87 St George’s Square Management Ltd v Whiteside [2016]:

Can the landlord’s costs of enforcement proceedings be recovered as a contractual administration charge?

The background

The Respondent tenant occupied the basement flat in a building owned by the Appellant company, of which the tenant was not a member. The Respondent was required to contribute 16% of the Appellant’s service costs through the service charge.

Under the lease, the Respondent covenanted to pay costs incurred by the Appellant in connection with the service of any notices given under s.146 of the Law of Property Act 1925. The Respondent and the Appellant were involved in a service charge dispute in 2000, during which proceedings the Appellant acknowledged that it was not entitled to add its tribunal costs to the service charge. The Respondent was not obliged to personally reimburse these costs either, meaning that, although the Respondent’s claim was unsuccessful, the Appellant was at a financial disadvantage following conclusion of the proceedings.

A further dispute was anticipated, and in 2010 the Leasehold Valuation Tribunal granted an order to the Appellant substituting new lease terms stating:

“To pay all costs charges and expenses (including solicitors’ costs and surveyors’ fees) incurred by the [Appellant]…in connection with the enforcement of any of the Lessee’s covenants herein contained and…the costs charges and expenses which the [Appellant is] entitled to recover from the Lessee…include the reasonable costs charges and expenses of proceedings or in contemplation of proceedings in connection with the enforcement of the Lessee covenants.”

Costs were required to be reasonably and properly incurred.

During the eventual dispute, the FTT received an application from the Appellant under Civil Procedure Rule 13 for its costs in the proceedings to be payable by the Respondent, the Respondent having been deemed to have acted unreasonably during the proceedings.

The law

The FTT concluded that the Respondent had acted unreasonably and his conduct had been poor. He was not, however, held to be liable for 100% of the Appellant’s costs. His conduct caused the Appellant to incur additional and unnecessary costs but some of his actions he was entitled to pursue. The FTT held that the Respondent was liable for 20% of the Appellant’s costs. The FTT did not consider the contractual obligations of the parties under the lease.

The Appellant later stated that it wished to rely on its contractual rights with regards to costs and intended to claim 100% of its costs from the Respondent under the lease terms; the Respondent disagreed, stating that the FTT’s determination took precedence and he was liable for only 20%.

A further application was made to the FTT by the Appellant to determine whether the Respondent was liable for a variable administration charge, and the FTT held that he was not, determining that the costs issue had been decided under Rule 13.

The Upper Tribunal (‘UT’) defined a variable administration charge as a charge which is not specified or calculated according to terms under a lease. It must be reasonable. On examining the issues raised, the UT concluded that the FTT had merged two separate entitlements of the Appellant to costs. The UT referenced Chaplair Ltd v Kumari [2015], during which proceedings a landlord claimed for costs under both Rule 13 and his contractual rights. In that case, the Court of Appeal allowed the county court to deal with the claim, which led the UT in 87 St George’s Square to conclude that the two claims could be treated separately.

The decision

The UT held that the Appellant was entitled to reasonable and properly-incurred contractual costs, and was also entitled to seek recovery of costs under Rule 13 provided that the sum is not recovered twice. There is no need for a party to choose between the two routes unless they are inconsistent with each other. The UT referenced Stevens & Cutting Ltd v Andersen [1990] in reaching this conclusion.

The Court held that there was no inconsistency here; the Appellant could take either route to achieve the same objective. The Appellant was not estopped from later claiming contractual costs by virtue of its earlier pursuit of costs under Rule 13, and neither party had made any submission on contractual costs at the time of the hearing.

The Appellant landlord could, therefore, recover contractual costs of the FTT proceedings as an administration charge, regardless of the decision in respect of the Rule 13 claim.

JB Leitch’s Phil Parkinson comments on the decision:

“87 St Georges Square provides reassurance for landlords that, regardless of the route taken in claiming for costs, providing there is no inconsistency a claim under the contractual terms of the lease may still be possible even if an earlier claim under Rule 13 has been made. Nevertheless, landlords are advised to explore thoroughly their options with legal advice before pursuing either route.”

