Service charges: recovering legal costs

A management company that had an interest in enforcing the payment of insurance costs under a lease and incurred legal costs in actively opposing proceedings to determine the reasonableness of the same, could not object to orders being made prohibiting it from recouping those legal costs through the service charge or as an administration charge. A lease may provide that legal costs are recoverable as a service charge or from a leaseholder as an administration charge. Under section 20C of the Landlord and Tenant Act 1985 and paragraph 5A of schedule 11 to the Commonhold and Leasehold Reform Act 2002 a court or tribunal can make orders limiting the landlord’s ability to recoup those legal costs (the orders). In Brunswick Management Company Ltd v Triplerose Ltd [2023] UKUT 31 (LC), the respondent was the long lessee of two flats situated in Brunswick Mansions, London WC1. Under the terms of the leases, the freeholder was responsible for arranging insurance, but the appellant management company was liable to reimburse the freeholder for the insurance costs. It could recoup the cost of the same from the lessee, either through the service charge or under clause 31(1)(b) of the lease. The lessee made two applications to the First-tier Tribunal for a determination of the reasonableness and payability of service charges. As against the management company, the lessee challenged the management fees, professional fees and the charges for an entry system. As against the freeholder, the lessee challenged the insurance costs. The applications were consolidated. The freeholder played no part in the proceedings, but the management company actively opposed the lessee’s application in relation to insurance costs. The FTT found the costs of the entry system were reasonably incurred and a small reduction was made to the management charges. The insurance costs, however, were considerably reduced. The professional fees were settled. The FTT made orders against both the freeholder and the management company. Those orders were appealed by the management company. In dismissing the appeal, the Upper Tribunal (Lands Chamber) found that the management company had incurred the majority of its legal costs in opposing the lessee’s application in respect of the insurance costs. It had an interest in recovering those costs and it would be unfair if it escaped the making of the orders on a technicality – namely, that it was not responsible under the lease for insuring the building. Elizabeth Dwomoh is a barrister at Lamb Chambers