The dispute in Barrett v Robinson [2014] UKUT 322 (LC); [2014] PLSCS 322 raised a point that is of general significance to landlords and tenants of residential premises. In what circumstances does a covenant for the reimbursement of costs incurred in, or in contemplation of, any proceedings or the preparation of any notice under section 146 of the Law of Property Act 1925 render a tenant liable for costs incurred by a landlord in tribunal proceedings to determine the amount of a service charge or administration charge?
The tenant was the long leaseholder of a flat above a shop. She queried the contribution required from her for the cost of insuring her premises. She believed that it was unreasonable and asked the Leasehold Valuation Tribunal to determine her service charge liability under section 27A of the Landlord and Tenant Act 1985. The tribunal decided that the apportionment was reasonable. However, the landlord did have to reduce the tenant’s contribution from £324 to £205, for other reasons.
The Leasehold Valuation Tribunal subsequently ruled that the tenant was obliged by the terms of her lease to pay the costs incurred by the landlord, in the sum of £6,250, in connection with the proceedings. The tenant argued that she had covenanted to indemnify the landlord against the costs of notices under section 146 and/or forfeiture proceedings. She drew the Upper Tribunal’s attention to the fact that she had initiated the tribunal proceedings herself in order to establish her liability and claimed that the costs that the landlord had incurred were not forfeiture costs at all.
The landlord relied on Freeholders of 69 Marina, St Leonards–on-Sea v Oram [2012] L&TR 4; [2011] PLSCS 263. Before a landlord can take steps to forfeit a residential lease, it must obtain a ruling from a tribunal that a tenant is in breach of one or more covenants and/or conditions in a lease. In Oram, the Court of Appeal held that the costs of determining the amount of the service charge payable by a tenant under section 27A of the 1985 Act fell within the ambit of a similar costs clause.
However, the Upper Tribunal chose to distinguish Oram. It was the tenant who had commenced the proceedings, and not the landlord. In addition, proceedings for the determination of the amount of a service charge need not be a prelude to forfeiture proceedings at all. A landlord may simply wish to receive payment, without wishing to terminate the tenant’s lease, or may not have considered what steps to take in the event of subsequent non-payment.
There was no evidence that the landlord had contemplated forfeiting the tenant’s lease – and could not legitimately have done so because section 167(1) of the Commonhold and Leasehold Reform Act 2002 prohibits landlords from exercising a right of forfeiture in respect of rent, service charges and administration charges unless the unpaid amount exceeds a prescribed sum. The Rights of Re-entry and Forfeiture (Prescribed Sum and Period) (England) Regulations 2004 set the threshold at £350 and the sum in dispute in this case was too small for forfeiture to be an option.
Many will applaud the decision. However, there are tensions between this case, Oram and other decisions that suggest that we have not heard the last on this subject yet.
Allyson Colby is a property law consultant
