First-tier Tribunal Decides on Recoverable Costs for Landlord After Aborted Enfranchisement Claim

OUTCOME: Allowed

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case Reference

:

CHI/00MW/OC9/2018/0013

Property

:

[NAME], The Parade, Isle of Wight [POSTCODE]

Applicant: [redacted]

:

[APPELLANT]

Respondent

:

[redacted] Participating Leaseholders

Representative

:

[NAME] of Application

:

Landlord’s costs of leasehold enfranchisement

Tribunal Member(s)

:

Mr D [NAME] of Decision

:

31 January 2019

DECISION

The Tribunal determines that the recoverable costs are assessed at; • Legal costs £3,223.55 • [NAME]’s fees £12,600.88 • Total £15,824.43

Background

2. The Applicant seeks a determination as to the costs payable to the Respondent under Section 33(1) Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act) following an abortive collective enfranchisement.

3. The costs sought are legal fees of £3,390.36 and valuation fees of £16,734.21.

4. The Tribunal made Directions on 18 July 2018 requiring each party to set out their positions and for the Applicant to prepare a hearing bundle.

5. The Tribunal indicated that the application would be determined on the papers without a hearing in accordance with Rule 31 of the Tribunal Procedure Rules 2013 unless a party objected in writing to the Tribunal. No objection has been received and the application is therefore determined on the papers.

The Law

S. 33 Costs of enfranchisement.

(1)Where a notice is given under section 13, then (subject to the provisions of this section and sections 28(6), 29(7) and 31(5)) the nominee purchaser shall be liable, to the extent that they have been incurred in pursuance of the notice by the reversioner or by any other relevant landlord, for the reasonable costs of and incidental to any of the following matters, namely— (a)any investigation reasonably undertaken— (i)of the question whether any interest in the specified premises or other property is liable to acquisition in pursuance of the initial notice, or (ii)of any other question arising out of that notice; (b)deducing, evidencing and verifying the title to any such interest; (c)making out and furnishing such abstracts and copies as the nominee purchaser may require; (d)any valuation of any interest in the specified premises or other property; (e)any conveyance of any such interest; but this subsection shall not apply to any costs if on a sale made voluntarily a stipulation that they were to be borne by the purchaser would be void. (2)For the purposes of subsection (1) any costs incurred by the reversioner or any other relevant landlord in respect of professional services rendered by any person shall only be regarded as reasonable if and to the extent that costs in respect of such services might

reasonably be expected to have been incurred by him if the circumstances had been such that he was personally liable for all such costs. (3)Where by virtue of any provision of this Chapter the initial notice ceases to have effect at any time, then (subject to subsection (4)) the nominee purchaser’s liability under this section for costs incurred by any person shall be a liability for costs incurred by him down to that time. (4)The nominee purchaser shall not be liable for any costs under this section if the initial notice ceases to have effect by virtue of section 23(4) or 30(4). (5)The nominee purchaser shall not be liable under this section for any costs which a party to any proceedings under this Chapter before a leasehold valuation tribunal incurs in connection with the proceedings. (6)In this section references to the nominee purchaser include references to any person whose appointment has terminated in accordance with section 15(3) or 16(1); but this section shall have effect in relation to such a person subject to section 15(7). (7)Where by virtue of this section, or of this section and section 29(6) taken together, two or more persons are liable for any costs, they shall be jointly and severally liable for them

Evidence

Applicant

6. In their statement of legal and valuation costs case the Applicant confirms that they are the freehold owner of [NAME] comprising a 1930’s block of some 58 flats let on long leases.

7. On 27 January 2017 the Respondents and other long-leasehold tenants gave Notice under section 11 of the 1993 Act for [NAME] limited as nominee purchaser and other long leaseholders to acquire the freehold interest.

8. On 16 March 2017 the Applicant received Notice that save for the Respondents all other long-leaseholders who had given the Notice would no longer be participating in the claim.

