £278.90 for building maintenance roof repairs; and (ii) management fees of £194.25. About these I gave judgment before proceeding to hear submissions on the grounds put forward by Mr Wesgate on behalf of the defendants in the amended defence.
Material provisions of the lease
[8] The material paragraphs of the lease to which I have been referred in argument are:
(i) By clause 1, apart from ground rent, the tenant is required to pay “the additional and further rent payable of the provisions of paragraph 2 of the Fourth Schedule”.
(ii) By clause 2, the tenant covenants with the landlord to observe and perform the obligations on its part set out in the fourth and sixth schedules.
(iii) Clause 3 contains a covenant by the landlord to perform the obligations on its part set out in the fifth schedule. |page:47|
(iv) Clause 4(1) contains standard provisions for forfeiture. Clause 4(2) provides for a reserve fund in these terms:
The Landlord shall create a reserve fund such that it is reasonable to provide the renewal of the equipment and/or materials required for the provision of the services and amenities herein provided and/or for carrying out such works other than that of an annual recurring nature and such sum or sums as from time to time the Landlord shall notionally allocate such funds shall be deemed to be an expense incurred by the Landlord in discharge of its covenants hereafter contained and accordingly a proportion of the sum or sums so allocated shall be included in the amount to be estimated under the provisions of paragraph 2 of the Fourth Schedule hereto PROVIDED THAT any sums are allocated and paid by way of a divisional rent shall be set aside by the Landlord and utilised only for the purposes for which it was so allocated and PROVIDED FURTHER that such sums to be allocated and paid shall not be subject to adjustment under the provisions of paragraph 2 of the said Fourth Schedule and accordingly in ascertaining whether any sum is to be paid by or credited to the Tenant under paragraph 2 of the said Fourth Schedule there shall be disregarded any sum allocated by the Landlord and paid by the Tenant under the provisions of this sub-clause.
Subclause 3 provides for resolutions of disputes under the previous subclause.
Fourth schedule
[9] The fourth schedule contains 32 clauses. The parts to which particular reference has been made are:
THE FOURTH SCHEDULE herein before referred to Covenants by the Tenant with the Landlord
1. To pay the said rents herein reserved at the time and in the manner herein provided without deductions.
2(a) To pay by way of additional and further rent a due proportion of the expense to the Landlord of performing the obligations and covenants on its part specified in the fifth Schedule hereto and providing the several services and amenities specified in the 7th Schedule hereto otherwise (save as aforesaid) in discharge of the covenants on the part of the Landlord hereinafter contained such due proportion to be ascertained by multiplying the total of such aforesaid expenses for the Block of Flats by the gross rateable value of the flat and dividing the resultant figures by the aggregate of the gross rateable values of the flats in the Block of Flats
2(b) To pay on account of such additional and further rent the sum of £1,000 for each year ending on 23 day of June by payment on 24 June in each year free from deduction advance and subject of provisions of clause 4(2) hereof any necessary or subsequent adjustment certified as due from the Tenant by the auditor of the Landlord…
…
22. To pay a fair proportion of all reasonable costs and expenses of the Landlord (including all solicitors’ and surveyors’ costs and fees) incurred in granting any consent or in making any objection on behalf of the residents of a block of flats and such costs and expenses as the Landlord incurs in enforcing the covenants by other Tenants of adjoining flats within the building of the breach of which the Tenant has complained.
23. To pay to the Landlord all costs and charges and expenses (including legal costs and fees payable to the 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 any forfeiture is avoided otherwise than by relief granted by the court.
