Case law developments emanating from the Upper Tribunal (Lands Chamber) continued at a brisk pace during 2016. The highlighted decisions below, set out in no particular order, will continue to be cited by legal practitioners, landlords, leaseholders and other interested parties for some time and remain reference points for the foreseeable future.
Willow Court Management Company (1985) Ltd v Mrs Ratna Alexander [2016] UKUT 0290 (LC)
The Upper Tribunal listed three appeals together in order to consider, for the first time, the jurisdiction conferred by Rule 13(1)(b), Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (“the Rules”). Rule 13 is concerned with the Tribunal’s power to award costs against a party for unreasonable behaviour in bringing, defending or conducting proceedings before it.
The introduction of the rule lifted the previous ceiling on costs of £500 imposed by the LVT. The decision of Willow Court puts a firm brake on the increasing frequency of awards made against parties for unreasonable conduct.
The new 3 stage test:
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The Tribunal may make an order in respect of costs if a person has acted unreasonably; the first stage is therefore an objective test. The Tribunal will consider whether there is a reasonable explanation for the conduct; if the behaviour is adjudged to be unreasonable, the threshold for making an order will have been crossed.
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Once the first stage has been satisfied, a discretionary power is then engaged and the decision maker moves on to the second test. The Tribunal is required to determine, in light of the unreasonable conduct, whether it ought to make an order for costs.
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Should the Tribunal consider that costs should be ordered against a party, it is then necessary to decide upon the terms of the order. In contrast to CPR 44.2(2)(a), there is no equivalent provision that requires a losing party to be ordered to pay the costs of the successful party.
23 Dollis Avenue (1998) Ltd v (1) Vejdani (2) Echraghi [2016] UKUT 365 (LC)
The Upper Tribunal considered the meaning of s.20 LTA 1985 where a landlord had failed to comply with the consultation requirements in circumstances where the costs had yet been incurred.
The landlord consulted leaseholders in respect of proposed works to a leaking flank wall. Estimates for the works were obtained between £34,200 and £39,060. Before the works commenced, the leaseholders issued proceedings in the FTT challenging the advance demands. The Tribunal held that the consultation process was defective; the estimates included significant other work (e.g. roof repair works) and there had not been any consultation on those works. It followed that the advance demands were unreasonable.
The landlord successfully appealed to the Upper Tribunal; although the consultation process had been defective, this did not necessarily mean that the advance demands were unreasonable. The statutory limit on recoverable service charges, where there had been no consultation, applied only once the work had been carried out. This was clear from the wording of ss 20(2) and 20(3), LTA 1985. The failings identified by the FTT were not fatal and the landlord could always repeat the consultation process.
Nemcova v Fairfield Rents Limited [2016] UKUT 303 (LC)
Ms Nemcova was the leaseholder of a flat who admitted letting her flat to various business visitors on a short-term basis for about ninety days a year. For the remaining period, the flat was her main residence albeit the flat remained empty for long periods.
The landlord sought a determination, pursuant to section 168(4) of the Commonhold and Leasehold Reform Act 2002, that Ms Nemcova was in breach of the lease. Her lease contained a covenant prohibiting her from using the flat for “any purpose whatsoever other than as a private residence.” The FTT determined that the covenant in question required the flat to be occupied “as a home”; multiple lettings to various people for short periods of time was incompatible with this requirement.
Ms Nemcova unsuccessfully appealed to the Upper Tribunal which concluded that the duration of the occupation was relevant. In order for the flat to be a private residence, there must be a degree of permanence going beyond a stay of a few nights or a weekend.
Leaseholders of Foundling Court and O’Donnell Court v London Borough of Camden and others [2016] UKUT 0366 (LC)
Here, the Upper Tribunal considered whether the statutory obligation to consult was a requirement imposed on a superior landlord and, if so, was it necessary to consult individual leaseholders in addition to the intermediate landlord.
The leaseholders brought an application to determine, inter alia, the extent to which they were required to contribute to certain costs demanded by Camden (intermediate landlord). The freeholder, Allied London, had given a notice of intention and notification of estimates to Camden. It was conceded by the local authority that its letter enclosing the second stage consultation notice to the lessees did not allow the required 30 days for a response. The leaseholders contended that their contribution should be limited to £250; Allied London had failed to consult at all and/or Camden had forwarded the second stage notice late.
