Leasehold enfranchisement – Leasehold Reform, Housing and Urban Development Act 1993 – New lease – Claims by respondents to acquire new leases of seven flats in same development – Reasonable costs payable to appellant freeholder pursuant to section 60 of 1993 Act – Whether first-tier tribunal erring by making its own assessment of appropriate rate for in-house solicitor – Whether costs of in-house solicitor to be assessed by reference to charging rates of solicitor in private practice – Appeal allowed
The respondents were the long leaseholders of flats in a purpose-built development of which the appellant was the freeholder. In 2014, the respondents served notices of claim on the appellant under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993, seeking to acquire new leases of their flats pursuant to Chapter II of Part I of that Act. By a counternotice, the appellant admitted the respondents’ entitlement to new leases but disagreed with their proposals as to the premium to be paid for those leases.
The parties subsequently agreed on a premium of £7,950 per flat but were unable to agree the reasonable legal and valuation fees payable to the appellant pursuant to section 60 of the 1993 Act in respect of its costs of the claim. All the legal work done for the appellant in that regard had been carried out by a solicitor employed by another company in the same group as the appellant itself. The appellant sought to recover a total of £6,615, comprising legal fees of £945 per flat, made up of four hours and six minutes per claim at an hourly rate of £275, but with a reduction to reflect the fact the solicitor was dealing with many claims on the same development. The hourly rate was based on the fees for a Grade A solicitor.
The first-tier tribunal (FTT) determined that the appellant was entitled to total costs of only £1,105. In reaching that conclusion, it decided, contrary to the approach in Re Eastwood (dcd) [1975] Ch 112, that it was not appropriate to award costs by reference to the charging rates of solicitors in private practice. It instead awarded costs based on its own assessment of an appropriate “in-house” rate, which it considered to be £150, and it further found that the work on all the claims could have been completed in five-and-a-half hours. The appellant appealed.
Held: The appeal was allowed.
(1) The FTT had considered that, in order to apply the principle that charging rates for solicitors in private practice and in-house were to be assessed on the same basis, it was necessary to undertake the same sort of analysis of the appellant’s overheads as the Senior Courts Costs Office had undertaken in relation to thousands of solicitors’ firms when it produced the guideline rates. However, that kind of inquiry was inappropriate. It was in order to avoid a detailed investigation of the overheads of a business, only a small part of which was involved in conducting legal work, that the court in Eastwood had adopted the sensible and reasonable presumption that costs assessed by reference to the charges of solicitors in private practice would not be more than an indemnity to the party making use of its own in-house legal department.
The appellant had not complied with the FTT’s direction to provide details of its overheads, but the FTT had nevertheless considered that the indicative or guideline rates for solicitors in private practice were not applicable to salaried solicitors undertaking legal work in-house on behalf of their employer. The reasons that it gave, namely that the overheads of an in-house solicitor were not comparable to those a private practitioner, did not justify adopting such a wholly different approach. While the overhead structure of a commercial enterprise would differ substantially from that of a professional firm, and while in some cases it might strain logic to find that the indemnity principle was not infringed by taking the Eastwood approach, in almost all cases, and most particularly in routine cases of very modest value, disbelief should be suspended for the merit of simplicity and avoiding the burden of detailed inquiry: Cole v British Telecommunications plc [2000] 2 Costs LR 310 applied.
The FTT’s approach in the instant case had ignored the pragmatic justification underlying the decision in Eastwood that a detailed inquiry into in-house overheads should be avoided. The FTT had lacked the material necessary to determine whether the case was a special one in which it was reasonable plain that the indemnity principle would be infringed by adopting the Eastwood approach, nor had the respondents invited it to view it as such a case. The FTT had no evidence to justify the assumptions that it made about the actual costs and overheads incurred by the appellant. Its decision was accordingly contrary to principle and should be set aside. The FTT should have given the appellant the benefit of the presumption in Eastwood and taken the costs which would have been charged by a solicitor in private practice as its guide when assessing the reasonable costs of and incidental to the matters in section 60(1) of the 1993 Act. It should not have given a direction for the filing of evidence of the appellant’s overheads, since that evidence was both irrelevant to the task that it was required to undertake and disproportionate to the costs that it was required to assess.
(2) The landlord’s costs of and incidental to a valuation of the flat for the purpose of fixing the premium, which were recoverable under section 60(1)(b), could properly include the costs having the in-house solicitor instruct a surveyor to carry out the valuation, send relevant documents to him and advise on his valuation report. Those tasks were incidental to the valuation: Columbia House Properties (No 3) Ltd v Imperial Hall Freehold Ltd [2015] UKUT 45 (LC); [2015] PLSCS 55 applied. However, where an experienced surveyor was engaged to provide a valuation of a very modest property, the work involved in considering and advising on the surveyor’s report should not be particularly time-consuming. In the instant case, having considered the report for the first flat, there was no reason why it should have taken the in-house solicitor the same time to consider and advise on each of the other reports. The reports were very similar and the valuation was identical in each case. All that was required, having read the first report, was for the solicitor to satisfy himself that that was the case, which could be done almost at a glance.
(4) The appellant was only entitled to recoup the costs that it would have been willing to pay had it not been able to pass on the bill to the respondents. Overall, the reasonable cost of the work, which the appellant would have been willing to pay from its own pocket to a solicitor in private practice, and which it would therefore have considered acceptable from its in-house provider, was £1,400 plus £40 disbursements in each case, assuming an hourly rate of roughly £230. However, given that the seven flats were dealt with at the same time, an overall figure of £1,680, or £240 per flat, was appropriate.
The appeal was determined on the written representations of the parties.
Sally Dobson, barrister
Click here to read transcript: Sidewalk Properties Ltd v Twinn and others
