First-tier Tribunal Determines Landlord's Recoverable Costs

OUTCOME: Dismissed

FIRST-TIER TRIBUNAL

PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case reference : LON/00AF/OC9/021/0048

Property : 9 [ADDRESS], [POSTCODE]

Applicant: [redacted]

Respondent: [redacted]

Tribunal members : Mr [NAME]

Date of decision : 11 January 2022

DECISION

This has been a remote hearing on the papers which has been consented to by the Applicant and not objected to by the Respondent. A face to face hearing was not held because it was not practicable, no-one requested the same, and all the issues could be determined on the papers. The documents that I was referred to were emailed to the Tribunal, the contents of which I have recorded.

Decision of the tribunal

The tribunal determines that pursuant to section 60(1) legal fees of £2792.52 including VAT and surveyor’s fees of £1200 + VAT are payable by the Applicant.

Introduction and background

1. The Applicant is the long leaseholder of the flat known as 9 [ADDRESS],[POSTCODE] (the “Property”).

2. The Respondent is the freeholder of the building and the competent landlord for the purposes of the Leasehold Reform and Urban Development Act 1993.

3. This is an application under section 60 of the Leasehold, Reform, Housing and Urban Development Act 1993 (the “Act”) to determine the amount of the landlord’s recoverable costs in connection with a claim under section 42 of the Act to exercise the tenant’s right to extend the lease of the “Property”.

4. On 17 February 2020 the Applicants, served notices of claim on the landlord under section 42 of the Act. ( The First Application)

5. The First Application was based on the title documents shown at the Land Registry and proposed a premium of £1800 based on the unexpired term of 101.61 years and the ground rent specified in the lease of a peppercorn.

6. The Respondent objected to the notice as it did not reflect a deed of variation entered into between the Landlord and the Applicant’s predecessor in title varying the ground rent. On investigation a copy of the deed 13 September 2002 was found which should have been registered by the [NAME].

7. A second notice was then served dated 20 August 2020 proposing a premium of £8000 and a premium was eventually agreed at £10,250. The date for service of a counter notice was 30 October 2020. Counter notice was served on 15 October 2020 admitting the claim but disputing the premium.

8. The parties agreed the terms of acquisition and the new lease has completed.

9. The Applicant applied for a Determination of Costs payable pursuant to Sections 60 of the Leasehold Reform Housing and Urban Development Act 1993.

10. The valuation fees are agreed at £600 for each application plus VAT

11. The Tribunal issued Directions on 13 October 2021 following which both parties have made written submissions.

The costs in issue

12. [NAME] has provided a schedule of costs for each claim and claims £3054.12 including VAT for the first claim and £2888.58 including VAT for the second claim. These totals include the agreed [NAME] fees.

13. The Applicant has submitted that legal costs of £1250 plus VAT to £1500 plus VAT would be appropriate for a lease extension of this value.

The Respondents evidence

14. The tribunal has been provided with an itemised schedule of the legal fees for each claim with the date and description of each item, the time spent and resultant cost broken down into discrete areas covering each subsection of section 60 of the Act.

15. On 17 November 2020 the Applicant served a section 42 claim for a lease extension on the Property proposing a premium of £1800. On 24 February 2020 the [NAME] submitted a Deposit Notice on a without prejudice basis and confirmed that they had been advised there was a Deed of Variation altering the ground rent from a peppercorn to £175 per annum doubling every 25 years. A copy of the Deed was forwarded on 4 March 2020 with a request it should be registered. The Applicant should have been aware that the rent actually being paid was different from that specified in the lease. The Applicant was invited to re-serve the section 42 notice with a realistic premium reflecting the Deed.

16. The Respondent took the view that the lease extension claim must relate to the lease as varied and that this could not be left until service of the counter notice. On 25 March 2020 the Applicant’s surveyor confirmed that the initial notice was void and it was not possible to take into account the impact on the valuation due to the unregistered deed of variation and confirmed that the section 42 notice would be re-served.

