RTMs, SERVICE CHARGES AND ESTATE MANAGEMENT
FEBRUARY 2014 UPDATE
Conway v Jam Factory Freehold Limited  UKUT 0592 (LC)
Summary: the terms of a lease enabled the recovery of the costs of employing solicitors and counsel in connection with an application by 14 leaseholders of flats for the appointment of a manager under s.24 of the 1987 Act through the service charge payable by all 100 leaseholders.
Facts: 14 leaseholders made an application pursuant to section 24 of the 1987 Act to for the appointment of a manager. The application was dismissed and the landlord sought to recover the costs from all of the leaseholders through the service charge. The relevant clause in the lease provided: “In the management of the Building and the performance of the obligations of the Landlord hereinafter set out the Landlord shall be entitled to employ or retain the services of any appropriately qualified or experienced employee agent consultant service company contractor engineer or other advisers of whatever nature as the Landlord may reasonably require in the interest of good estate management and the proper expenses incurred by the Landlord in connection therewith shall be deemed to be an expense incurred by the Landlord in respect of which the Tenant shall be liable to make a contribution in accordance with the Service Charge Percentage under the provisions set out in the Ninth Schedule hereto.”
Decision on appeal: The UT (Martin Roger QC, Deputy President) held that clause was amply wide enough to enable the recovery of the costs of employing solicitors and counsel in connection with an application by leaseholders of flats in the Jam Factory for the appointment of a manager under s.24 of the 1987 Act. Such costs were incurred “in the management of the building”.
The Deputy President also considered that, if leaseholders seek the appointment of a new manager, or seek to persuade a landlord to make changes in the style or approach to management, the landlord's participation in such discussions would also be “in the management of the building”.
In considering whether to make an order under s.20C, the Deputy President held that it was essential to consider what will be the practical and financial consequences for all of those who will be affected by the order, and to bear those consequences in mind when deciding on the just and equitable order to make. He then made an order in terms that 10% of the costs incurred by the landlord in resisting the tenants’ applications under s.24 of the 1987 Act were not to be regarded as relevant costs to be taken into account in determining the amount of the service charges payable by the tenants who were party to the proceedings before the LVT (including both the original applicants and those who were late joined by order of the LVT).
Comment: The costs of proceedings under s. 24 of the 1987 Act can be substantial. In this case they were said to be £65,000. When advising tenants on applications under s. 24 of the 1987, it is important to consider whether costs of proceedings may be recoverable through the service charge and bring this to the tenants’ attention.