Leases — Residential property — Legal costs — Lease entitling landlord to obtain legal costs incurred in obtaining payment of maintenance contributions from tenants — Dispute concerning long-term management of building and service charge accounts — Plaintiff tenants obtaining consent order in proceedings — Landlord agreeing to pay plaintiffs’ costs — Landlord obtaining service charges as by-product of proceedings — Landlord seeking reimbursement of costs as part of service charges — Whether tenants liable to contribute to costs under their leases — Whether costs “reasonably incurred” — Judgment for the plaintiffs
The plaintiffs were 42 of the 50 tenants of various suites in a building known as The Grand, The Leas, Folkestone, Kent, who held under a lease of 99 years from September 1975. The tenants had covenanted to contribute to pay service charges, in advance, twice yearly to the defendant landlord to cover matters such as lighting, decoration, maintenance of the common parts etc. Under para 5(b) of the second schedule, the tenants also covenanted “to pay all legal and other costs that may be incurred by the landlord in obtaining the maintenance contributions from any tenant in the building”.
The plaintiffs alleged breaches on the part of the landlord and, in 1985, commenced proceedings for, inter alia, the appointment of independent management agents the setting up of an independent account, and a declaration that the service charge moneys were held on trust. There was no claim by the defendant of any service charge which there could have been by way of counterclaim. The matter was settled by an agreement in principle and formally concluded in the form of a consent order. The plaintiffs undertook to agree the service charge accounts for the five years up to September 1985 as drawn up on behalf of the landlord. The landlord agreed to pay to the plaintiffs’ costs of the account and, in the event, the plaintiffs’ taxed costs due from the landlord under the order amounted to £88,585.91. That sum was paid by the landlord to the plaintiffs’ solicitors. The landlord commenced proceedings under which he claimed from 12 of the tenants a sum in respect of the balancing charge for the service charge to September 1985 and the upshot of the settlement of original action was that each of the tenants owed to the landlord the sum of a few hundred pounds in each case.
In the present proceedings, the landlord sought to recover through the medium of the service charge the costs he had paid in the proceedings. Those amounted to £130,000 of which £88,585,91 were the costs paid to the plaintiffs’ solicitors by the landlord, the balance representing the landlord’s costs. The plaintiffs sought an order that none of the costs were incurred by the landlord in obtaining maintenance contributions within the meaning of para 5(b) of the second schedule.
Held Judgment for the tenants.
1. While it is was true that settlement of the proceedings had the result of enabling the landlord to obtain some service charge payments which were being withheld by various tenants, it was really a by-product of those proceedings. The costs had been incurred by the landlord in resisting the various heads of relief which the tenants had sought.
2. In any dispute which came to court between landlord and tenants, the court had the power to award costs in the normal way. Where a landlord was involved in proceedings under the lease which involved incurring costs which did not fall within para 5(b), the court would award costs if his position was right in law. Thus the effect of reading para 5(b) restrictively did not result in any great unfairness to the landlord.
3. Moreover, the consent order had involved the landlord’s agreement to pay the plaintiffs’ costs. In Holding & Management Ltd v Property Holding & Investment Trust plc [1989] 1 WLR 1313, the plaintiff landlord sought reimbursement for costs by virtue of a provision in the leases after there had been no order for costs. The Court of Appeal stated that it was “indeed a case of seeking through the back door what has been refused at the front”. In the present case the order for costs was not merely contained in a court order but was also by way of contract, as evidenced by the consent order.
4. Inherent in that contract was not merely the agreement that the landlord would pay the costs of the plaintiffs but that he would bear his own costs. That contract was made in the full knowledge of the parties’ rights and obligations under their respective leases.
5. Further, it must be implied into para 5(b) that the “legal and other costs” referred to therein had to be reasonably and properly incurred before they could be the subject-matter of a claim under the service charge provisions. Where in a consent order the landlord agreed to pay the plaintiffs’ costs, there was a presumption that the sums which the landlord was seeking were not reasonably and properly incurred. Therefore the onus was firmly on him to establish that those costs — or some of them — had been properly incurred.
6. Para 5(b) was not intended to apply to a case where the majority of tenants sought to obtain relief of a general and long-term nature concerning the future management of a building and a settlement of a dispute as to service charge accounts. It was not a case of proceedings brought to enable a landlord to recover service charges from tenants who had failed to pay. It was an action brought by the majority of the tenants to sort things out with regard to the future management of the building and to verify past accounts.
Erica Foggin (instructed by Dibb Lupton & Broomhead) appeared for the plaintiff tenants; Donald Cryan (instructed by Frederic Hall) appeared for the defendant landlord.