24. To comply with and observe any regulations in addition to those contained in the Sixth Schedule hereto which the Landlord may reasonably make to govern the use of the flats and the retained premises…
Fifth schedule
[10] The material provisions of the fifth schedule are as follows:
THE FIFTH SCHEDULE herein referred to Covenants on the part of the Landlord
1. Subject to the payment of the maintenance contributions herein before provided to maintain, repair, redecorate…
2. Subject to aforesaid and so far as is practical to keep clean…
3. To do all acts and things as may be required of the Landlord to provide the services referred to in the Seventh Schedule hereto provided always:…
Seventh schedule
[11] The material issues of the seventh schedule referred to were:
THE SEVENTH SCHEDULE herein before referred to Costs, expenses and outgoings and matters in respect of which the Tenant is to make a contribution
1(1) The expenses of maintaining, repairing, decorating and renewing: – …
2(2) The costs of carrying out the matters mentioned in the fifth Schedule……
6. The cost of employment of any managing agents legal or professional advisors or of any company or person for the collection of rent of the flats in the block of flats or in connection with the general management or maintenance thereof or to estimate, carry out or supervise or arrange for the estimation, carrying out, execution or supervision of all or any of the above services or any or all of the Landlord’s rights or obligations hereunder the rival arguments.
Central issues
Construction of the lease
[12] The most contentious issue between the parties is whether, on the true construction of the lease, the defendants are obliged to pay a proper proportion of the litigation charges incurred by the landlord in defending the proceedings brought by the defendants in the LVT and the appeals from that decision. It is common ground between counsel that the approach to the question of construction is conveniently summarised in passages in the interpretation of contracts by Mr Kim Lewison QC (as he then was). In the second edition of that work, in para 1.4, the learned author says:
The intentions of the parties must be ascertained from the language they have used, in the light of the surrounding circumstances and the object of the contract, in so far as that has been agreed or proved.
[13] It is common ground between counsel that the lease was a lease that, inter alia, had to make provisions to provide for the management of a block of flats for which service charges would necessarily have to be paid by the block’s tenants.
[14] Mr Michael Buckpitt, on behalf of the claimant, submitted that a heading to a schedule can similarly be taken into account when seeking to find the intention of the parties. He pointed to the heading of the seventh schedule – “costs, expenses and outgoings and matters in respect of which the Tenant is to make a contribution”. He relied upon the words of para 6 of that schedule set out above. He submitted that, from that heading and that paragraph, it was clear beyond peradventure that the collection of the service charge was a necessary function of this landlord in administering the block. The machinery for managing a block of flats, he submitted, is relevantly standard. The landlord (or its agent) carries out repairs and provides services provided that the tenants pay their proportion of the same: legal advisers may be required where litigation is anticipated or required with regard to collections of rents from tenants. He submitted that it was clearly intended by the parties that the costs of employing legal advisers for the collection of rents includes fees in respect of proceedings. He stressed the plurality of “several services and amenities” specified in the seventh schedule mentioned in clause 2A of the fourth schedule. He accepted that litigation costs might not readily be considered an amenity, but, in the context of the duties of the landlord, he submitted that it was.
[15] In answer, Mr Westgate submitted that the heading in the seventh schedule does not mirror the wording of para 2A and therefore, to the extent that it includes an obligation to contribute to a larger number of things than clause 2A permits, anything extra should not be allowed the obligations in that clause. He submitted further that the costs of litigation against the tenants are not recoverable under the seventh schedule because that cannot properly be described as an amenity. Further, the wording of para 6 was not intended to cover the costs of litigation, at any rate not against a tenant that was party to the litigation. It was intended to cover general advice incurred with the connection of the management. He submitted that where a lease empowers a landlord to recover legal costs, it specifically so provides. He invited me to compare para 23 of clause 4, which deals with costs proceedings under section 147 of the Law of Property Act 1925. He submitted that the costs of litigation were not incurred in discharge of |page:48| any obligations on the part of the landlord whose involvement in the LVT proceedings was optional.
[16] In reply to the first of Mr Westgate’s submissions, Mr Buckpitt submitted that clause 2 of the fourth schedule requires the tenant to pay a true proportion of the expense to the landlord in the performance of obligations and covenants on its part specified in the fifth schedule and the several services and amenities specified in the seventh schedule. He submitted that clause 6 of the seventh schedule means that services/amenities are clearly part of the landlord’s obligations.
