First-tier Tribunal Rules on RTM Company Costs

OUTCOME: Allowed

Case Reference : CHI/OOML/LCP/2021/0001

Property : 73 [ADDRESS] [POSTCODE]

Applicant: [redacted] : [APPELLANT]

Respondent: [redacted]

[COMPANY] by : [RESPONDENT] of Application : Landlord’s Costs: Right to Manage: Section 88(4) Commonhold and Leasehold Reform Act 2002

Tribunal Member : Judge M Davey

Date and venue of Hearing

: 13 December 2021

Date of Decision : 11 January 2022

FIRST - TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Decision

The Tribunal determines that the amount of costs payable by the Respondent is

1. £481.25 plus VAT in respect of [RESPONDENT] legal fees. 2. Disbursements of £6.85 plus VAT. 3. £100 plus VAT in respect of [NAME]’ fee.

Reasons for decision

The Application

1. These are the reasons for decision of the First-tier Tribunal (Property Chamber) (“the Tribunal”) in the matter of an application (“the Application”) dated 29 June 2021 and made under section 88(4) of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) by [APPELLANT] (“the Applicant”). The respondent to the Application is [RESPONDENT] [COMPANY] (“the Respondent”) which was incorporated on 25 November 2020.

2. The [COMPANY] was formed on 25 November 2020 for the purposes of claiming the right to manage premises at 73 [ADDRESS] [POSTCODE] (“the Premises”) under Chapter 1 of Part 2 of the 2002 Act.

3. By a claim notice dated 21 December 2020, and given under section 79 of the 2002 Act, the [COMPANY] claimed the right to manage the Premises specified in the claim notice, which the claimant believed to be owned by the Applicant. The notice appears to have been served on 6 January 2021. [APPELLANT], through its solicitors, [APPELLANT] (“[NAME] [NAME]”), sent a counter notice dated, 1 February 2021, alleging that by virtue of sections 79(8) and 80(7) of the 2002 Act the [COMPANY] was not, on the relevant date, entitled to acquire the right to manage the Premises specified in the claim notice. Following correspondence between the parties the claim notice was withdrawn by a letter dated 8 April 2021.

4. The Applicant now seeks its costs of £1,775.22 incurred as landlord of the Premises in consequence of the claim notice.

5. Judge P J Barber issued Directions to the parties on 4 August 2021, which set out a timetable and the steps to be taken by the parties. The matter was eventually set down for an oral hearing on 13 December 2021. At the hearing Ms [APPELLANT], of [NAME], represented the Applicant and Mr [APPELLANT] [NAME] of the Respondent’s [NAME] agents, [RESPONDENT], represented the Respondent.

The law

6. Section 88 of the 2002 Act provides as follows:

(1) A [COMPANY] is liable for reasonable costs incurred by a

person who is—

(a) landlord under a lease of the whole or any part of any

premises,

(b) party to such a lease otherwise than as landlord or tenant,

or

(c) a manager appointed under Part 2 of the 1987 Act to act

in relation to the premises, or any premises containing or

contained in the premises,

in consequence of a claim notice given by the company in

relation to the premises.

(2) Any costs incurred by such a person in respect of professional

services rendered to him by another are to be regarded as

reasonable only 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) A [COMPANY] is liable for any costs which such a

person incurs as party to any proceedings under this

Chapter before the appropriate tribunal only if the tribunal

dismisses an application by the company for a

determination that it is entitled to acquire the right to

manage the premises.

(4) Any question arising in relation to the amount of any

costs payable by a [COMPANY] shall, in default of

agreement, be determined by the appropriate tribunal.

The costs claimed

7. The costs claimed are: (1) solicitor’s fees of £1,295.22 (inclusive of VAT and postage disbursements of £8.22 (inclusive of VAT)) charged by the Applicant’s solicitors, [APPELLANT] and (2) management fees of £400 plus VAT (i.e. £480), charged by the Applicant landlord’s [NAME] agent, [APPELLANT].

8. The Applicant argues that all the costs it incurred were reasonable, in that they were incurred in respect of professional services rendered to the landlord and are costs that the Applicant might reasonably have been expected to have incurred if the circumstances had been such that the landlord was personably liable for all such costs.

