Tenant Costs for Defective Notice in Lease Extension Claim

OUTCOME: Dismissed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AH/OC9/2024/0055 Property : 221B [ADDRESS], [POSTCODE] Applicant : [redacted] : [APPELLANT] Respondents : [redacted] : [COUNSEL] of application : Application under s.91(2)(2)(D) Leasehold Reform Housing and Development Act 1993 Tribunal : Judge Shepherd

Date of Hearing :

Paper application

Date of Decision

: 29th October 2024

Decision

1. This is an application under s.91(2)(2) (D) of the Leasehold Reform Housing and Urban Development Act 1993 (“The Act”) for a determination of the costs to be paid under s.60(1) of the Act. The Applicant is [APPELLANT] a leaseholder of premises at 221 B [ADDRESS], London SW16 4 JX (“The premises”). The

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Respondent is the freeholder of the premises. The application arises from the costs incurred by the Respondent in responding to a lease extension claim.

2. The background to the matter is as follows.

a. On 11th April 2023 the Applicant served an invalid s.42 notice.

b. On 29th June 2023 the Respondent served a without prejudice notice maintaining an assertion that the s.42 notice was invalid.

c. On 10th July 2023 the Applicant enquired why the notice was invalid.

d. On 14th July 2023 the Respondent explained why the notice was invalid.

e. On 28th July 2023 the Applicant accepted the invalidity of the notice.

f. On 4th August 2023 the Applicant served a new s.42 notice.

g. On 13th October 2023 the Respondent served a new s.45 notice.

h. On 18th December 2023 the terms of acquisition were agreed.

i. On 9th April 2024 the new lease terms were agreed.

3. The dispute between the parties concerns the legal fees incurred and claimed by the Respondent. The surveyor’s fees are not in dispute. The Respondent claims £4304.50 for the work of three solicitors: [redacted] Solicitor, Ms [COUNSEL] a senior Associate and Mr [COUNSEL], a partner. The rates charged by the three members of staff vary according to experience. Mr [NAME] charges £235 per hour; Ms [NAME] £285 per hour and Mr [NAME] £390 per hour. The Respondents say that there is no overlap in terms of work and the principal aim is to carry out this complex work with as much done by junior staff as is safely possible.

The law

6. S.60 of the Act states the following:

60.— 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

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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 [the appropriate tribunal]1 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.

Determination

7. The Applicant has made a detailed point by point challenge to the Respondent’s fees. He says that the first notice was so obviously defective that it didn’t require much work on the Respondent’s side. One questions why, if it was the case that the notice was glaringly defective, the Applicant asked the Respondent it was invalid? In any event the fact remains that the notice was defective and a new one had to be served. The Respondent is right that the prudent course was to re-instigate the process and carry out all of the steps carried out after the service of the first notice.

8. This area of practice is a minefield for solicitors to negotiate. The financial risks are serious. The failure by the Applicant to serve a correct notice necessarily caused an increase in costs. It is not reasonable for the Applicant to compare their costs which were apparently on a fixed fee without taking into account the extra work entailed in dealing with the new notice. I accept the Respondent’s proposition that fees of £2500 plus VAT are not unusual in these cases. This is certainly my experience. However, that is for cases where there is only one notice and the process is relatively trouble free. Here there was extra work caused by the defective notice. In broad terms I accept that the extra amount claimed by the Respondents (in the order of £1800) was also reasonable. In broad terms therefore I decide the matter in favour of the Respondent.

Next steps

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9. The Applicant has made a point by point challenge to the costs bill. I am happy to address each individual challenge with both parties submissions but the schedule will need to be submitted in a form so that I can add to it. Accordingly at this stage this decision is in draft and a final decision will be made with the associated appeal rights once I have been able to address the individual cost challenges. In the interim I make the following order:

Within 7 days the Applicant is to submit to the Tribunal the costs schedule with both parties submissions on it in a document form that can be added to by the Judge.

Judge Shepherd

29th October 2024

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• 2.1 - the First Notice (costs permissible under s60(1)(a)) (‘Stage 1’)

APPLICANTS COMMENTS APPPLICANTS PROPOSALS RESPONDENT’S COMMENTS TRIBUNAL’S COMMENTS 10/05/2023 [NAME] papers and diarising date for service of counter notice £23.50 60(1)(a) accepted £ 23.50 - £23.50 allowed 18/05/2023 [NAME] notice and papers, considering qualification, validity of service of notice and validity of notice and checking point regarding signing a tenant’s notice £587.50 60(1)(a) it is accepted that reasonable costs would be recoverable under s60(1)(a) at this stage but these costs are not reasonable. It should not have taken a fee-earner 1.5 hours to ascertain invalidity. Assessing a simple s42 notice should take no more than 5 units including letters out (which ought to be house precedents). An addition of a further 4 units regards assessing the invalidity of the notice and a letter to the client would be more than sufficient

£ 351.00 The assertion that it only takes 5 units to assess a section 42 notice, including sending out standard letter is denied. A section 42 notice itself is a very important notice, and the statutory requirements behind it require careful thought.

