First-tier Tribunal Decides Reasonableness of Costs in Leasehold Enfranchisement

OUTCOME: Allowed in Part

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case Reference

:

CHI/21UC/OC9/2021/0018

Property

:

[RESPONDENT[NAME], [APPELLANT], Eastbourne, East Sussex, [POSTCODE]

Applicant: [redacted] : [COUNSEL] [APPELLANT]

Respondent: [redacted]

:

[COUNSEL] Solicitors

Type of Application

:

Landlord’s costs Leasehold Enfranchisement – section 33(1) Leasehold Reform, Housing & Urban Development Act 1993

Tribunal Members

:

Judge N Jutton

Date of Decision

:

14 April 2022

DECISION

© CROWN COPYRIGHT 2022

1 Background

On 8 August 2018 the lessees of 8 residential flats at [RESPONDENT[NAME], [APPELLANT], Eastbourne, [POSTCODE] (the Property) served Notice pursuant to section 13 of the Leasehold Reform, Housing & Urban Development Act 1993 (the Act) seeking to acquire the freehold interest in the Property from [APPELLANT[COMPANY] on the terms set out in the Notice. The Notice provided that for the purposes of section 15 of the Act the nominee purchaser would be the Respondent to this application, [RESPONDENT[COMPANY]. The Notice required a response by 28 October 2018. The Notice was signed by the [NAME] on behalf of each of the lessees.

2 On 18 October 2018 the [NAME] served on the Respondent by courier and by fax c/o the [NAME], a counter-Notice pursuant to section 21 of the Act. The counter-Notice admitted that the lessees (the Participating Tenants) were entitled to exercise the right to collective enfranchisement as provided for in the Act. The counter-Notice disputed certain terms of the proposed enfranchisement and made counter proposals. The Notice was accompanied by a letter from the [NAME] which stated that the counter-Notice was served without prejudice to the Applicant’s contention that the initial Notice was invalid and of no effect. Attached to the counter-Notice was a draft form of Transfer on Land Registry Form TP1.

3 The Respondent subsequently made an application to this Tribunal seeking a determination of the terms of the proposed acquisition of the freehold interest in the Property. It is understood that application was struck out by the Tribunal.

4 The Applicant seeks to recover its costs from the Respondent pursuant to section 33 of the Act. The Respondent does not dispute that the Applicant is entitled to recover its reasonable costs but disputes the amount.

5 On 15 December 2021 the Applicant submitted an application to this Tribunal pursuant to section 91(2)(d) of the Act for a determination as to the amount of costs to be paid by the Respondent to the Applicant pursuant to section 33 of the Act.

6 The Tribunal has before it a bundle of documents running to some 106 pages which contains the Claim Notice dated 8 August 2018, the counter-Notice dated 18 October 2018, the application to this Tribunal dated 15 December 2021, Directions made by the Tribunal, the Applicant’s Statement of Costs and Disbursements in a form of spreadsheet with the Respondent’s comments endorsed thereon and the Applicant’s points in reply. There is also in the bundle a form of reply from the Applicant to the Respondent’s comments dated 29 March 2022 and HM Land Registry Official Copy Entries of the freehold title of the Property and the leasehold title of each flat at the Property. References in this Decision to page numbers are references to page numbers in that bundle.

7 Directions were made by the Tribunal on 9 February 2022 for the service of Statements of Case and for the preparation of a bundle. The Directions provided 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 within 28 days of receipt of the Directions. No objection has been received by the Tribunal and therefore the Tribunal has proceeded to determine the application on the papers without a hearing.

8 The Tribunal made a further Direction on 23 March 2022 in response to an application made by the Applicant allowing the Applicant to serve a brief reply to the Respondent’s case.

9 The application dated 15 December 2021 states that the amount of costs in dispute are as follows:

a. Legal costs including VAT: £3,360.00 b. Landlord’s valuation fees including VAT: £2,400.00 c. HM Land Registry fees: £7.00 d. Courier fees including VAT: £355.14

However, the Applicant has produced a form of spreadsheet upon which the Respondent has endorsed its comments and to which the Applicant has replied, (pages 38-41) which sets out total costs claimed as follows:

a. Legal fees

£3,788.00

VAT

£757.60 b. Courier fees including VAT £355.14 c. HM Land Registry fees

£57.00

VAT

£11.40 Total

£4,969.14

The Tribunal has assessed the costs by reference to the said spreadsheet. Further, valuer’s fees of £2,400 are included in the application. There appears to be no objection to those. The valuer’s invoice appears at page 48.

10 Section 33 of the Act provides:

(1) Where a notice is given under section 13, then … the nominee purchaser shall be liable, to the extent that they have been incurred in pursuance of the notice by the [NAME] 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 specific 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 sub-section 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 sub-section (1) any costs incurred by the [NAME] 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.