9. On 21 March 2017 the landlord gave the First Respondent its without prejudice counter-notice.

10. The without prejudice nature of the Counter-Notices was on two grounds one of which was later abandoned.

11. By Order dated 25 April 2018 the County Court declared the Notice to be invalid and ordered the Respondent to pay the Applicant’s agreed costs following which the Respondents’ application was withdrawn and the Applicant’s S.33 costs crystallised.

12. Details of legal costs were provided indicating a charge out rate of £295 ph for a Grade A [NAME].

13. Details of valuation costs were provided indicating a charge out rate of £200ph for Mr [RESPONDENT] and £75ph for his secretary.

Respondent

14. The Respondent’s Statement in Reply made two detailed corrections to the applicant’s Statement of Case and made individual challenges to a number of items in both the legal and valuation costs schedules all of which are set out in the attached appendix.

15. The charge out rates are not challenged but, with regard to the Valuation fees the general observation is made that “these costs globally are significantly in excess of what would be considered reasonable costs, in accordance with section 33, in a case such as this.”

16. In summary, the Respondent challenges

Decision 17. The Tribunal’s decision is set out in the attached schedule.

18. The total sums disallowed are Legal costs of £166.81 and Valuation fees of £4,133.33.

19. The Tribunal therefore determines that the recoverable costs are assessed at;

• Legal costs £3,223.55 • [NAME]’s fees £12,600.88 • Total £15,824.43

D [NAME] 31 January 2019

1. A person wishing to appeal this decision to the Upper Tribunal (Lands Chamber) must seek permission to do so by making written application to the First-tier Tribunal at the Regional office, which has been dealing with the case. The application must arrive at the Tribunal within 28 days after the Tribunal sends to the person making the application written reasons for the decision.

2. If the person wishing to appeal does not comply with the 28-day time limit, the person shall include with the application for permission to appeal a request for an extension of time and the reason for not

complying with the 28-day time limit; the Tribunal will then decide whether to extend time or not to allow the application for permission to appeal to proceed.

3. The application for permission to appeal must identify the decision of the Tribunal to which it relates, state the grounds of appeal and state the result the party making the appeal is seeking.

Schedule of Dispute s33 Costs

Case Reference: CHI00MW/OC9/2018/0013

Premises: [NAME], [POSTCODE]

Item Cost Respondent’s Comments Applicant’s Comments Tribunal’s Comments/Determination 5 £147.50 Duplicates item 3(b) Item 3(b) relates to a review of the official copies whilst item 5 in part relates to the preparation of a bundle of copy official copies.

Allowed in full

7 £118.00 Duplication of item 6 As will be noted the items of work mentioned are different. The narrative for 7(a) and 7(b) largely duplicates 6(b) and is disallowed in part. Disallow £59

8 £545.70 8(b) duplicates item 3(a) therefore further breakdown requested as to amount of time spent Item 8b) is a review of official copies to answer queries raised by the applicant’s [NAME] whilst item 3(a) was a review of the official copies for advising the applicant as to the validity of the claim.

Allowed in full

15 £118.00 Not agreed as recoverable s33 costs This item relates to communications (a) with the applicant as to the impact that this claim has on the s42 claim then received from the tenant of 42 [NAME]; (b) communications with the solicitor for the tenant of 42 [NAME] to, in essence, tell them that their client’s claim is suspended by reason of this claim and (c) communications with the respondent’s solicitor as to the receipt of the s42 claim from the tenant of 42 [NAME].

Allowed in full

16 £472.00

Land Registry documents could have been obtained from the Respondent by requesting deduction of title under s20

(a) Whilst the scheme of the 1993 Act allows for the applicant to require the participating tenants to deduce title to their respective flats it is not mandatory that the applicant do so. It was open to the Applicant to determine how it would investigate the claim. All items in this section are allowed in full

£28.00

£39.05 Documents to Applicant’s [NAME] could have been sent by email and photocopying charges thereby avoided

Counter notice could have been sent by registered post avoiding the need for the costs of hand delivery

Thus, the applicant is permitted to make its own enquires as to the ownership that each participating tenant asserts to have to their flat/lease.