[17] To the submission that the seventh schedule does not mirror para 2A of the fourth schedule, he submitted that para 2A of the fourth schedule clearly concerns matters for which a proportion of the expense should be paid by way of service charge. These are the matters set out in the seventh schedule, something made clear by the heading, which, as already submitted, can be used as an aid to construction. As to the submission that taking part in litigation is not amenity, Mr Buckpitt modified his earlier submission. He responded that it is an amenity, in that the management of a building cannot function unless the landlord has a power to collect the rent and service charge in order to meet the costs of repairs, which, on behalf of all the tenants, it is obliged to carry out. Litigation involves employing legal advisers to collect “the rents” from which service charges for their fees can be recovered. Mr Buckpitt submitted that the reliance placed by Mr Westgate upon para 24 of the fourth schedule was beside the point. That clause was a standard one to cover a tenant’s obligation to repair. To suggest that it is optional for a landlord to be involved in LVT proceedings was not realistic. It is clear that if a tenant has not paid what is claimed as being due in respect of service charges, the machinery provided by the LVT is the only route that will enable a landlord to recover charges if, as happened here, a tenant makes an application to it. As happened here.
[18] Attractive as Mr Westgate’s submission was, in my judgment, those of Mr Buckpitt are to be preferred. In my judgment, on the true construction of the lease, it is proper for the claimant to seek the recoveries challenged. I can see no reason why the headnote to the schedules cannot be used as an aid to construction. In construing the lease, I can see no reason why the tenant should be spared from paying the proportion of the service charge attributed to it and paid by all the other tenants in the block.
Effect of Schedule 12 of the 2002 Act
[19] The second substantial argument presented by Mr Westgate on behalf of the defendants was that the claimant was not entitled to recover from its clients the costs that it had incurred for the hearing in the LVT by virtue of the last paragraph of Schedule 12 to the 2002 Act.
[20] To better follow Mr Westgate’s admission it will be convenient to set out the heading of that Schedule and para 12. The Schedule is thus headed:
SCHEDULE 12
LEASEHOLD VALUATION TRIBUNALS: PROCEDURE (Section 174)
Under the heading “Costs” paragraph 10 of Schedule 12 reads:
10 (1) A leasehold valuation tribunal may determine that a party to proceedings shall pay the costs incurred by another party in connection with the proceedings in any circumstances falling within sub-paragraph (2).
(2) The circumstances are where –
(a) he has made an application to the leasehold valuation tribunal which is dismissed in accordance with regulations made by paragraph 7, or
(b) he has, in the opinion of the leasehold valuation tribunal, acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably in connection with the proceedings.
(3) The amount which a party to proceedings may be ordered to pay in the proceedings by determination under this paragraph shall not exceed –
(a) £500, or
(b) Such other amount as may be specified in procedure regulations.
(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.
(Emphasis added.)
[21] In the context of the order made by the LVT, and with special reference to subpara (4), Mr Westgate submitted that it was clear that the claimant in this action could not recover anything in respect of the costs of the proceedings before the LVT from the defendants. He referred to paras 11 to 13 of the written “Decision on an application for Leave to Appeal by the Applicants”, dated 27 April 2004, of the LVT. In para 11, the tribunal commenced to consider whether a section 20C order should be made. Section 20C was introduced into the 1985 Act with effect from 1 September 1997 by the Housing Act 1996. Paragraphs 11 to 13 of the decision read as follows:
11 Section 20C Order – Since the actual increase in legal and professional fees may be expected to feature in the final certified account for 2003-2004, it will be appropriate at this point to deal with the application made by the Applicants (and supported by the Joined Parties) under s20C of the 1985 Act for an order that the costs incurred by the Respondent in connection with the proceedings should not, in effect, be included in any future service charges account. The Tribunal considered the application – in the light of the guidance given in Langford Tenants v Doren Ltd 2001, at para 23, (LRX/37/2000). There HH Judge Rich QC first emphasised that the only applicable principle was what was just and equitable in the circumstances, ie in accordance with s20C(3). Nevertheless, he proceeded to be more specific by also pointing out that excessive costs unreasonably incurred would not be recoverable anyway by a landlord (because of s19(1)(a) of the 1985 Act), so that the s20C power should be used only to avoid the unjust payment of otherwise recoverable costs (para 31). After this, he indicated an even more restrictive approach (para 32):
Oppressive and, even more, unreasonable behaviour however is not found solely amongst landlords. Section 20C is a power to deprive a landlord of a property right. If the landlord has abused its rights or used them oppressively that is a salutary power, which may be used with justice and equity; but those entrusted with the discretion given by s20C should be cautious to ensure that it is not itself turned into an instrument of oppression.
