Are legal costs an issue when a party doesn’t bring proceedings?

18 Apr 2017

In the recent case of Bretby Hall Management Company Limited v. Christopher Pratt (2017), the Upper Tribunal looked at the recoverability of legal costs under the lease when there are no formal legal proceedings. 

Bretby Hall Management Company Limited managed a block of 30 flats and Mr Pratt was the leaseholder of one of them.

The management company and Mr Pratt were involved in a protracted dispute that did not result in either party issuing proceedings in Court or the Tribunal. The management company’s legal costs in the dispute were a substantial £11,100, and they sought to recover these from Mr Pratt under the terms of his lease. 

The First-tier Tribunal did not allow these costs and said the matter was outside of its jurisdiction, as the threatened proceedings which were the subject of the £11,100 legal fees did not materialise. The management company appealed and the Upper Tribunal considered the following two issues :

1. Was the £11,100 recoverable as part of the service charge under the terms of the lease?

2. Could the First-tier Tribunal have disallowed these costs under section 20C of the Landlord and Tenant Act 1985?

On the first point, the judge was satisfied that the lease showed a clear intention of the parties that legal costs would be recoverable under the lease. The relevant clause in the lease reads as follows: 

“… including in particular but without prejudice to the generality of the foregoing… any legal or other costs reasonably and properly incurred… and otherwise not recovered in taking or defending proceedings (including any arbitration) arising out of any lease of any part of the Development”.

As to the second point, under section 20C of the Landlord and Tenant Act 1985, a leaseholder may make an application for an order that any or all of the costs incurred or to be incurred by the landlord in connection with proceedings are not to be applied by the landlord.

The Upper Tribunal held that Mr Pratt was not entitled to relief under this section as no proceedings were issued by either party. The Upper Tribunal went on to say that the management company had incurred substantial legal costs and its only income was the service charge. Mr Pratt therefore had to pay the management company’s costs in full. 

What can landlords learn from this case?

The decision of the Upper Tribunal was clearly right on the construction of the particular lease, and it was no doubt a sensible decision to allow the costs to be properly recharged through the service charge. However, landlords must ensure that their service charge provisions are clearly drafted so that any legal costs incurred in a dispute, whether or not proceedings are issued, are fully recoverable under the terms of the lease.

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