……….

(5) The nominee purchaser shall not be liable under this section for any costs which a party to any proceedings under this Chapter before the appropriate tribunal incurs in connection with the proceedings”.

11 The Respondent is liable for the Applicant’s costs as provided for by section 33 subject to the test of reasonableness set out in sub-section 33(2). Those being costs of and incidental to the matters set out in section 33(1) incurred in pursuance of the initial notice served by the Respondent under section 13 of the Act.

12 The Tribunal’s Decision

13 Section 33 of the Act seeks to do two things. Firstly, given that the Act confers a right on the tenants of leasehold flats to compel their landlord to sell the freehold interest in their property to them, it provides as a matter of basic fairness that the tenants in exercising such rights should reimburse the costs that the landlord reasonably incurs as a consequence.

14 Secondly, it seeks to provide some protection for tenants against being required to pay more than is reasonable. Section 33 does not provide an opportunity for a landlord’s advisers to charge excessive fees in the expectation that they can be recovered from the tenants. That is the purpose of the test of reasonableness under section 33(2) of the Act. That test has been described as the ‘reasonable expectation test’. What would a landlord reasonably expect to pay if he was paying the costs himself?

15 The Tribunal has carefully considered the written submissions made by both parties. Attached to this Decision is the Schedule of Costs with the comments of the parties endorsed thereon, together with the Tribunal’s determination set out in the final column of the Schedule.

16 The Respondent raises a general issue in relation to the hourly rates charged by the [NAME]. The hourly rates claimed by the Applicant are £625 for partner SJS, £495 for partner [NAME], and £385 for senior assistant solicitor SAK. All are described as grade A fee earners.

17 The Respondent says that the nature of the matter does not justify a departure from the Solicitors’ guideline hourly rates for London of £512 for a grade A fee earner, £348 for a [NAME], £270 for a [NAME] and £186 for a [NAME]. Further, the Respondent says, there are certain matters which properly could and should have been dealt with by a [NAME].

18 The Applicant says that the guideline hourly rates are not relevant to a determination of costs payable pursuant to section 33 of the Act. They are, says the Applicant, guideline rates for summary assessment in civil court matters where the recovery of costs are not, as in this case, determined by specific statutory provisions. Further, the Applicant says, the guideline hourly rates do not reflect the specialist nature of leasehold enfranchisement work or the indemnity which the Applicant says is intended for by reason of section 33 of the Act. The guideline hourly rates the Applicant says relate to costs incurred in respect of civil proceedings which are “markedly different to the compulsory acquisition nature of enfranchisement and the provision set out in section 60 (sic) of the Act”. The rates charged, the Applicant says, are entirely consistent with the usual charge-out rate for solicitors in [NAME]. The Applicant refers the Tribunal to two decisions of the Tribunal: [COMPANY] v [COMPANY] (2004); and [COMPANY] v [NAME] (2022). Neither Decision is binding on this Tribunal.

19 The costs payable by the Respondent by reason of section 33 of the Act may be a creature of statute but they are subject to a test of reasonableness, ‘the reasonable expectation test’. Whether or not the guideline hourly rates are directly applicable to the assessment of statutory costs, they are nonetheless in the view of the Tribunal a helpful starting point for the Tribunal in determining whether an hourly rate claimed is reasonable. The Tribunal accepts that in substantial and/or complex matters an hourly rate in excess of the guideline figures may be appropriate where other factors, for example the value of the matter, the level of complexity, the urgency or importance of the matter, would justify a higher rate. The Tribunal does not accept the Applicant’s submission that the provisions of the Act or the specialist nature of leasehold enfranchisement work are such that would require such a level of expertise that would justify a rate in excess of the guideline hourly rates. The individual solicitors who had the conduct of this matter on behalf of the Applicant are no doubt solicitors who specialise in this particular area of law. They specialise in leasehold enfranchisement matters. The guideline hourly rates particularly with reference to [NAME] will, in the view of the Tribunal, already reflect the fact that the solicitors to which they apply will have a particular degree of specialism and expertise.

20 The Tribunal therefore applies the guideline hourly rates to the Applicant’s costs.

21 The Schedule of Costs at pages 38-41 as stated above makes reference to certain disbursements, namely courier fees of £295.95 plus VAT and HM Land Registry fees of £57 plus VAT. These do not appear to be disputed by the Respondent. Further, they are in the view of the Tribunal reasonable and accordingly are allowed. Nor do the valuer’s fees of £2400 (the invoice is at page 43) appear to be disputed. The valuers’ fees are in the experience of the Tribunal reasonable and are also allowed.

