Landlord and tenant – Service charge – Costs – Landlord and Tenant Act 1985 – Respondent landlord incurring legal costs in connection with threatened county court proceedings by appellant leaseholder – Whether such costs recoverable through service charge under terms of lease – Whether appellant entitled to seek order under section 20C of 1985 Act that those costs not be taken into account in determining service charge payable – Whether costs reasonable in amount – Appeal allowed in part
The appellant was the long leaseholder of one of 30 apartments in a converted Grade II listed country house; the estate also included houses which had been built in the grounds. The respondent was a party to the lease as the manager of the estate. Leaseholders were members of the respondent and funded its activities through the payment of a service charge under the terms of the leases. The respondent had no other source of income.
There was a long-running between the parties over the service charges, with certain items being the subject of an application for a determination by the first-tier tribunal (FTT) under section 27A of the Landlord and Tenant Act 1985. The appellant was dissatisfied with the FTT’s ruling and appealed to the Upper Tribunal.
One of the issues was whether the respondent was entitled to recover legal costs which it had incurred in connection with threatened county court proceedings in which the appellant had sought to recover £11,664 in respect of the fees of a surveyor whom he had instructed to review the service charge. The parties’ solicitors had exchanged correspondence but, in the end, no such proceedings had been brought. However, the respondent had incurred £11,100, plus VAT, in solicitors’ and counsel’s fees in connection with the dispute.
The respondent contended that it was entitled to recover those costs under a clause in the lease allowing recovery of “All other expenses (if any) incurred by the Manager in and about the maintenance and proper and convenient management and running of the development including in particular but without prejudice to the generality of the foregoing… any legal or other costs reasonably and properly incurred by the Manager and otherwise not recovered in taking or defending proceedings (including any arbitration) arising out of any lease of any part of the Development”. The appellant argued that, since the county court proceedings were merely threatened, the respondents’ legal costs did not fall within that provision.
The appellant also contended that the sum claimed was unreasonable and, further, that the respondents’ costs should be the subject of an order, under section 20C of the 1985 Act, that they should not be taken into account in determining the service charge which he was to pay.
Held: The appeal was allowed in part.
(1) The FTT had failed to address the question of whether the respondent’s legal costs of £11,100 were recoverable through the service charge. It seemed to have confused that issue with the separate issue of whether the appellant could recover the surveyor’s fees from the respondent, which, as it had found, was a matter for the county court and not within its jurisdiction.
The respondent’s legal costs fell within the generality of the service charge clause. The first part of the clause, referring to “All other expenses (if any) incurred by the Manager in and about the maintenance and proper and convenient management and running of the development”, was wide enough to cover the costs of intended proceedings. It was therefore not necessary for the respondent to rely on the reference later in that clause to “taking or defending proceedings”.
It was plainly contemplated that the reasonable costs of managing the development should be recoverable under the service charge. Subject to the question of reasonableness, the costs of defending threatened proceedings fell squarely within such a definition. There was no reason why the parties should have intended that the costs would only be recoverable under the service charge if proceedings were actually commenced.
(2) Section 20C had not application to the legal costs incurred by the respondent. An application under section 20C had to relate to costs incurred by the landlord in connection with proceedings before a court, tribunal or arbitral tribunal: see section 20C(1). In the instant case, there were no proceedings in respect of the surveyor’s fees. The threatened proceedings had not materialised and thus the jurisdiction under section 20C did not arise. The appellant could not avoid that result by relying on the alleged overlap between the threatened county court proceedings and the proceedings before the FTT. The costs incurred by the respondent were not incurred in relation to the FTT proceedings but were instead, incurred in connection with a claim primarily for the surveyor’s fee, which was a matter for the county court.
(3) That did not prevent the appellant from challenging the reasonableness of the respondents’ legal costs. Since that matter had not been determined, it would be remitted to the FTT to determine the extent to which the sums were reasonable within the meaning of section 19 the 1985 Act.
Simon Allison (instructed by Nelsons Solicitors Ltd, of Leicester) appeared for the appellant; Oliver Phillips (instructed by Brady Solicitors) appeared for the respondent.
Sally Dobson, barrister
Click here to read transcript: Bretby Hall Management Co Ltd v Pra