The Upper Tribunal held that paragraph 1(1)(a) of the applicable schedule to the Service Charges (Consultation Regulations) (England) Regulations 2003 required “the landlord” to give notice “to each tenant”. The provision referred to the landlord who “….intends to carry out qualifying works” (reg. 1(1)). The Upper Tribunal determined that as Allied London had intended to carry out the works, they were responsible to undertake the consultation.
The Upper Tribunal further considered the landlord’s requirement to give notice “to each tenant”. It rejected the argument that there must be a direct contractual relationship between a landlord and tenant before the requirements were engaged and determined that a superior landlord is to serve the relevant notices upon the applicable sub-tenants even if this may cause practical difficulties.
Section 131 of the Housing & Planning Act 2016
Although not yet in force, section 131 of the 2016 Act provides that where a long lease permits the recovery of legal costs as an administration charge (Sch.11, Commonhold and Leasehold Reform Act 2002), a leaseholder will be able to seek an order reducing or extinguishing his liability for those costs. This will give courts and tribunals a discretionary power to restrict the ability of a landlord to recover incurred legal costs from the leaseholder.
It remains to be seen how courts and tribunals will consider section 131 applications; however, given that the purpose of the provision is to strengthen judicial powers to restrict recovery of costs through the service charge or as an administration charge, it is likely that courts and tribunals will retain a wide discretion, similar to section 20C applications, to assess the merits of an application on a case by case basis and restrict legal costs where they consider it just and equitable in the circumstances.
Avon Freeholders Limited v Alexander Garnier [2016] UKUT 477 (LC)
In Avon Freeholders Limited v Alexander Garnier, the former leaseholder had carried out internal works to the flat; no prior consent to undertake the works had been obtained from the freeholder, Avon Freeholds Limited (“Avon”).
Retrospective consent was sought by the leaseholder in order to secure the sale of the flat. The leaseholder paid the initial fee requested by Avon; however, it was made clear to Mr Garnier that this payment would not guarantee consent.
Thereafter, Avon confirmed that retrospective consent would only be provided if Mr Garnier agreed to pay a further £1,000.00 plus VAT in respect of legal costs together with a consent fee of £5,000.00. Under pressure to complete the sale of the flat, Mr Garnier sent an email to Avon on 21 December 2015 stating:
“This really does need to be done today (I will lose the sale if we wait until the new year), so I will make the £6,200 payment now, that’s fine. If I send this now via faster payment, can the documentation be started and sent today? Thank you”
The Tribunal noted that a tenant is not taken to have agreed or admitted any matter simply by reason only of having made a payment (para. 5(5) of Schedule 11 to the 2002 Act). It held that the leaseholder’s email dated 21 December 2015 did not constitute an agreement and did not have the effect of ousting the jurisdiction of the Tribunal (para. 5(4))
The landlord successfully appealed to the Upper Tribunal which held that the landlord had not applied any wrongful or illegitimate pressure. The leaseholder was bound by his agreement when he provided confirmation that a further payment would be “fine”. Consequently, Mr Garnier could not rely upon para. 5(5) to subsequently challenge the reasonableness of the amount demanded.
Fairhold Freeholds No. 2 Limited v Moody [2016] UKUT 311 (LC)
In Fairhold Freeholds No. 2 Limited v Moody, the leaseholder failed to inform the freeholder that he had moved address and, therefore, did not receive ground rent demands issued to him. In default of the relevant payments, the landlord sent a letter threatening court proceedings; a £50.00 administration charge had been added to the debt by virtue of reliance on an indemnification provision within the lease.
The FTT determined that the relevant clause did not entitle the landlord to include an additional administration charge. An indemnity clause would only permit a freeholder to claim costs which it had paid to a third party as a result of the breach. On appeal, the Upper Tribunal considered the relevant clause in the context of the whole lease and confirmed that it was not a general provision enabling the landlord to cover costs expended. The Upper Tribunal emphasised that an indemnity clause is defensive insofar as it is designed to protect a person from unexpected costs incurred by a third party.
Jeff Hardman, Barrister at Arden Chambers
Arden Chambers is a leading set specialising in property, housing, local government and planning. Arden Chambers has a strong and experienced team who provide a full range of services for freeholders and leaseholders in relation to residential property including enfranchisement, lease extension, right to manage and service charge disputes. Chambers has extensive experience of FTT litigation and advisory work, with members appearing both in the FTT and Upper Tribunal on a regular basis.