It is not open to the Tribunal now to consider whether the legal and professional costs incurred by the Respondent in these proceedings were excessive and, therefore, not payable by the Tenants, since that, as Judge Rich indicated, should be the subject of a later s27A application. What has to be considered in accordance with the above quoted guidance is whether the Respondent has abused its rights or used them oppressively, particularly in connection with the present proceedings or their initiation. In the circumstances of this case, including the Tribunal’s determinations overall on the elements challenged, the Tribunal was unable to find that the Respondent had so acted. These proceedings were initiated by the Applicants. Plainly they attribute the need for their Applications to unreasonable conduct on the part of the Respondent and/or its Managing Agents. Whilst it is true that certain correspondence from the Agents might be thought to display unprofessional irritation and impatience dealing with Tenants’ concerns, it is also true that correspondence on behalf of Tenants might be thought written in a style of quasi-legalistic inquisition understandably occasioning irritation and impatience. The result was that no sufficiently serious efforts were made on either side to resolve the issues causing disputes before the proceedings commenced. In any event, the Respondent must have been expected to incur legal and professional costs in responding to the Applications. It follows that the Tribunal determines that there is no basis on which it could properly be considered just and equitable to make the s20C order sought. Accordingly, the application is refused.
12 Nevertheless, another aspect should be mentioned. If or when the Respondent’s costs of these proceedings are included in a service charges account, whether or not they are then payable will not only depend upon whether they were reasonably incurred (which includes reasonable in amount: see Veena SA v Cheong [2003] 1 EGLR 175 at para.103). It will also depend upon the proper construction of para 10(4) of Schedule 12 to the Commonhold and Leasehold Reform Act 2002 which provides [set out in para 20 above]:
“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.”
This provision is not restricted to parties to the proceedings and, construed literally, would mean that, “vexatious” costs orders apart, LVT costs can no longer be recovered by landlords from tenants by means of service charges or otherwise. Against this construction, it may be argued that Parliament could not have intended such a significant extinguishment of contractual rights and that |page:49| the provision was only intended to clarify the limited power of the Tribunal to make costs orders. Mr Gallagher submitted arguments to this latter effect to the Tribunal, which were not accepted as compelling. However, the Tribunal does not have to determine the issue of whether the costs actually incurred by the Respondent in connection with these proceedings are payable by the Tenants and, therefore, no such determination is made.
13 Reimbursement of Fees – It is also appropriate to deal with a connected application at this point. By virtue of para 9(1) of the LVT (Fees)(England) Regulations 2003, the Tribunal “may require any party to the proceedings to reimburse any other party to the proceedings for the whole or part of any fees paid by him in respect of the proceedings”. The Applicants, in their subsequent Application, coupled an application for reimbursement of fees by the Respondent with their application for an order under s20C. The provision contains no indication of the criteria to be regarded by the Tribunal and there is no longer any requirement that notice must be given that such an application will be considered. However, essentially for the reasons outlined in refusing the s20C application, the Tribunal can see no basis for finding it just and equitable to require the Respondent to reimburse the Applicants’ fees and, therefore, also refuses this application.