17. On 20 August 2020 the Applicant served a new section 42 notice and on 15 October 2020 the Respondent served a counter notice and deposit notice and subsequently the parties reached agreement on the premium.

18. Costs are claimed as follows:

First Invalid Claim

Legal costs - £1,925.00 plus VAT

Surveyor's fees - £600.00 plus VAT (accepted by the Applicant)

Disbursements -£20.10 plus VAT

Total - £3,054.12 inclusive VAT

Second Claim

Legal costs - £1,787.50 plus VAT

Surveyor's fees - £600.00 plus VAT (Accepted by the Applicant)

Disbursements - £19.65 plus VAT

Total - £2,888.58 inclusive VAT

19. The costs claimed are reasonable under section 60 of the Act and covers investigation reasonably undertaken of the tenant’s right to a new lease, any valuation of the tenants flat for the purpose of fixing a premium and the grant of a new lease under that section.

20. Under section 60 (3) if the tenant’s notice ceases to have effect or is deemed to have been withdrawn the tenant shall be liable for the landlords costs.

21. It is noted the Applicant accepts the [NAME] fees which are not subject to challenge. If the Applicant is willing to accept both [NAME] fees then that is in itself evidence of support of the fact that work-related to both section 42 notices is valid and recoverable. The same principle should apply to solicitors fees.

22. The Applicant has adopted a simplistic view of the costs claim on the incorrect basis that the first invalid claim could have been continued to complete the transaction. The [NAME] are under an obligation to protect the interests of the Landlord including ensuring the transaction proceeds on the basis of a valid section 42 notice. The first notice was invalid as it proposed and unrealistically low premium and did not take into account the Deed of Variation.

23. The Applicant has not submitted any evidence in support of the proposed fee of £1500 and this does not take into account the invalid claim.

The Applicant’s evidence

24. the Applicant has set out the chronology of the claim and points out that before the landlords counter notice was due the applicant accepted that in determining the premium payable regard would need to be had to the impact of the deed of variation. The applicant proposed that the [NAME] determine the premium having regard to the impact of the deed and in the absence of agreement refer the matter to the tribunal.

25. The Respondent’s representatives refused to agree this suggestion and invited service of a second notice. The Applicant was forced into the position of either having to go to court to defend the original section 42 notice or resurface it. A further (but unnecessary section 42 notice) was served in the same terms other than the amount of the premium. The premium could not be agreed and application was made to the tribunal before the premium was finally agreed.

26. The [NAME] fees of £1200 plus VAT are not in dispute which leaves legal fees of £4502.70 inclusive of VAT.

27. Section 60 provides that costs incurred by the landlord should only be regarded as reasonable “if and to the extent that such costs in respect of such services might reasonably be expected to have been incurred by him if the circumstances had been such was personally liable for all such costs”

28. The Applicant is the view that if the landlord had been personally responsible for payment of section 60 legal costs in the knowledge the tenant was willing to pay a premium to reflect the deed of variation the landlord would not put the tenant to the trouble of serving a further section 42 notice with the potential to incur unnecessary additional legal costs. A reasonably minded landlord would have left his valuer to negotiate the premium to reflect the deed or made representations to the tribunal in the knowledge that the tenant fully accepted the deed could not be ignored.

29. Mr [NAME] expresses his opinion that his experience the reasonable costs for a section 60 legal fee for a premium of £10,000 would be £1250 plus VAT to £1500 plus VAT.

Determination

30. Costs under S.60 are limited to the recovery of reasonable costs of and incidental to any of the following matters:

i. Any investigation reasonably undertaken of the tenant’s right to a new lease;

ii. Any valuation of the tenant’s flat obtained for the purpose of fixing the premium or amount payable by virtue of Schedule 13 in connection with the grant of a new lease under section 56;

iii. The grant of a new lease under that section.

31. Subsection 2 of section 60 provides that “any costs incurred by a relevant person 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”.