There are numerous ways in which the tenant can fail to qualify or the notice can be invalid. There are also errors capable of being saved. All of this required consideration and finding the relevant section in Hague is not the end of the research trail. 2.5 hours is a fair amount of time to review the notice, considering qualification, consider validity and £587.50 allowed

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advise the client, particularly given, as mentioned above, this is technical work worthy of a partner’s hourly rate. 25/05/2023 [NAME] advice to client £47.00 60(1)(a) Accepted £ 47.00 - Allow £47 01/06/2023 [NAME] advice £23.50 60(1)(a) accepted £ 23.50 - Allow £23.50 12/06/2023 [NAME] notices and lease etc to advice on validity of notice and of service, qualification, etc. Meeting with [NAME] and work on advice to client £585.00 60(1)(a) The invalidity was clear and obvious and this work had already been carried out by [NAME] on the 18th May. The advice to the client would have been simple and should not reasonably have needed to be revisited in depth. A reasonable catch up between [NAME] and [NAME] might have run to 3 units each at most. This was a simple low value claim with no complicating factors and £ 117.00 The 1.5 hours of Mr [NAME] time is entirely justified. It involved reviewing the notice himself for 1 hour and then spending 0.5 hours reviewing the notice with [NAME] and checking whether anything saved the error. This is a standard approach to supervision of the work of a junior fee- earner. Allow £585

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an obviously invalid s42 notice. 12/06/2023 [NAME] with [NAME] regarding validity of the notices, next steps and advice to client £117.50 60(1)(a) see above £ 70.50 See above regarding supervision meeting. Allow £117.50 26/06/2023 [NAME] draft section 45 notice £85.50 60(1)(a) This is now the 3rd fee- earner checking a simple s45 notice. This is manifestly excessive. If [NAME] was the only person with expertise she should have lead the matter or ghosted it behind the scene in which case [NAME]'s involvement would hardly have been necessary. The Respondent cannot have it both ways. £ - This is in fact the first time that the section 45 notice has been reviewed or mentioned. It was an unfortunate error that [NAME]’s time for drafting the notice was not recorded as can be seen from it not being mentioned in the previous time entries. Allow £85.50 29/06/2023 [NAME] notices for service £70.50 60(1)(a) accepted £ 70.50 - Allow £70.50

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04/07/2023 Diarising deadlines following service of counter notice (deemed withdrawal) £23.50 60(1)(a) accepted £ 23.50 - Allow £23.50 10/07/2023 Draft open and WPSATC letters to [NAME] and email to client £70.50 60(1)(c) not recoverable under s60(1)(c) because no lease was granted pursuant to the First Notice. Not recoverable at all because this correspondence would not have been necessary had the first letter done what it ought reasonably have done, i.e. set out the basis for the allegation of invalidity £ - It is irrelevant that no lease was entered into. An analogous situation would be where terms of acquisition, the form of the lease, and completion statement has been agreed and all that remains is for the parties to execute the leases, but a statutory deadline passes, the claim is deemed withdrawn and the lease is not granted. Following applicant’s logic, no costs recoverable under section 60(1)(c) would be recoverable as no lease was granted. That would clearly be a perverse outcome in that situation and is in this one too. Allow £70.50 13/07/2023 Amending drafts and preparing for meeting with [NAME] £94.00 60(1)(c) not recoverable under s60(1)(c) because no lease was granted pursuant to the First Notice. £ - See above, it is irrelevant that the lease was not granted. Allow £94 14/07/2023 Discussion with [NAME], email to client £47.00 60(1)(c) not recoverable under s60(1)(c) because no £ - See above, it is irrelevant that the lease was not Allow £47

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lease was granted pursuant to the First Notice. granted. 28/07/2023 Discussion with [NAME] re next steps £23.50 60(1)(c) not recoverable under s60(1)(c) because no lease was granted pursuant to the First Notice. £ - See above, it is irrelevant that the lease was not granted. Allow £23.50 03/08/2023 Email to [NAME] and email to client re [NAME] accepting notice is invalid £47.00 60(1)(c) not recoverable under s60(1)(c) because no lease was granted pursuant to the First Notice. £ - See above, it is irrelevant that the lease was not granted. Allow £47

• 2.2 The Second Notice (costs permissible under s60(1)(a)) (‘Stage 2’):

APPLICANTS COMMENTS APPPLICANTS PROPOSALS RESPONDENT’S COMMENTS TRIBUNAL’S COMMENTS 08/08/2023 [NAME] correspondence in from [NAME] and from client re new notice. Diarising date for serving counter notice £70.50 60(1)(a) this only took one unit first time around £ 23.50 This took more time as it was not simply the discrete task of diarising that was undertaken, but instead reviewing correspondence as well. Allow £70.50 31/08/2023 [NAME] to surveyor and considering corre from surveyor, client and [NAME] £47.00 60(1)(b) accepted £ 47.00 - Allow £47

