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Issue No. 110 Autumn 2014

Amanda Gourlay is a barrister at Tanfield Chambers. She founded and runs the service charge blog

Federation of Private Residents’ Associations Newsletter


small box asking the lessees whether they wish to make an application under section 20C of the 1985 Act. Most lessees tick that box – and many tick it orally at the final hearing if they have not already done so at a pre-trial review or case management conference – when the impact of section 20C is explained. Section 20C, in short, prevents the landlord from putting the costs of LVT or FTT proceedings through the service charge of the lessee(s) who make that application if it is just and equitable in the circumstances for the landlord to be prevented from doing so. St John’s Wood Leases Ltd v O’Neil [2012] UKUT 374 (LC) is a good overview of the case law and the exercise of the court’s discretion to make a section 20C order. Success on one side or the other is not the only criterion. The conduct of the parties can play a major role here.

The Commonhold and Leasehold Reform Act 2002

Costs as a variable administration charge

The 2002 Act introduced the administration charge to the service charge world.

An administration charge within the meaning of the 2002 Act is not to be confused with the administration charge which often finds its way onto major works invoices, nor the charges raised by a managing agent. The 2002 Act draws a distinction between non-variable and variable charges, the former being a charge the amount of which, in broad terms, can be worked out by the lessee from the wording of the lease, for example by a formula or a schedule of charges, and the latter being one which cannot. The LVT or FTT will find that a charge is a variable administration charge if the lease does not provide for a mechanism for its calculation, and is charged in one of the following four situations:

a) For or in connection

with the grant of approvals under the lease, or applications for such approvals,

b) For or in connection with the provision of information or documents by or on behalf of the landlord or a person who is party to his lease otherwise than as landlord or tenant,

c) In respect of a failure by the tenant to make a payment by the due date to the landlord or a person who is party to his lease otherwise than as landlord or tenant, or

d) In connection with a breach (or alleged breach) of a covenant or condition in his lease.

The costs incurred by a landlord, as a consequence of a lessee’s breach of covenant, invariably fall within (d).

Challenging the amount of a variable administration charge

Schedule 11 to the 2002 Act provides that an application can be made to the LVT or to the FTT for a determination of the reasonableness of a variable administration charge. The test is different to the test which relates to service charges: it is not a question of whether the charge is reasonably incurred and reasonable in amount for work of a reasonable standard. Instead it is simply whether the costs are themselves reasonable. This point was considered by Martin Rodger QC in Christoforou v Standard Apartments Ltd [2013] UKUT 0586 (LC). He held that the proportionality of the amount of costs was a relevant consideration. In Christoforou, for example, he decided that although the landlord’s costs exceeded the amount of money at stake in the dispute, the costs were reasonable because of the points in dispute had the potential to affect other lessees in the block.


I turn now to the LVT’s and FTT’s free- standing powers to make determinations on costs. The terms of the lease, so vital to much that passes before the FTT, are irrelevant to the exercise of these powers.

The LVT’s powers The LVT’s powers on costs are contained in paragraph 10 of Schedule 12 to the Commonhold and Leasehold Reform Act 2002. Those powers are limited in two respects. First, a party to an LVT application may only be required to pay costs in one of two situations:

He has made an application to the Leasehold Valuation Tribunal which is dismissed because it is frivolous or vexatious or otherwise an abuse of process of the LVT; or He has, in the opinion of the LVT, acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably in connection with the proceedings. Second, the amount that the paying party can be required to pay is currently limited to £500.

The FTT’s powers

The FTT sprang into life on 01 July 2013. It was accompanied by a new set of rules. Rule 13 deals with costs, and provides that the FTT can make the following costs orders: 1) A wasted costs determination against parties’ representatives, whether legally qualified or not;

2) A determination that one party pay another’s costs if the first party has acted unreasonably in bringing, defending or conducting proceedings, and

3) A determination that one party reimburse another in respect of any fee paid in connection with the proceedings.

The £500 costs limit, which applies to LVT costs awards, has not been reproduced in the new FTT rules. The FTT therefore

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