[22] It will be noted that, within para 12, the very experienced chairman and his colleagues anticipated that the landlord might seek to recover costs of the LVT proceedings from the tenants of the block. As will be seen in the section set out on the determination, that tribunal, with its distinguished chairman, did not accept as telling the principal point made by Mr Buckpitt, namely that parliament could not have intended such a significant extinguishment of contractual rights in a schedule such as this.
[23] Mr Westgate referred me to the report of the debate in the House of Lords on this Schedule (then Schedule 11). It shows that, in col CWH 284, Lord Kingsland proposed an amendment to modify para 10 of what was then Schedule 11. In the last paragraph in that column and at the beginning of the next one, Lord McIntosh of Haringey said:
These amendments take me back to my days as a borough councillor in the 1960s. They were the great days of Rachmanism. I hope that we do not follow this route because it would take us back, not to the 1960’s but to some of the problems we experience under the existing legislation.
Having dealt with the maximum amount of costs that an LVT could award, Lord McIntosh continued:
when service charge disputes were still a matter for the county courts, Landlords would intimidate leaseholders with the threat of large bills for costs since they could afford the best legal advice. Leaseholders were concerned about their ability to win their case even when they felt that they were clearly justified, and they often decided not to take their case to court. That is why we provided a cap. If we did not, they fear that even an innocent mistake in interpreting directions or a failure to meet a deadline could lead to a very large bill for costs. Those fears would be exaggerated if they were not familiar with the LVT proceedings. Unscrupulous Landlords could encourage those fears and use them to discourage leaseholders from exercising their rights.
When it comes to the suggestion of considering the financial resources of the offending party we do not consider it right to fetter the discretion of the tribunals in this way. We would not want tribunals to feel inhibited from punishing unreasonable behaviour merely because that would cause a little hardship.
The next column of Hansard shows that Lord Kingsland withdrew his opposition.
[24] Mr Westgate relied upon these passages in Hansard as showing that the intention of parliament was that the words in para 10 meant what they quite apparently said, namely that this court had no power to make the order sought by the claimant in so far as it sought, albeit by a side route, to recover from the defendants a portion of the legal costs incurred in the LVT proceedings.
[25] In answer to Mr Westgate’s submission, Mr Buckpitt pointed to the observations of two other chairmen of tribunals, who had construed para 10(4) of Schedule 12 as being less far-reaching than Professor Farrand had indicated. He provided me with an extract from the determination of the tribunal in Ionic Properties v Lessees of Melcombe Regis Court LON/OOBK/NSI/2003/0109/01, LON/OOBK/LSL/2003/0015*, where sittings took place on 5, 6 and 7 April 2004. The tribunal considered the submission that the effect of para 10(4) was to override any entitlement that the landlord might have to recover the costs of proceedings other than to the extent permitted by the remainder of para 10. The decision continued:
51 The problem with this interpretation of para 10(4) is that it would deprive s20C of any meaning or effect. S20C gives the Tribunal a discretion to limit a Landlord’s contractual entitlement to costs of proceedings but this Interpretation of para 10(4) means that there cannot now be any such contractual entitlement and so s210C can never be brought into play. This is not, as Ms Stacey suggested, an implied repeal but it is a contradiction which it seems unlikely Parliament would have intended.
52 Mr Maunder Taylor quite rightly pointed out that the Tribunal must firstly have regard to the wording of para 10(4) and should only resort to Parliamentary intention if that wording is somehow unclear. However, the existence of the apparent contradiction must cause the Tribunal to look carefully to see if the wording is so clear as to lead to that result and no other.