9. The solicitor’s costs are identified in an invoice, dated 23 August 2021, from [APPELLANT] to the Applicant. The sum demanded was £1,295.22 which comprised 3.9 hours work at £275 + VAT per hour (totalling £1,287) and postage disbursements of £6.85 + VAT (£8.22). The letters, emails and phone calls were charged at 1/10th of an hour and all other work in six-minute units. The Applicant disclosed an extract from the firm’s terms of appointment confirming the level of charge.

10. The work is stated on the invoice to amount to “Undertaking works in response to an RTM claim notice; to include assessment of claim, advice to client, preparation and issue of counter notice and correspondences with various parties throughout.”

11. The Applicant says it considers the work and checks carried out by its solicitors were “necessary to act with reasonable diligence to assess and evaluate their legal position in this matter and respond accordingly. It also considers the works described were reasonably required in order to discharge the instruction to investigate thoroughly whether the Respondent was entitled to claim a right to manage.” The Applicant says that the First-tier Tribunal has recently, in [COMPANY] v W.[COMPANY]/OOBU/LCP/2019/0001, accepted the sums as charged on a similar basis to the present case in their entirety.

12. The Applicant says that Miss [APPELLANT], who carried out the work, is the principal of [NAME] and is a [NAME]. It says that the fee rate reflects Miss [APPELLANT] extensive experience in RTM matters. The Applicant says that the work was requested as part of a retainer that the Applicant has with [APPELLANT] and the fees charged are ones which the firm would charge on an individual instruction.

13. The management costs of £400 plus VAT (£480) sought by the Applicant are stated to be in respect of services, provided by its [NAME] agents, [COMPANY], which services are said to go beyond the standard management activities covered by the management agreement in place and for which additional charges are payable in accordance with that agreement. It says that those activities include “liaison between the Applicant and the Applicant’s solicitor and the provision of assistance and information to all parties throughout the progress of claim; taking the necessary steps to co-ordinate the management response to the notice, and to advise the Landlord on the impact upon services and anticipated repairs and funding.” The Applicant also relies on the Upper Tribunal decision in [APPELLANT] (No 3) [COMPANY] and [COMPANY] [2014] UKUT 0030 (LC) which it says upholds the recovery of the management fee as a professional fee and highlights that the role of [NAME] agents within the RTM is not an uncommon practice for which charges are levied.

14. The detailed services are set out in a Scott Schedule completed by the parties and are dealt with below.

The Respondent’s case and the Applicant’s response

15. It is the Respondent’s case that the costs claimed are wholly disproportionate to the matter in question. The Respondent deals with each element of the claim in turn as follows.

16. The Respondent says that the Applicant has not produced the entire agreement between itself and the solicitors and the precise terms of appointment for this claim have not been provided. The Respondent says that in any event a person of Miss [RESPONDENT] experience should have been able to do this work in no more than 1 hour, plus 30 minutes of routine correspondence. Furthermore, the Respondent says that some of the work could have been delegated.

17. The Respondent noted that in the Albacourt case the respondent did not provide a statement of case and the applicant’s case of costs was uncontested. It says also that the decision of the Upper Tribunal in Columbia is in relation to an appeal allowed against the First-tier Tribunal, which had decided that all of the landlord’s costs were unreasonable. The matter was remitted to the First-tier Tribunal for redetermination because that tribunal had failed to give reasons for its decision. The Respondent submits that the case is distinguishable on its facts from the present case.

18. The Respondent, whilst acknowledging that First-tier Tribunal decisions do not provide a precedent for other tribunals, drew the Tribunal’s attention to the decision in [APPELLANT] v [ADDRESS] (London) [APPELLANT]/00BJ/LCP/2020/0003 where the First Tier Tribunal determined section 88 costs, payable to the same Applicant as in the present case, to be £660 plus VAT in respect of [NAME] legal fees (of £1,295.50) plus disbursements of £6.70 plus VAT).

19. The Respondent deals in detail with the time spent by the Applicant’s solicitors on what the Applicant describes as, “Engaged on review of documents - assessment of Claim Notice.” The Respondent says that 30 minutes are claimed for assessment of the claim notice, that is to say, checking the claim notice, time limits and making appropriate diary notes; obtaining details of the company from the [NAME] website and checking that they correspond with the claim notice, obtaining the freehold title and reviewing the number of qualifying tenants listed and assessment of the membership criteria. The Respondent says that most of these tasks could have been delegated to a [NAME] at a lower rate.

