Arms and the man
In the second part of our look at legal costs barrister Amanda Gourlay of Tanfield chambers sets out how recent case law has added to the leaseholder burden.
The Court of Appeal has not been kind to lessees in recent years.
First, in Freeholders of 69 Marina v Ghooram, Oram  EWCA Civ 1258, it held that the landlord must serve a notice – known in the industry as a “section 146 notice” – before forfeiting a lease for non-payment of service charges.
Previously, where the service charges were reserved as rent, it was generally accepted that there was no need to serve such a notice because there is no obligation to serve one when forfeiting a lease for non-payment of rent.
The imposition of this requirement might on its face appear to be a positive for lessees.
It was not, because the Court of Appeal also decided that the landlord was entitled to recover his/her costs of obtaining a determination of the amount of service charge payable, if that determination:
Was sought as a prelude to a section 146 notice or forfeiture, and
If the lease allowed the recovery of costs “incurred in or in contemplation of proceedings under section 146 of the Law of Property Act 1925”.
Not every lease allows the landlord to put the cost of FTT proceedings through the service charge, and even where the lease allows for the service charge to bear the cost of the proceedings, the FTT has the power to prevent that happening by way of an order under section 20C of the Landlord and Tenant Act 1985.
In many post-69 Marina cases however, that no longer mattered. Provided that the lease contained a forfeiture clause and a requirement that the lessee meet the costs incurred in or in contemplation of proceedings under section 146, 69 Marina meant that landlords had a route to the recovery of FTT proceedings directly and completely from lessees.
Suddenly, some lessees found themselves facing demands for payment of thousands of pounds.
Last year, in Barrett v Robison  UKUT 322 (LC), the Upper Tribunal (Martin Rodger QC) applied a whisper of a brake to 69 Marina. Rehearsing the expressions of surprise which had echoed through the service charge world when 69 Marina was handed down, the Deputy President identified a number of points that lessees may be able to take to resist claims for costs, including:
The landlord must show that, as a matter of fact, it was incurring costs in contemplation of section 146 proceedings;
The right to forfeit must actually exist at the date of the incurring of the costs: for example, it must not have been waived.
As an Upper Tribunal judge however, Martin Rodger QC was bound by the Court of Appeal’s decision in 69 Marina. He could not ignore it – or hand down a decision which conflicted with it.
Permission to appeal to the Court of Appeal has been granted in Robinson. The appeal is due to be heard in April 2016.
There is however no need to wait until 2016 for further controversy. This summer, the costs imbalance in service charge claims was compounded when the Court of Appeal handed down its judgment in Chaplair Ltd v Kumari  EWCA Civ 798.
Chaplair deals with the recoverability of contractual costs in cases allocated to the small claims track in the county court. To my mind, it is not a satisfactory judgment.
In summary, Chaplair has two parts to it. In the first, the Court of Appeal decided that FTT costs can be recovered in the county court if the lease allows the landlord to recover its costs. That, of itself, was relatively uncontroversial compared with what followed.
The second, eye-watering aspect of the judgement attempted to resolve the conflict between the procedure rules governing small claims, and leases which allowed landlords to recover their costs from the lessee directly.
Most cases allocated to the small claims track have a value of less than £10,000. The small claims track is intended to be the track of choice for courts dealing with issues which are relatively straightforward and do not require the parties to have legal representation.
To that end, the small claims track rules prevent the parties from recovering the legal costs that they incur in bringing or defending the case, save where the other side behaves unreasonably.
The Court of Appeal was asked whether and how a landlord’s contractual right to costs fitted into the small claims framework.
It decided that, if the lease allowed the recovery of costs, the landlord was entitled to them, despite the procedure rules limiting the recovery of cases allocated to the small claims track.
Interestingly, in Graham v Sandmartin (unreported (Southend County Court 04/11/11)), a decision on the same point in the county court, and therefore superseded by Chaplair, HHJ Moloney QC reached the opposite decision.
He went so far as to say that he considered that they may even be a point under Article 6 (right to a fair trial) of the European Convention on Human Rights if a landlord was entitled, by virtue of the lease, to recover its costs in a small claim, whereas a tenant would never be so entitled.
I doubt that HHJ Moloney QC has spent very much time in the FTT, where, absent unreasonable behaviour, the landlord’s worst case scenario – that it has to pay its own costs – is the lessee’s best.