(b) The electronic transmission of some 52 plus sets of official copies is theoretically possible, the time that it would take to load them onto an email or series of emails would have been disproportionate to the photocopying of those documents.

(c) the section 21 counter notice was given on 21 March 2017. The long- stop date provided within the section 11 initial notice for the giving of such counter notice was 31 March 2018.

The value of the claim was circa £1.1million. The consequence of failing to give a counter notice will be well known to the tribunal.

17 £565.05 (of which £94.40 relates to VAT at 20% of Charges incurred for obtaining official copies from the Land Registry VAT has been applied to all items including item 16 where VAT should not be charged (Land Registry charges). VAT will need to be recalculated to be applicable only to relevant items The Land Registry does not charge VAT.

The Land Registry serves two purposes. One to maintain the records of land ownership and the other to make those records available to the public.

To achieve the first purposes legislation requires the compulsory registration with the Land Registry of certain types of land transaction. For dealing such registrations the Land Registry charges a fee.

To achieve the second purpose the Land Registry charges a fee for any copies of its records that members of the public may require.

For VAT purposes however, HM Revenue & Customs do not expect solicitors to charge their client VAT on the Land Registry fees for dealing with compulsory registration matters but they do expect The costs listed in section 16 are described as disbursements and as such may be recovered from the Respondent. From the information provided it seems that these are costs paid to Land Registry and others for the supply of documents. Whilst VAT would be chargeable on any service carried out by the Applicant’s solicitor such as the collation or copying of documents received it is not accepted that VAT should be charged on payments made to others on their client’s behalf. That part of the total VAT charge relating to disbursements is therefore disallowed.

solicitors to charge VAT on the Land Registry charges for the supply of copies. The apparent rationale for that is that when incurring a registration fee the solicitor is not providing a service to its client but it is providing a service when it obtains copies from the Land Registry.

Disallow £107.81

18 £3,390.30 Not agreed This does not require any comment as the objection is simply the culmination of the objections referred to above.

£3,390.36 less disallowed as above £166.81 = £3,223.55

(3)

General Observation - it is noted that the Applicant’s claimed s33 valuation costs total £16,734.21 comprising £14,567.61 respre4senting over 72hrs 48mins [NAME] time at a rate of £200ph, £2,075.00 representing 27hrs 36mins secretarial time at a rate of £75ph and disbursements totalling £91.60. Notwithstanding further details and observations which follow [NAME] has to consider: 1. 56 flats, 2 commercial premises, over 8 floors, with sea views of varying quality, 7 garages;

2. From researching and inspection I established 5 different main flat layout designs of 1, 2 or 3 bedrooms. Numerous further individual flat layouts. Differing quality of sea views between the flats, which is also pertinent to value. The Tribunal accepts that this was a complex valuation with much variation between floors, aspect, size, amenities and lease length. Clearly there must be “economies of scale” in that the research into comparables will be common to all units. Whilst a number of lessees withdrew from the process

below, the Respondent submits that these costs globally are significantly in excess of what would be considered reasonable costs in accordance with s33 in a case such as this 3. 19 different lease lengths, and ground rent / rent review configurations, including 4 different lease lengths below 80-yrs unexpired;

4. The participating flats and those non- participating, which was altered, a considerable number of the participating tenants withdrew from the claim. on 16 March 2017 uncertainty remained as to whether their withdrawal would be effective.

£412.50 20 to 27 February 2017 - secretarial time in setting up spreadsheet 5hrs 30mins - unreasonable amount of time propose 2hrs 30mins [NAME] worked together with his secretary to extract and collate the data which had to be found by reading through the all leases and associated title documents. If anything, [NAME] considers that he has underestimated the time spent doing this. Allowed in full

£620.00 24 to 28 February 2017 - [NAME] in preparing and populating spreadsheet - 3hrs 10mins - unreasonable amount of time -propose 1hr 30mins [NAME] worked together with my secretary to extract and collate the data which had to be found by reading through the all leases and associated title documents. If anything, [NAME] consider that he has underestimated the time spent doing this. Allowed in full

£66.67 28 February 2017 - [NAME] in considering validity of initial notice -20mins - legal not valuation matter - propose 0hrs [NAME] had input into S.13 validity consideration. There were omissions from the S.13, such as missing pages, missing plan and the descriptions had to be considered in light of my knowledge of the of the block.