20. The Applicant replies that it was proper and reasonable to engage an experienced fee [NAME] who would take less time than a junior. It says that in any event Miss [NAME] is the [NAME] fee [NAME] at the firm and did not personally carry out all of the tasks listed.

21. The Respondent notes that 54 minutes time were said to have been spent on matters described under the head of “Engaged on review of supporting RTM documents”. The Respondent says that much of the work described not only overlaps with the first category (see above), but is also repetitive in parts in itself and indeed overlaps also with the head “Engaged on routine attendances” (see below). The Respondent says that much of this work could have been delegated to a [NAME].

22. The Respondent submits that the overall time of 84 minutes on these two heads is disproportionate with heavy duplication of work and overlap. It says that the combined costs for review of the claim notice and RTM documents should not exceed 30 minutes. The Applicant says in response that this is arbitrary and unrealistic given the work involved.

23. The solicitor’s fee also includes 30 minutes for preparation of the counter notice. The Respondent says that the counter notice, which is in standard form, raises statutory grounds without facts and support and therefore recites statutory wording only. [NAME] says that grounds one and three of the grounds relied on can be ascertained by a simple review of the notice and the search of [NAME] and the information clearly contained in the claim notice. The Respondent says ground 2 appears to be unsupported and should not have been made. The Respondent says that 15 minutes in total would be justified for this work. Once again the Applicant responds that the time suggested is arbitrary.

24. The solicitor’s charge includes 120 minutes on routine attendances. The Respondent says that the time charged is excessive and that the tasks in question could have been carried out more efficiently. It proposes that only 30 minutes should be allowed in respect of the same.

25. With regard to postage disbursements in respect of next day delivery, the Respondent argues that these should be treated as part of the solicitor’s overheads and not charged for separately in the absence of full disclosure of the terms of business. The Applicant responds that it is entitled to use a tracked delivery service.

26. The [NAME] agent’s costs are identified in an invoice dated 10 May 2021, which refers to a claim notice dated 6 January 2021. The time stated to have been taken is 3 hours 35 minutes at an agreed cost of £400 plus VAT. The time is broken up into four heads as follows (numbering provided):

“1. Notify the freeholder and the solicitor that RTM notice has been

served: Time taken: 30 minutes; drafting 2 emails.

2. Provide instructed solicitor with information on property: Time

taken: 1 hour; drafting email, scanning copy of lease, providing

information on the property and on the leaseholders.

3. Instruct accounts and management team to review file and

implication of RTM: Time take (sic): 1.5 hour; review file and

begin preparation for costs upon RTM takeover, review

contracts in place, review insurance details, review

scheduled works and ongoing services.

4. Consult and meet freeholder to advise of ramifications of RTM:

Time taken: 35 minutes.” 27. The Respondent says that if a negative notice were to be served then

the involvement of the management company at the stage of receipt of

a claim notice (which was subsequently withdrawn) was premature

because the response to the notice is a legal matter and there were no

potentially ongoing management matters that needed to have been

identified at that stage. The Respondent also notes that [APPELLANT] and

[COMPANY] are companies with the same registered address

and directors and alleges that there is no arms length relationship

between the two such that the latter could meaningfully advise “the

landlord”. It therefore submits that the [NAME] costs should be

disallowed in full. 28. The Applicant responds that it is settled law that a landlord can act as

the [NAME] agent provided the arrangement is not a sham ([NAME] [1992] 1 EGLR 73). It says that [APPELLANT] and [NAME] are

two separate entities and that the latter is an organization with multiple

employees and clients. It says that the Company manages

developments for multiple freeholders and has dedicated property

managers for various properties. The Applicant says that these

individual employees who hold the management information for the

property, not the officers, have been the liaison with the [NAME] throughout. It says that there are also numerous F-tT cases

which have determined the management fees of [COMPANY]

claimed were payable by the [COMPANY] even in instances where a

solicitor has also acted. Discussion and determination 29. Chapter 1 of Part 2 of the 2002 Act provides for the Right to Manage

premises to which that Chapter applies. The right is exercisable by a

Right To Manage Company established under that Chapter serving a

claim notice on the landlord or another party to the lease (or to a

tribunal appointed manager). If the claim is contested by one or

more recipients of a claim notice serving a counter notice, the

Company may apply to the Tribunal, under section 84(3) of the Act for

a determination that it is entitled to exercise the RTM.

