Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

Leasehold Valuation Tribunals, are they no cost forums?

Over the past year or so we have read some of the debate that has been ongoing over the recoverability of legal costs at the Leasehold Valuation Tribunal (LVT).

The starting point as with most Tribunals in England and Wales is that they are a none costs shifting forum which in simple terms means that each party is responsible for their own costs and the Tribunal will not order the losing party to pay the other sides costs. This means that any costs which either side incurs will be for them themselves to pay. In the LVT under the current rules (which are due to change in July when the LVT becomes part of the new Lower Tribunal (Lands Chamber)) if a party has behaved vexatiously or unreasonably the LVT can order that that party pays to the other side up to £500 towards any costs which have been incurred. Such Orders are rare.

The situation is however muddied in that in disputes before the LVT, which will inevitably involve Leaseholders and Freeholders, there will be a contractual relationship between the parties being the lease. Often leases will include a clause allowing a Freeholder to recover legal costs in connection with disputed service charges as a management expense. If so it may be recovered under the service charge and so even though the Freeholder has perhaps “lost” at the LVT the costs they have incurred can be recovered from all the Leaseholders. Also some leases contain clauses that allow a Freeholder in certain circumstances to recover LVT costs directly from any one Leaseholder who sought to bring a challenge as an Administration Charge.

What this means is that Leaseholders as we have said in previous posts need to carefully consider what the terms of their leases provide. If the lease does not allow recovery then the risk may only be the £500 if a Freeholder can satisfy an LVT that conduct was frivolous or unreasonable but care needs to be taken.

So what can Leaseholders do? It is important to remember that LVTs are simply creatures of statute and so have to operate within the framework that Parliament has laid down for them. Certain safeguards are in place. In particular it is possible for Leaseholders to make an application under section 20C of the Landlord and Tenant Act 1985 to seek limitation of the costs which a Freeholder can recover as a service charge expense. The LVT has broad powers and discretion. It is vital that Leaseholders make such an application and think carefully about the reasons. These do not simply have to be limited as to whether they win (since submissions will often be made before the LVT has issued its decision) but should explain why the application was necessary to be made or responded to and in what ways the Freeholder may have been unreasonable such as failing to enter into constructive dialogue etc.

The LVT can then look to make such an Order. This may prevent the recovery of whole or part or even fix the amount which can be recovered. This would then bind a Freeholder in respect of recovery via the service charges whatever the terms of the lease may provide. If however the LVT declines to make an Order the Leaseholder can still challenge the reasonableness although this challenge itself may incur costs.

With regards to recovery from a Leaseholder directly this would be an Administration charge and again can be challenged as to reasonableness and the payability via the LVT. For challenges of this type it is worth taking advice on the specific terms of the lease and what may be considered reasonable. This will involve looking at the specific lease terms and then going on to look at the circumstances as to how the costs were incurred and what work was undertaken.

As can be seen in terms of the rules of the LVT it is fundamentally a no costs forum (and the change in July to the new Tribunal is not likely to fundamentally change this). The problem is that everyone is bound by their lease terms as to what can be recovered. In the throes of purchasing a property all too little time is often given to looking at what can and cannot be recovered under a service charge. A good understanding as to the terms of your lease and your ownership can prove worth its weight in the long run.

Filed under: England & Wales, , , , ,

6 Responses

  1. Sarah says:

    If the LVT award a section 20C does that mean that the Landlord cannot add the fees to the service charge at all – or can they still add it to the service charge for the Leaseholders who were not involved in the case?

  2. This article misses the fact that the landlord’s costs in an LVT case may be far higher than the leaseholder’s. A leaseholder may choose to represent himself but if the landlord is a company it can incur 5-figure sums in fees for legal and other advice and for representation by Counsel. In the case of a small landlord company, a section 20 C order could cause the landlord to become insolvent. If the landlord is allowed to recover his costs from the service charge, this imposes a burden on the other leaseholders. It might actually be better if the LVT normally made a costs allocation. A leaseholder might then be taking on some financial risk when taking his landlord to the LVT. The risk currently seems far greater for landlords.

  3. LHA says:

    It is a considerable risk if the freeholder or residents company (RTM RMC RTE etc) have no assets ( or means of requiring the shareholders or members to make good losses),as well as a fee risk to the professionals involved. Where a landlord can recover costs, leaseholders would do well to consider acting jointly and or first making use of mediation or arbitration, as should these sorts of companies.

  4. Lauri says:

    A useful article, thanks for making this all a bit clearer. But I have the same question as Sarah – does this mean that the Landlord cannot add the fees to the service charge?

  5. As I understand it, the landlord can add the fees (that is, the landlord’s costs of the legal action) to the service charge, provided that 1) the lease allows him to (most do) and 2) the LVT did not grant the lessee(s) a section 20 C order, which is an order that forbids him to. A lessee taking action against a landlord will often apply for such an order, in addition to whatever issue led them to bring the action. Where a landlord has behaved badly the LVT will not want lessees to suffer financial loss in order to get redress.

  6. Where you have a serial fraud landlord, by that I mean that he has a history of ruining buildings plus fraud with giving accountants fabricated information, really this should be seen as fraud– however the LVT chooses to ignore!

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