Not a valuation matter. Disallowed

£37.50 6 March 2017 - secretarial time in downloading EPCs - 30mins - not recoverable under s33 - propose 0hrs Information extracted from EPCs was used to as part of valuation consideration Allowed in full

£225.00

9 March 2017 - secretarial time in data entry and compiling list of missing information - 3hrs - unreasonable amount of time also duplicated by [NAME] time (see above) - propose 0hrs It was much more time-effective for [NAME] to work together with his secretary to check the documents missing and compiling a list. Using the secretary thus saved [NAME] doing it alone and spending more expensive time on it.

Allowed in full

£750.00 13 March 2017 - secretarial time in travel to and from Isle of Wight and in attending inspections of east and west wings - 10hrs -unreasonable [NAME] inspected a considerable number of flats on one visit, and could only see that number at one visit by having an assistant saving his time by doing tasks such as photography, assisting It is accepted that [NAME] required some form of assistance. Allowed in full

amount of time also duplicated by secretarial time (see below) - propose 1hr with measuring, keeping/collating documents. [NAME] been alone, he would have needed to make two full day visits to be able to see the same number of flats, which would have cost more in time overall.

£600.00 16 March 2017 - [NAME] time in auditing documents - 3hrs - unreasonable amount of time also duplicated by secretarial time (see below) - propose 1hr This is the time spent checking documents, again saving [NAME] time doing it alone. It involved checking differently drafted leases etc. There are a number of different leases which need to be checked. Allowed in full

£225.00 16 March 2017 - secretarial time in auditing documents - 3hrs - unreasonable amount of time also duplicated by [NAME] time (see above) - propose 1hr This is the time spent checking documents, again saving [NAME] time doing it alone. It involved checking differently drafted leases etc. Allowed in full

£6,266.67 20 to 28 March 2017 - [NAME] time in preparing valuation - 31hrs 20mins - unreasonable amount of time spent in preparation of The spreadsheets were already prepared with the data but not with the valuation data to be applied. The work for this entry included: market research, analysis and collation of comparable market It is agreed that the time spent on this was excessive. The number of flats to be valued is immaterial to the amount of research

valuation given that spreadsheets had already been prepared - propose 4hrs transactions for both long and short lease transactions for the various flat types. [NAME] also researched comparables outside of the block itself. For every outside comparable the lease terms were checked, by downloading the relevant lease from Land Registry. [NAME]’s research work included [NAME], [NAME] and other online data sources, phone calls to agents to check details. This is all time-consuming and, if anything, [NAME] considers that he has understated the time spent doing this.

required. It is accepted that the calculation of the individual valuations takes time but with a spread sheet already set up this should not have proved unduly onerous. 12 hours allowed.

Disallow £3866.66

£3,400.00 30 March 2017 to 26 April 2017 - [NAME] time spent in researching auction freeholds and drafting and sending final report - 17hrs - not recoverable under s33 as time incurred following service of Applicant’s counter notice. In the alternative an unreasonable amount of time incurred in undertaking these tasks - propose 0hrs [NAME]’s summary report for the s45 counter notice was sent prior to the counter notice being given. [NAME]’s final full report was completed and sent at the end of April. This incorporated further freehold ground rent market research that he considered relevant to the valuation advice for the applicant, regardless of whether before or just after the counter- notice date.

It is not accepted that post s.33 costs are not recoverable. Where costs are incurred which relate to a valuation already provided they are allowed. Costs of £200 for “Research Auction Freeholds is therefore disallowed.