30. Section 88(1) of the 2002 Act provides that where a [COMPANY]

seeks to exercise the right to manage, the Company is liable for the

reasonable costs incurred by the landlord or another party to the

lease (or to a tribunal appointed manager) in consequence of a claim

notice given by the Company under the Act.

31. This general principle is qualified by section 88(2) of the Act,

which provides that where the costs arise as a result of professional

services having been afforded to the landlord or other person

entitled to costs under section 88(1), the costs shall only be regarded as

reasonable 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 would have been personally

liable for such costs. In other words the question must be asked

whether the landlord would reasonably be expected to have incurred

those costs had they not been recoverable from the Company. To the

extent that that they would not have been expected to be so incurred

they are deemed to be unreasonable.

32. The Right to Manage Chapter of the 2002 Act has provided pitfalls for

the unwary [COMPANY] that seeks to embark on the process of

exercising the right to manage. Landlords stand to lose and

leaseholders stand to gain from a successful claim. Unsurprisingly,

landlords will scrutinise claims carefully with a view to identifying any

possible defect in the claim notice.

33. In the present case the Respondent served a claim notice dated 21

December 2020. The Applicant served a counter notice on 1 February

2021. On 8 April 2021 the claim notice was withdrawn. The Applicant’s

[NAME] agents sent an invoice to the landlord dated 10 May

2021 for services rendered. The Application to the Tribunal under

section 88(4) of the 2002 Act is dated 29 June 2021, at a time when

the landlord was yet to be invoiced by its solicitors. Indeed the

invoice from the solicitors in respect of work stated to have been

done, between 7 January 2021 and 1 March 2021, in dealing with the

response to the claim notice, is dated 23 August 2021, two days

before the date set by the Tribunal’s Directions of 4 August 2021, for

submission of the Applicant’s case.

34. The Premises contain five flats held on separate long leases. The

landlord is by its own admission engaged in property ownership

and management on a large scale. It has a retainer with a [NAME], [NAME], that consists of a [NAME] who

specialises in leasehold law and more specifically this area of leasehold

law. Both the Applicant and its solicitor together with the [NAME]

agent have dealt with numerous right to manage claims many of

which have been disputed, found their way to the First-tier Tribunal

and in some cases the Upper Tribunal. Thus they will be very

familiar with the process of examining and responding to a claim

notice. 35. In the present case it is not disputed that the Applicant landlord

incurred legal costs. The question is whether the costs incurred

were reasonable. The work that needed to be carried out was as

follows:

1. Checking the validity of the claim notice and the details of the [COMPANY] at [NAME] including the memorandum and

articles of association of the [COMPANY].

2. Assessing supporting RTM documentation in so far as not covered

by 1 above.

3. Drafting and serving a counter notice. 36. The Tribunal acknowledges that it was reasonable to engage a solicitor

for the purpose of assessing and responding to the claim. However,

some of the work involved in obtaining the necessary information was

routine. The Tribunal accepts that [COUNSEL] is an experienced solicitor

in this field who did not have a [NAME] to whom to delegate

the less onerous tasks involved. However, that does not mean that it is

reasonable for the costs of a [NAME] to be recoverable for

those tasks, as distinct from the evaluation of the legal position with

regard to the validity of the claim notice. 37. That brings us to the matter of the time taken. As noted above the

premises comprise five units of accommodation each held on a long

lease. It would not be difficult for a solicitor of Miss [COUNSEL]

experience to evaluate the validity of the claim notice once the relevant

information was to hand. The drafting of the counter notice, which is in

standard form, would then be straightforward. There does appear to be

a degree of duplication and overlap involved in the Applicant’s

description of the tasks covered by “assessment of claim notice” (30

minutes) and “assessment of the additional documentation provided”

(54 minutes). The Tribunal finds that £577.50 (being one hour 45

minutes at £275 per hour plus VAT) would be a reasonable expense in

respect of these tasks including the preparation of the counter notice.