The background

The Respondent tenant occupied the basement flat in a building owned by the Appellant company, of which the tenant was not a member. The Respondent was required to contribute 16% of the Appellant’s service costs through the service charge.

Under the lease, the Respondent covenanted to pay costs incurred by the Appellant in connection with the service of any notices given under s.146 of the Law of Property Act 1925. The Respondent and the Appellant were involved in a service charge dispute in 2000, during which proceedings the Appellant acknowledged that it was not entitled to add its tribunal costs to the service charge. The Respondent was not obliged to personally reimburse these costs either, meaning that, although the Respondent’s claim was unsuccessful, the Appellant was at a financial disadvantage following conclusion of the proceedings.

A further dispute was anticipated, and in 2010 the Leasehold Valuation Tribunal granted an order to the Appellant substituting new lease terms stating:

“To pay all costs charges and expenses (including solicitors’ costs and surveyors’ fees) incurred by the [Appellant]…in connection with the enforcement of any of the Lessee’s covenants herein contained and…the costs charges and expenses which the [Appellant is] entitled to recover from the Lessee…include the reasonable costs charges and expenses of proceedings or in contemplation of proceedings in connection with the enforcement of the Lessee covenants.”

Costs were required to be reasonably and properly incurred.

During the eventual dispute, the FTT received an application from the Appellant under Civil Procedure Rule 13 for its costs in the proceedings to be payable by the Respondent, the Respondent having been deemed to have acted unreasonably during the proceedings.

The law

The FTT concluded that the Respondent had acted unreasonably and his conduct had been poor. He was not, however, held to be liable for 100% of the Appellant’s costs. His conduct caused the Appellant to incur additional and unnecessary costs but some of his actions he was entitled to pursue. The FTT held that the Respondent was liable for 20% of the Appellant’s costs. The FTT did not consider the contractual obligations of the parties under the lease.

The Appellant later stated that it wished to rely on its contractual rights with regards to costs and intended to claim 100% of its costs from the Respondent under the lease terms; the Respondent disagreed, stating that the FTT’s determination took precedence and he was liable for only 20%.

A further application was made to the FTT by the Appellant to determine whether the Respondent was liable for a variable administration charge, and the FTT held that he was not, determining that the costs issue had been decided under Rule 13.

The Upper Tribunal (‘UT’) defined a variable administration charge as a charge which is not specified or calculated according to terms under a lease. It must be reasonable. On examining the issues raised, the UT concluded that the FTT had merged two separate entitlements of the Appellant to costs. The UT referenced Chaplair Ltd v Kumari [2015], during which proceedings a landlord claimed for costs under both Rule 13 and his contractual rights. In that case, the Court of Appeal allowed the county court to deal with the claim, which led the UT in 87 St George’s Square to conclude that the two claims could be treated separately.

The decision

The UT held that the Appellant was entitled to reasonable and properly-incurred contractual costs, and was also entitled to seek recovery of costs under Rule 13 provided that the sum is not recovered twice. There is no need for a party to choose between the two routes unless they are inconsistent with each other. The UT referenced Stevens & Cutting Ltd v Andersen [1990] in reaching this conclusion.

The Court held that there was no inconsistency here; the Appellant could take either route to achieve the same objective. The Appellant was not estopped from later claiming contractual costs by virtue of its earlier pursuit of costs under Rule 13, and neither party had made any submission on contractual costs at the time of the hearing.

The Appellant landlord could, therefore, recover contractual costs of the FTT proceedings as an administration charge, regardless of the decision in respect of the Rule 13 claim.

JB Leitch’s Phil Parkinson comments on the decision:

“87 St Georges Square provides reassurance for landlords that, regardless of the route taken in claiming for costs, providing there is no inconsistency a claim under the contractual terms of the lease may still be possible even if an earlier claim under Rule 13 has been made. Nevertheless, landlords are advised to explore thoroughly their options with legal advice before pursuing either route.”