53 Two leasehold valuation tribunals, both chaired by Prof JT Farrand, have considered the applicability of para 10(4) (see Stoker LON/OOAE/LSI/2003/0025 and Churston Mansions LON/OOAG/NSP/ 2003/0029). In Stoker the tribunal decided that para 10(4) meant that the only costs recoverable were. under the remainder of para 10 but did not provide any supporting reasoning. In Churston Mansions the tribunal had already decided that no order should be made under s20C and declined to make a determination in respect of para 10(4): Therefore, there is no authoritative decision on this issue is this Tribunal must consider it afresh.
54 At first glance, the wording of para 10(4) does appear to have the result argued for on behalf of the lessees. However, it must be read in the context of the whole of para 10 which is concerned with the powers of the Tribunal. The word “required” in para 10(4) means “required by the leasehold valuation tribunal”. Costs paid as permitted under a clause in a lease are not required by the Tribunal but by the lessor using their power under the lease. Therefore, para 10(4) has no effect on costs payable in this way.
55 Further, as Ms Stacey submitted, on closer inspection an alternative interpretation appears which accords with all the wording of para 10(4) and leaves s20C intact. Para 10(4) states that a person may be required to pay costs incurred in connection with LVT proceedings “in accordance with provision made by any enactment other than” para 10(4). The question is what “in accordance with” means in this context. The lessees in this case will be paying 30% of their Landlord’s costs of these proceedings “in accordance with” their leases in the sense of “as required by”. However, “in accordance with” may also mean “in compliance with” or “as permitted by”. The requirement under the lease to pay the costs of these proceedings is only binding to the extent that it complies with or is permitted by the Tribunal’s exercise of its jurisdiction under s20C. The Tribunal thereby holds that payment under the lease is made “in accordance with” s20C. It is not necessary in this case to decide if this principle holds whether or not an order is actually made or even applied for but it is the Tribunal’s opinion that it does. Therefore, the wording of para 10(4) preserves the effect of s20C and the order made by the Tribunal in para 48 above stands.
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* Editor’s note: Unreported 28 May 2004
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[26] A very few days after that tribunal had been sitting, another LVT heard, on 13 and 14 April and 13 May 2004, the case of Sutton London Borough Council v Leaseholders of the Benhill Estate LON/OOBF/LSC/2003/0011*. In its decision, the LVT gave leave to the parties to make written submissions on section 20C after they had considered this decision. They held:
71. In any event we hold that paragraph 10(4)… does not have the effect suggested by Mr Wheeler, but that it must be read as saying that A person shall not be required by a leasehold valuation tribunal to pay costs incurred by any other person in connection with the proceedings before a leasehold valuation tribunal… it cannot be taken to mean that these provisions permitting the cost of proceedings such as these to be placed on a service charge had been nullified by the provisions of paragraph 10(4).
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* Editor’s note: Unreported 17 July 2004
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[27] Mr Buckpitt also referred me to a decision of Judge Rich QC sitting in the Lands Tribunal in Tenants of Langford Court (El Sherbani) |page:50| v Doren Ltd LRX37/2000*. There, the learned judge was considering the provisions of section 31A-C of the 1985 Act, the section of the Act that was replaced by the new Schedule. Paragraph 21 of the judgment reads:
Although it is necessary to consider what may be. just and equitable in all the circumstances, I do not think that s20C can be construed as establishing a general rule, or even the presumption, that a Landlord should be unable to recover costs incurred in proceeds before the LVT by way of service charge, or even that he should be able to do so only if the Tenant had acted unreasonably. If that had been Parliament’s intention when it allocated this jurisdiction to the LVT it would have so provided in the s31A of the 1985 Act and not merely amended s20C, which has been added to the 1985 Act by the Landlord and Tenant Act 1987.
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* Editor’s note: Unreported 13 February 2001
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[28] The succeeding paragraphs of his judgment include a reference to Iperion Investments Corporation v Broadwalk House Residents Ltd [1995] 2 EGLR 47. There, as here, an issue arose as to whether the litigation costs of the defendant were to be regarded as falling within the service charge payable by a tenant, and there was consideration of the provisions of section 20C as it then stood. On the first issue, at p49A, Peter Gibson J said:
All costs properly incurred in the proper and reasonable management of the property were included and they will include costs of unsuccessful proceedings properly involved in managing the property.