22 Summary of the Tribunal’s Decision

23 The Tribunal determines that the costs payable by the Respondent pursuant to section 33 of the Act are as follows:

a. Legal costs £2,343.10 VAT thereon £468.62 b. Valuer’s fees including VAT £2,400.00 c. Courier’s fees including VAT £355.14 d. HM Land Registry fees including VAT £68.40

Total £5,635.26

Dated this 14th day of April 2022

Judge N P Jutton

Appeals

1. A person wishing to appeal this decision to the Upper Tribunal (Lands Chamber) must seek permission to do so by making written application by email to [EMAIL] to the First-tier Tribunal at the Regional office which has been dealing with the case.

2. 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.

3. 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.

4. 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 application is seeking.

CASE REFERENCE: CHI/43UJ/HTC/2021/0005 [RESPONDENT[NAME] , [APPELLANT], EASTBOURNE Item Date Activity Description Fee earner Status Hours Rate Amount Respondent's Comments Applicant's Points of reply 1 22/08/2018 Documents Considering Initial Notice and and reviewing all title documents and reporting to client [NAME] 0.7 £625.00 £ 437.50 Item 1 seems excessive given costs are claimed for reviewing title documents before the solicitors for the Applicant sought deduction of title (see Item 2). An allocation of 0.2 hours seems more appopriate. The nature of the claim does not justify a departure from the SCCO guideline rates for London (Grade A £512, Grade B £348, Grade C £270, Grade D £186). We can only assume SJS is a Grade A fee earner when this matter could have been addressed by a [NAME] given the position was straightforward. The costs claimed are in accordance with Section 33 of the Act and are recoverable. The specific time limit set out by the Act does not afford the [NAME] a great deal of time to consider the Claim Notice and instruct a valuer. It is important to review the Claim Notice as soon as possible. We refer to the Statement in Reply with respect to the submission regarding SCCO guideline rates. 2 22/08/2018 Letter Engaged preparing letter to Nominee Purchasers solicitors seeking deduction of title [NAME] 0.1 £625.00 £ 62.50 The nature of the claim does not justify a departure from the SCCO guideline rates for London (Grade A £512, Grade B £348, Grade C £270, Grade D £186). We can only assume SJS is a Grade A fee earner when this matter could have been addressed by a [NAME] given the position was straightforward. Please see Statement in Reply concernng the SCCO guideline rates 3 26/09/2018 Email Preparing email to valuer with instructions [NAME] 0.1 £625.00 £ 62.50 We repeat our comments for Item 2 here. 4 27/09/2018 Documents Reviewing valuation report [NAME] 0.5 £625.00 £ 312.50 This is a matter for the Applicant's surveyor not their solicitors. This does not fall within section 9(4) of the Leasehold Reform Act 1967 and should be disregarded. It is important for any solicitors acting for the [NAME] to consider a valuation report to ensure the details are correct and in this case it was also important to consider the position on the appurtenant land. 5 03/10/2018 Documents Engaged considering initial notice and title documents/map search and preparation of the draft counter-notice [NAME] Partner 1.5 £495.00 £ 742.50 There is further reference to reviewing title documents. It is evident there has been a duplication of work due to the number of different fee earners. It is not possible to precisely identify this duplication due to the lack of detail in the costs schedules. In the absence of information we asusme [NAME] is a Grade A fee earner when this work could have been carried out by a [NAME] with ease with an hourly rate of £348. An allocation of 1.5 hours is excessive and unreasonable as the costs of preparing the counter-notice are not recoverable under section 9(4) of the Leasehold Reform Act 1967. Costs should be [COMPANY] to 0.3 hours. [NAME] is agrade A fee earner and the [NAME] is entitled to instruct the solicitors of its choice and the Tribunal have consistently accepted the charge out rate and involment of a Grade A fee earner. The Property Chamber is referred to the Statement in Reply

