Lease extension – Costs – Section 60 of Leasehold Reform, Housing and Urban Development Act 1993 – Leasehold valuation tribunal determining liability of lessees to pay reasonable costs of appellant landlord incurred in connection with claim for new lease – LVT reducing amount recoverable as hourly rate for solicitor’s work on ground that appellant using in-house solicitor whose expenses accordingly less than independent practitioner – Whether that approach wrong in law – Appeal allowed
In August 2011, the lessees of a flat served notice on the appellant landlord, under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993, notifying her of their claim to acquire a new lease of the flat under the leasehold enfranchisement provisions of Part I of that Act. The appellant served a counternotice but did not dispute the lessees’ entitlement to a new lease. The parties reached agreement on the terms of the new lease and the premium to be paid for it; the only matter that remained outstanding was the amount that the lessees were liable to pay to the appellant under section 60 in respect of her reasonable costs incurred in connection with the claim. That matter was referred for determination by the leasehold valuation tribunal (LVT).
The appellant claimed £1,760 for work carried out by her solicitor, an “in-house” solicitor who was employed by a company owned by members of the appellant’s family. That figure comprised seven hours’ work at an hourly rate of £250 plus a nominal fee of £10 for disbursements. The lessees argued that the solicitor’s costs were excessive.
The LVT held that the appellant was in principle entitled to recover the costs of using an “in-house” solicitor and noted that the costs to the lessees might have been considerably more had she instead chosen to use a specialist firm of solicitors.
However, it found that the solicitor’s charges were high for an in-house solicitor, who did not have the costs and expenses of running a private practice such as office rent, staff salaries and professional indemnity cover, and concluded that the reasonable hourly rate for such a solicitor was £200. It also found that the work should reasonably have taken only five hours. It accordingly determined that the lessees should pay only £1,000 towards the appellant’s costs. The appellant appealed against the LVT’s reduction to the recoverable hourly rate; the lessees did not respond to the appeal.
Held: The appeal was allowed.
The costs incurred by an in-house solicitor should be assessed in the same way as the bill of a solicitor in independent practice: Henderson v Merthyr Tydfil Urban District Council [1900] 1 QB 434, Re Eastwood (deceased) [1975] Ch 112, Cole v British Telecommunications plc [2000] 2 Costs LR 310 and Re OM Property Management Ltd’s appeal [2012] UKUT 102 (LC) applied. The LVT had erred in identifying particular costs and expenses of running a private practice, which an in-house solicitor would not have to meet, and reasoning that the charging rates of the appellant’s solicitor should therefore be lower than those of a solicitor of equivalent experience and seniority in independent practice. Although the particular costs mentioned by the LV were not met personally by the solicitor, they were not avoided altogether. The expense of office accommodation and administrative support for an employed or in-house solicitor was met by the solicitor’s employer. While the expense of insurance might be avoided, the risk that it was designed to guard against was carried by the employer and there was no reason, in principle, why the reasonable cost to the employer of a solicitor undertaking work on an uninsured basis should not include an element to reflect that risk. Further, it was inappropriate for the LVT to embark on an analysis of specific costs that the solicitor would not have to meet, and which therefore ought not to be reflected in his charging rate. It was impractical, and contrary to well-established principle, to require a landlord to justify the costs claimed for legal work undertaken by an employed solicitor by apportioning the overheads of its business to a particular transaction. The product or object of the solicitor’s engagement was the investigation of the tenants’ claim and the grant of the new lease. Although that matter involved an element of technical skill and a knowledge of the relevant law, the grant of the lease in the instant case was a piece of work of no special complexity and no additional value would have been obtained by the involvement of a particularly skilled or experienced practitioner. Whether carried out by a specialist solicitor in an independent firm or an in-house generalist, that relatively straightforward work had comparable value to the appellant, which ought, in either case, to be reflected in the reasonable costs for which the lessees were liable under section 60 of the 1993 Act. Having acknowledged that the costs payable by the lessees might have been considerably greater if the appellant had chosen to use a specialist firm of solicitors in the matter, the LVT had not then explained why the reasonable costs payable by the lessees in respect of the same work should be less when it was carried out by the in-house solicitor.
On the evidence before the LVT, the hourly rate claimed for the solicitor’s work was within the relevant guideline rates issued by the Senior Courts Costs Office in its Guide to the Summary Assessment of Costs. The LVT had erred in applying a different hourly rate to the work carried out for the appellant purely on the grounds that she had used an in-house solicitor. It should have asked whether a total charge of £1,750 was a reasonable charge for the work undertaken, irrespective of the terms on which the solicitor carrying out the work was engaged. Its decision was wrong in law and would be set aside accordingly. Since there was no appeal against the LVT’s decision to limit the limit number of hours reasonably charged to five, the claimed rate should be applied to that work to produce an overall costs figure of £1,250.
The appeal was determined on written representations.
Sally Dobson, barrister