Later in his judgment, by reference to Holding & Management Ltd v Property & Investment Trust pIc [1989] 1 WLR 1313*, Nicholls LJ said, at p49H:
To my mind, it is unattractive that a tenant who has been substantially successful in litigation against his landlord and who has been told by the court that not merely need he pay no part of the landlord’s costs, but that has an award of costs in his favour should find himself having to pay any part of the landlord’s costs through a service charge. In general, in my judgment, the landlord should not “get through the back door what has been refused by the front”.
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* Editor’s note: Also reported at [1990] 1 EGLR 65
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[29] Mr Buckpitt pointed out that there was no suggestion in Judge Rich’s judgment that section 31A(4) was a blanket bar on costs and/or that a 20C order was not required, since such costs, if not paid, were not recoverable through the courts.
[30] Mr Buckpitt also referred me to section 83 of the Housing Act 1996. In subsection (3) of that section, section 31A was introduced into the Landlord and Tenant (Covenants) Act 1985. He pointed to the new section 20C. He pointed to subsection (4) of section 83, which introduced a replacement to the then section 20C of the 1985 Act. This, he submitted, recognised that although LVT costs could not then be ordered, they could be recovered through the service charge provisions. He pointed to an oddity if Mr Westgate’s submission were correct.
[31] By section 20C, a tenant (alone) can seek an order from the LVT to prevent a landlord from recovering any costs. Such an application was made here and refused. However, if the submissions of Mr Westgate were correct and the LVT had ordered that only 50% of the LVT costs could be put through the service charge, arguably this is a requirement to pay in accordance with section 20C. If, however, a claimant landlord succeeded entirely and a section 20C application were dismissed (with no other order being made), could it sensibly be said that the dismissal constituted a requirement to pay under an enactment? He submitted that Schedule 12 was intended to draw together and codify the extent of the jurisdiction of the LVT (and the court’s power to transfer to the LVT) previously found in various acts, in particular the 1985 Act and the Leasehold Reform, Housing and Urban Development Act 1993. He submitted that it cannot possibly have been intended that there should be such a significant departure from the previous position.
[32] He also referred me to a part of Staughton LJ’s judgment in Iperion Investments, where, agreeing with the judgment of Peter Gibson LJ, he said, at p49M:
in other words I consider that the defendant’s costs and the costs which it has to pay the plaintiff, are in general expenditure which can be taken into account in calculating the service charge. But they are to be left out of account when calculating the 7.4% share payable by the plaintiff. We were not asked to make any similar order under section 20C of the Landlord and Tenant Act 1985 in relation to the other tenants and do not do so. Indeed it would be a disaster for the defendant, a company owned by residents of Broadwalk, if such an order were made; the company would presumably be insolvent unless it could raise further capital.
[33] The present claimant is not, as was the position in the last-cited case, a company owned by residents of the block. However, it 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 tenants of the block. Other such tenants have been charged, and have paid their appropriate percentage charge of the litigation based upon the landlord’s bill of costs, as part of their service charge.
Although I would have preferred to have learnt that the amount charged had been the subject of scrutiny, in my judgment, having regard to the terms of the lease, the sums were properly so charged. If this is correct, 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.
[34] Although I see the force of Mr Westgate’s submissions, in my judgment, neither the extract from Hansard nor the words in subpara 4 of clause 10 of Schedule 12 have the effect contended for by Mr Westgate on behalf of the defendants. Preferring the submissions of Mr Buckpitt, both on that issue and on the issue on the true construction of the lease to those of Mr Westgate, the claimant, in my judgment, is entitled to the relief sought in the claim, and the counterclaim of the defendants fails.
[35] I should like to thank both counsel for their assistance to me, both in their oral and their written submissions.
Judgment given to the claimant.
