Service Charges & Estate Management Update – August 2014
1st August 2014
Barratt v Robinson  UKUT 322
A landlord was not entitled to recover its legal costs under the covenant for reimbursement of costs in contemplation of proceedings under s.146 of the 1925 Act as there was no evidence that the landlord contemplated proceedings for forfeiture and, in any event, the amount claimed was below the prescribed sum.
In March 2012 the tenant applied to the LVT pursuant to s.27A of the 1985 Act for a determination of the sum she was liable to pay towards building insurance. The landlord discovered a number of discrepancies and reduced the amount payable from the £324 originally demanded to £205. The FTT accepted the landlord’s argument on apportionment and determined the amount payable was £205.
The landlord was represented by counsel in those proceedings and incurred costs in the sum of ££6,250. She sought to recover those costs from the tenant under clause 4(14) of the tenant’s lease by which the tenant covenanted:
“To pay all reasonable costs charges and expenses (including solicitors’ costs and surveyors’ fees) incurred by the Lessor in or in contemplation of any proceedings or the preparation of any notice under section 146 of the Law of Property Act 1925 notwithstanding forfeiture is avoided otherwise than by relief granted by the Court.”
A second LVT found that the tenant was bound by the terms of her lease to pay the £6,250 costs incurred in connection with the first LVT proceedings. In doing so, it held that it was bound by the decision of the Court of Appeal in Freeholders of 69 Marina, St Leonards–on-Sea v Oram  L&TR 4. The tenant appealed.
In what circumstances does a covenant for the reimbursement of costs of proceedings under s.146 render a tenant liable for costs incurred by their landlord in tribunal proceedings to determine the amount of a service charge or administration charge?
Decision on Appeal
Allowing the appeal, the UT (Martin Rodger QC, Deputy President) held that, if a service charge or administration charge is reserved as rent, the decision of the Court of Appeal in 69 Marina is binding authority that a determination by the FTT is a pre-condition to the service of a notice under s.146. The decision in 69 Marina, however, does not require that whenever a lease includes a clause such as clause 4(14), the landlord will necessarily be entitled to recover its costs of any proceedings before the FTT to establish the amount of a service charge or administration charge. It is always necessary to consider the terms of the particular indemnity covenant and whether any relevant contemplation or anticipation existed in fact in the circumstances of an individual case. In this case, there was no evidence that the landlord contemplated proceedings for the forfeiture of the lease or the service of a notice under s.146 as a preliminary to such proceedings. The first LVT proceedings were commenced by the tenant under s.27A of the 1985 Act for a determination of the extent of her liability to pay insurance. There was nothing in the landlord’s statement of case submitted to the first LVT or in the correspondence from her solicitors which suggested that she had any intention of forfeiting the lease. Further, the amount originally demanded for insurance was below the statutory threshold created by s.167(1) of the 2002 Act and the Rights of Re-entry and Forfeiture (Prescribed Sum and Period) (England) Regulations 2004 (the prescribed sum is currently £350). In those circumstances, the landlord could not legitimately have contemplated the service of a notice under s.146 , nor could the first LVT proceedings ever have been a prelude to forfeiture as the sum involved was simply too small for forfeiture to have been an option.
This decision is important for a number of reasons. First, it suggests that 69 Marina is binding authority on the FTT that a determination by the FTT is a pre-condition to the service of a notice under s.146. It must, however, be arguable that 69 Marina was decided per incuriam. It is unlikely that the FTT would be so bold but the argument may be more likely to succeed in the UT. Eventually, the issue will have to be resolved by the Court of Appeal. Second, it confirms in principle that a landlord can recover the costs of FTT proceedings for a determination of the service charge payable pursuant to a covenant for the reimbursement of costs in contemplation of proceedings under s.146. Third, it provides practical guidance as to what steps should be taken by a landlord to evidence that forfeiture is being contemplated: the intention to forfeit following a determination could, for example, be recorded in correspondence.
See also: the December 2011 Update and the commentary on 69 Marina.
New Legislation Regarding Social Landlords
The Social Landlords Mandatory Reduction of Service Charges (England) Directions 2014, made pursuant to s.219 and 220 of the Housing Act 1996, imposes a cap on the service charges a social landlord can recover in respect of the costs of works of repair, maintenance or improvement undertaken wholly or in part with part of a grant or other financial assistance of any kind from the Decent Homes Backlog Funding (and some other programmes).
The Social Landlords Discretionary Reduction of Service Charges (England) Directions 2014, also made pursuant to ss.219 and 220 of the Housing Act 1996, allows social landlords to waive or reduce the service charge in respect of works of repair, maintenance or improvement by an amount the landlord considers to be reasonable.
The Competition Markets Authority (CMA) is seeking views on possible remedial action to improve the performance of the residential property management services market and outcomes for leaseholders. The market study remains ongoing. The CMA will not reach a final decision and publish its full report until later on in the year.
Views can be submitted by email to: email@example.com.