6 10/10/2018 Documents Engaged amending counter-notice [NAME] Partner 0.5 £495.00 £ 247.50 The description here is vague and it is not clear what this work entailed. In any case these costs would fall outside section 9(4) of the Leasehold Reform Act 1967 and are not recoverable. It is incumbent on the the solicitors for the [NAME] to consider the draft counter- notice together with up to date title documentation, the valuation report and intsructions. 7 15/10/2018 Documents Review of title documents, rights and appurtenant land and preparation of the TR1 [NAME] 2.5 £385.00 £ 962.50 Item 9 is excessive and should be discounted in full. There had already been a review of title documents at item 5. This is now the third item relating to review of title documents by three different fee earners. Time to be [COMPANY] to 0.2 hours. 8 16/10/2018 Documents Review of the transfer of the appurtenant property [NAME] 0.2 £385.00 £ 77.00 The revised allocation of 0.2 hours for item 7 above for the drafting of the transfer will be more than sufficient to avoid a duplication of costs. These costs are payable pursuant to Section 33 of the Act and are resonable in the circumstances. The Property Chamber is referred to the draft transfer attached to the counter-notice. 9 16/10/2018 Documents Amending and updating counter-notice and TR1 [NAME] 0.7 £385.00 £ 269.50 Again, this appears to be a repeat of item 6 and it is not clear why two fee earners were required to carry out the same work. This is not agreed and falls outside section 9(4). 10 16/10/2018 Email Engaged preparing email to valuer [NAME] 0.1 £385.00 £ 38.50 No comment save for guideline rates shall apply. Please see Statement in Reply concernng the SCCO guideline rates 11 17/10/2018 Emails Engaged on call with valuer regarding the appurtentant land and stores [NAME] 0.5 £385.00 £ 192.50 This is an excessive amount of time and we consider this would not have been incurred had the Applicant been personally liable for these costs, hence this item should be discounted. Theses costs are payable pursuant to Section 33 of the Act. In preparing the Transfer it was necessary for the solicitor to speak to the valuer who had knowledge of the building and had carried out an inspection. It is to be noted that a site visit by the Solicitors would also fall within Section 33 and as such there is a saving in this regard. 12 17/10/2018 Email Engaged preparing email to client [NAME] Partner 0.1 £495.00 £ 49.50 No context is given. If concerning value this matter would fall outside section 9(4). Seeking further instructions from the [NAME] concerning the price payable, the property to be acquired and the retention of rights over appurtenant land 13 18/10/2018 Documents Engaged obtaining up to date title documents [NAME] 0.2 £210.00 £ 42.00 This seems unnecessary particularly given the Applicant seeks to recover time for three earlier reviews of the same time by different fee earners. This item should be discounted. Accepted 14 18/10/2018 Email Engaged on email with client [NAME] Partner 0.1 £495.00 £ 49.50 We repeat our comments at item 2 here. Please see Statement in Reply concernng the SCCO guideline rates

15 18/10/2018 Documents Review and further amend TR1 and plan [NAME] 0.5 £385.00 £ 192.50 This seems an unnecessary item of work given the Applicant's claim the initial notice was invalid. This is also a duplication of time already incurred with drafting and amending the TR1 at items 7 and 9. Where an Initial Notice is invalid a [NAME] is still required to serve a counter-notice puruant to Section 21 of the Act admitting entitlemnt to acquire the freehold and setting out counter-proposals to the proposals contained in the Initial Notice. There is a difference between denying entitlement and contending an Initial Notice is Invalid. 16 18/10/2018 Letter Preparing letter to Nominee Purchaser serving the counter-notice [NAME] Partner 0.1 £495.00 £ 49.50 We repeat our comments at item 2 here. Please see Statement in Reply concernng the SCCO guideline rates General Comments: There has been a breach of the indemnity principle, as the sums invoiced by the Applicant were less than the figures in the costs schedules. The invoice raised to the Respondent clearly states that it is an interim invoice and a further invoice will be raised upon determination of the costs application. There has been no breach of the indemnity principle. Total Time 8.4 General Comments: The nature of the claim does not justify a departure from the SCCO guideline rates for London (Grade A £512, Grade B £348, Grade C £270, Grade D £186). This claim did not warrant a Grade A fee earner dealing nor did it warrant four earners duplicating costs. Please see Statement in Reply concernng the SCCO guideline rates . There has been no duplictaion of time spent by the relevant fee earners and all time spent is properly recoverable pursuant to Section 33 of the Act Work on documents Hours Total Fees £3,788.00 Overall, we consider only £750 plus VAT is recoverable from the Respondent towards the Applicant's legal costs. Not accepted [NAME]) 1.2 VAT @ 20% £ 757.60 Partner ([NAME]) 2.0 Assistant Solicitor (SAK) 3.9 Paralegal ([NAME]) 0.2 Communications with client Courier fees £ 295.95 [NAME]) 0.1 VAT @ 20% £ 59.19 Partner ([NAME]) 0.2 Communications with valuer Assistant (SAK) 0.6 Land Registry Fees £ 57.00 Communications with Nominee Purchaser VAT @20% £ 11.40 [NAME]) 0.1 Partner ([NAME]) 0.1

8.4 TOTAL £4,969.14 Respondent's comments: We require clarity on the grade of each fee earner. The schedule does not set out the experience of each fee earner in breach of the directions issued by the Tribunal. The fee earners are all grade A fee earners and the details of the charge out rates are listed in the Statement of Costs