The Upper Tribunal (Lands Chamber) has stated that Shearbarn Holiday Park Ltd v Wornell and others [2021] UKUT 99 (LC); [2021] PLSCS 82 “should serve as a moral story to leaseholders, and their advisers, always to bear in mind the potential need for, and the utility of, applying for relief under section 20C of the Landlord and Tenant Act 1985”.
The landlord was the owner of a holiday park situated in Essex. Each chalet lease contained a restrictive covenant limiting the number of days the chalets could be rented out as holiday lets. Pursuant to section 84 of the Law of Property Act 1925, most, but not all, of the lessees applied to discharge the restriction. The landlord opposed the application and incurred legal costs in the sum of £35,519.50. The parties reached a settlement before the trial of the substantive matter. As part of the compromise agreement a “no order as to costs” order was made.
Unbeknown to the leaseholders, during the intervening period between agreeing the terms of the draft compromise agreement and the order being perfected, the landlord had included its legal costs as an item of service charge. Unfortunately, during the course of the section 84 application, none of the leaseholders had applied for cost protection under section 20C of the 1985 Act. If successful, it would have prevented the landlord from recovering its legal costs through the service charge. When the landlord’s action was discovered, three lessees, Stephen Wornell, Glynnis Wornell and Shirley Mans, challenged the recoverability of the legal costs. They argued that the landlord’s contractual entitlement to recover its legal costs pursuant to the leases was negated by the provision in the order that there be “no order as to costs”. The First-tier Tribunal agreed.
On appeal, the landlord argued that the FTT had erred in finding that it had negated its contractual entitlement to recovery. No express representations or agreement had been made to the effect that it would not seek to recover its legal costs through the service charge.
The UT determined that the answer to the question at the heart of the appeal was case-sensitive. In each case it was necessary to construe the order in question to determine its true scope and effect. Having regard to the ordinary contractual principles and the admissible relevant factual background, the agreement that there be no order as to the costs of the section 84 application did operate to preclude the landlord from recovering its legal costs through the service charge provisions of the individual chalet leases. Relying on Holding & Management Ltd v Property Holding & Investment Trust Plc [1989] 1 WLR 1313, the UT found that to hold otherwise would be permitting the landlord to “… get through the back door what has been refused at the front”.
The hypothetical reasonable person, with all the relevant background knowledge that would have been available to the parties would have understood the parties to be contracting on the basis that each would bear their own legal costs of the section 84 application. Further, that the landlord would not seek to recover the same through the service charge. The absence of a section 20C application by the leaseholders, if anything, should have alerted the landlord to the fact that the lessees to the section 84 application did not contemplate that the landlord would seek to recover its legal costs, which it had agreed to forego, through the back door of the service provisions of each chalet lease.
The moral of the story? If the leaseholders had applied for relief under section 20C of the 1985 Act during the section 84 application then the present proceedings may have been avoided.
Elizabeth Dwomoh is a barrister at Lamb Chambers