32. Having read all the representations made by both parties the tribunal determines that the work was undertaken by the appropriate Grade of fee earner.

33. However, the Tribunal considers that an excessive amount of time has been claimed throughout the process. A total of 30 letters in the first claim and 56 letters for the second claim does not identify which of these letters are of substance relating to the issues and which are chasing or similar letters. Given that six minutes is claimed for each the tribunal doubts that the majority of letters are of substance. In the first claim there are 14 letters claimed under section 60 (1) (a) totalling £385 but work on the documents including identifying the missing deed of variation is only costed at £247.50. It is also difficult to see why 20 letters were required for the valuation process. Costs are claimed under section 60 (1) (c) as costs of a new lease but no lease resulted under the first claim. Under this heading work on the documents is costed at £110 out of a total of £550 with the balance being 16 letters.

34. In the view the tribunal the total allowable under section 60 (1) (a) is £622.10 plus VAT and inclusive of disbursements.

35. Under section 60 (1) (B) the tribunal allows a total of £550.

36. Under the first claim costs of a new lease are disallowed.

37. The total under the first claim is therefore £1172.10 plus VAT totalling £1406.52

38. in the second claim the tribunal determines that a reasonable cost for correspondence under section 60 (1) (a) is £330 with work on documents £82.50 being allowed. No explanation is given as to why courier costs have been incurred or why further land registry entries are necessary. Disbursements are therefore disallowed.

39. Under section 60 (1) (b) the tribunal struggles to see why 27 letters are necessary dealing with the valuation when work on the report itself took 24 minutes. Negotiation of the premium presumably took place between the [NAME]. The tribunal determines that a total of 12 letters will be allowed totalling £330 and the tribunal allows a further £110 for working on the valuation report.

40. Under section 60 (1)(c) the tribunal allows the costs of correspondence at £265 plus VAT and will allow work on the documents totalling five units taken from the first and second claims totalling £137.50

41. The total for the second claim is £1155 plus VAT of £231 totalling £1386.

42. The total legal costs allowable are therefore £2792.52 including VAT.

Name: [NAME]: 11 January 2022

Costs recoverable under section 60 of the Act

Costs incurred in connection with new lease to be paid by tenant.

(1) Where a notice is given under section 42, then (subject to the provisions of this section) the tenant by whom it is given shall be liable, to the extent that they have been incurred by any relevant person in pursuance of the notice, for the reasonable costs of and incidental to any of the following matters, namely—

(a)any investigation reasonably undertaken of the tenant’s right to a new lease;

(b)any valuation of the tenant’s flat obtained for the purpose of fixing the premium or any other amount payable by virtue of Schedule 13 in connection with the grant of a new lease under section 56;

(c)the grant of a new lease under that section;

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 a relevant person 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 tenant’s notice ceases to have effect, or is deemed to have been withdrawn, at any time, then (subject to subsection (4)) the tenant’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) A tenant shall not be liable for any costs under this section if the tenant’s notice ceases to have effect by virtue of section 47(1) or 55(2).

(5) A tenant 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 “relevant person”, in relation to a claim by a tenant under this Chapter, means the landlord for the purposes of this Chapter, any other landlord (as defined by section 40(4)) or any third party to the tenant’s lease.

RIGHTS OF APPEAL

1. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber) then a written application for permission must be made to the First-tier Tribunal at the Regional office which has been dealing with the case.

2. The application for permission to appeal must arrive at the Regional office within 28 days after the Tribunal sends written reasons for the decision to the person making the application.

3. If the application is not made within the 28 day time limit, such application must include a request for an extension of time and the reason for not complying with the 28 day time limit; the Tribunal will then look at such reason(s) and decide whether to allow the application for permission to appeal to proceed despite not being within the time limit.

4. The application for permission to appeal must identify the decision of the Tribunal to which it relates (i.e. give the date, the property and the case number), state the grounds of appeal, and state the result the party making the application is seeking.