2 Federation of Private Residents’ Associations Newsletter
Issue No. 110 Autumn 2014
COSTS IN A NO COSTS ENVIRONMENTBy FPRA Hon Consultant Amanda Gourlay
The LVT and FTT are often described as no costs environments.
Whilst technically this is true, the reality can often be very different.
This article considers why that is the case, and is divided into two parts.
The first part identifies the parts of a lease on which a landlord will normally rely in seeking reimbursement of its costs. It then considers the statutory limitations that can affect that contractual right to recover costs.
The second part moves on to the free-standing powers of the LVT and FTT to make an award of costs. The LVT no longer exists in England, but continues in Wales.
Two different sets of rules apply, depending on where the jurisdiction is being exercised.
Materials There is an abundance of case law on costs. That case law has, however, grown up around just four main texts:
• The lease
• Section 20C, Landlord and Tenant Act 1985
• Schedules 11 and 12, Commonhold and Leasehold Reform Act 2002
• Rule 13, Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013/1159.
Of the four, it is the lease which is the starting point. It could be said that the lease equates to the infamous ring in Tolkien’s Lord of the Rings trilogy: it is at the root of everything which goes before the LVT and FTT.
PART I The lease Both LVT and FTT will turn first to the terms of the lease so as to establish whether, as part of the agreement under which the landlord agreed to grant and the lessee agreed to take a lease of the property, the lessee agreed to pay the costs of any legal proceedings. The terms of the lease are carried forward when the flat is sold. Therefore, even if you are the fifth owner of a flat, in principle the terms of the lease bind you as much as they bound the original lessee. There are generally two places in a lease where an agreement to pay a landlord’s costs may be found.
As part of the service charge
In this case, the entitlement to costs is normally wrapped up in the list of all of the services which the landlord covenants to provide. Where the landlord claims an entitlement to legal costs through the service charge, the costs are shared among all of the lessees in the building in the same way as the costs of cleaning, repairing and maintaining the building. Plainly a legal bill shared is a legal bill (at least) halved. The lessee involved in the proceedings has the benefit of his fellow lessees’ contributions to the legal costs, even if those lessees had nothing to do with the proceedings. The entitlement to recover costs as part of the service charge has quite a battle- scarred past. Older leases tend to lack the clarity of expression of modern leases so far as the recovery of legal costs is concerned.
Recent case law – particularly Martin Rodger QC’s decisions in Conway v Jam Factory Freehold Ltd  UKUT 0592 (LC); Westleigh Properties Ltd v Grimes  UKUT 0213 (LC) and Daejan Properties Ltd v Griffin, Matthew  UKUT 0206 (LC), are good examples of the Upper Tribunal’s approach to interpreting costs provisions in leases.
In Westleigh Properties, Mrs Grimes’s service charge required her to contribute towards the landlord’s costs of complying with various repairing covenants. Martin Rodger QC held that the management costs of complying with those covenants were recoverable.
In Conway, he held that the lease in question allowed the landlord to recover its legal costs, even though the relevant clause did not refer expressly to legal costs.
However, in Daejan, where the Upper Tribunal was considering the interpretation of five different leases, it was only the leases which expressly referred to payment of legal costs which gave rise to an obligation to contribute to legal costs through the service charge.
As a cost demanded in full and directly from the lessee
In some instances, the lease may allow the landlord to demand payment of all of the costs of FTT proceedings directly from the lessee against whom the proceedings are brought. If the landlord is entitled to recover his costs under this provision, the lessee may be faced with a considerable bill because the costs are not shared amongst all of the lessees in the building. In this case, the landlord will normally rely on that part of the lease which refers to notices under section 146 of the Law of Property Act 1925 and other instances of breach of covenant.
Statutory limitations The Landlord and Tenant Act 1985 and the Commonhold and Leasehold Reform Act 2002 give the LVT and FTT the power to intervene in the parties’ contractual arrangements under the lease.
The Landlord and Tenant Act 1985
Where the costs are part of the service charge
The LVT and FTT application forms for a determination under section 27A of the Landlord and Tenant Act 1985 include a
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