38. The Tribunal considers the attendances of 12o minutes upon the

Company and the client/[NAME] are excessively charged. As the

Respondent acknowledges, only correspondence between the

solicitors has been disclosed and so it is not possible to determine the

extent of advice or comments provide from solicitor to client in

order to substantiate the charge fees. However, it is possible to make

certain inferences as to the charges listed.

39. It seems likely that the second email of 7 January 2021 to the

client/agents was sending them a copy of the letter of the same date to

the [COMPANY] requesting further documentation. The email of 15

January 2021 to the [COMPANY] is a one-line standard follow up

letter that appears to have been copied to the [NAME]. The three

emails to the [NAME] on 29 January 2021 seem to be triplicated.

40. The letter of 1 February 2021 to the [COMPANY] is simply a one-line

covering letter that accompanied the counter notice and appears to be

triplicated. It is very likely that the 1 unit email of the same date to the

[NAME] is a copy of the same to the agent.

41. Furthermore, as the Respondent submits, where a number of

attendances take less than six minutes but charged at six minutes this

may give rise to a disproportionate charge. The Tribunal also agrees

with the Respondent that some of these routine undemanding

communications should be charged at a lower rate than Miss [NAME]

charge.

42. Doing the best it can, on balance, the Tribunal allows as reasonable,

£165, being 30 minutes of attendances at £275 per hour (£137.50) plus

VAT (£27.50). This allows for the time that the Tribunal considers it

reasonable to charge for tasks involved and the nature of the work

involved. The claimed disbursements 0f £8.22 (being £6.85 plus VAT)

are allowed.

43. With regard to the charges of the [NAME] agent, [APPELLANT],

the Tribunal accepts that the Applicant and the agent are separate

companies despite having the same address and directors and that in

the absence of evidence as to a sham it is perfectly lawful for one

company to engage the other and charge for its services. In the

present case there is a management agreement that includes provision

for extra charges for a number of services over and above the

basic management fee. These include (in Appendix 3 to the

agreement), and so far as the present case is concerned, “Providing any

form of services to the Client over and above this Management

Agency agreement in relation to the exercise by the lessees of….the

Right to Manage….” The charging basis is stated to be “£ Minimum

£100 plus VAT...per flat.” In the present case the agent charged

£400 plus VAT.

44. The services charged for are stated to be:-

served: Time taken: 30 minutes; drafting 2 emails.

information on the property and on the leaseholders.

3. Instruct accounts and management team to review file and

begin preparation for costs upon RTM takeover, review

contracts in place, review insurance details, review

scheduled works and ongoing services

Time taken: 35 minutes.”

45. The Tribunal accepts that a [NAME] agent’s fees can be chargeable to

the extent that it was reasonable for the landlord to have incurred those

costs. However, it does not accept the sums claimed in this case to be

reasonable. It is clear that the agent did some work but it is another

matter as to whether the sums claimed are reasonable. As to Item 1 the

Tribunal was not told who carried out the work and why. The claim

notice was addressed to the Applicant who did not need to be

informed by the agent. If the notice was sent to the agent (of which we

have no evidence) it is not clear why it took somebody 30 minutes to

“notify the freeholder and the solicitor that a notice had been received.”

46. As to item 3 none of those tasks were necessary at the stage between

receipt of the claim notice and the service of a counter notice. As to

item 4, this is vague and in any event is the task of the solicitor.

Furthermore, the Applicant is perfectly aware of the “ramifications of

RTM”.

47. The Tribunal considers that no more than £100 plus VAT (i.e. £120)

would be a reasonable sum in respect of the relevant services provided

by [COMPANY].

48. In reaching its decision, and bearing in mind that F-t T decisions do not

operate as precedents for another F-t T, the Tribunal did not consider

the tribunal decision in the Albacourt case to be of any help in that the

claim was uncontested by the respondent in the case who failed to

provide a statement of case. The tribunal decision in [ADDRESS] was of some assistance in so far as it was a contested case that

dealt with an almost identical claim by the Applicant and covered

issues similar to those raised in the present case.

Right of appeal

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, that 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.