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19/09/2023 [NAME] second notice re validity and validity of service and drafting email to client £117.50 60(1)(a) accepted £ 117.50 -

25/09/2023 [NAME] email to client and prep for meeting with [NAME] £23.50 60(1)(a) Not accepted this should not have been necessary £ - Previous entries dealing with amendments to advice to client were accepted. It is not clear why this one is not. Allow £23.50 25/09/2023 [NAME] second s.42 and documentation in order to advise client on validity and next steps and counternotice timetable etc £390.00 60(1)(a) a further hour of a partner's time is manifestly excessive. Perhaps a brief catch up not exceeding 2 units but no more. This was a very simple matter with which the firm was already familiar £ 78.00 This was a straightforward review meeting. 2 units is obviously too short a time for a proper review of the matter. 5 units is suggested as a compromise. Allow 5 units 25/09/2023 [NAME] with [NAME] re notices and issues arising, validity, and advice to client £235.00 60(1)(a) see above. A one hour meeting on a familiar, low-value simple matter is manifestly excessive. 2 units should have been sufficient £ 47.00 As above. 5 units suggested. Allow 5 units 05/10/2023 Checking second draft section 45 notice £28.50 60(1)(a) not accepted, this is the 3rd fee-earner reviewing a simple s45 notice for the second time. £ - As above, this is the first review of the notice. Again, [NAME]’s time for drafting the section 45 notice is not present. Allow £28.50

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13/10/2023 Arranging service of notices £70.50 60(1)(a) accepted £ 70.50 - Allow 16/11/2023 Offer in from [NAME] re premium £23.50 60(1)(b) accepted £ 23.50 - Allow 17/11/2023 Considering email in from [NAME], checking file re corre from surveyor, and email to client re next steps £47.00 60(1)(b) accepted £ 47.00 - Allow 04/12/2023 Email to [NAME]: premium agreed £23.50 60(1)(b) accepted £ 23.50 - Allow

• 2.3 Agreement of lease and Completion (costs permissible under s60(1)(c) (‘Stage 3’)

APPLICANTS COMMENTS APPPLICANTS PROPOSALS

TRIBUNAL’S COMMENTS 17/11/2023 [NAME]/finalising letter out and discussing/considering authority with [NAME] £117.00 60(1)(a) not accepted, the Counter notice had been served by this point. The s45 was not served without prejudice so no further costs are recoverable under s60(1)(a). No detail is given of what this related to and there is no correspondence to the Applicant's lawyers £ - These were amendments to a letter out to the client, not the Applicant (no correspondence was sent to the Applicant on this date whereas correspondence was drafted to client as per Mr [NAME] entry for the same date). Recoverable under s60(1)(b). Allow £117

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around this time. 05/12/2023 [NAME] draft lease £142.50 60(1)(c) accepted £ 142.50 - Allow 06/12/2023 ETC mail to client re draft lease £23.50 60(1)(c) accepted £ 23.50 - Allow 06/12/2023 [NAME] to [NAME] with draft lease £23.50 60(1)(c) accepted £ 23.50 - Allow

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18/12/2023 [NAME] engrossment lease and letter to client £142.50 60(1)(c) half an hour to 'prepare an engrossment' and send to the client? The lease was agreed by the Applicant's lawyers without comment and as drawn. The Applicant's lawyers used the electronic version as an engrossment and thus no time for 'preparing engrossment' should have been necessary. The letter to the client should have been a standard precedent so what could possibly have taken half an hour? We accept 2 units and feel this is generous as the work should really have been done by a secretary. £ 57.00 Not accepted on the basis that (1) the Applicant’s approach to the engrossment is irrelevant, (2) the engrossment would clearly need to be reviewed by the fee- earner to ensure there were no errors and (3) it is not clear why a report to the client would be a standard precedent.

The time incurred is entirely reasonable. Allow £142.50 19/12/2023 [NAME] with [NAME] re lease engrossment £23.50 60(1)(c) not accepted as no detail is provided. The lease had already been sent out by this point had it not? £ -

Disallow

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25/01/2024 [NAME] completion issues and next steps under the Act in order to advice ahead of finalising he matter £390.00 60(1)(c) The 3 fee-earners who worked on this file have each added the round figure of one-hour towards the end. Was there a meeting, If so what could it possibly have been about as the terms of acquisition were agreed by that point? The completion statement was very simple and should have taken no more than half an hour for the lead fee- earner ([NAME]) to prepare and even this is generous. £ - The fee-earners all incurred the same time on this day in dealing with completion, section 60 costs, and the various other issues. There was a meeting between [NAME] and [NAME] in order to report to the client. As to the work carried out, various statements are requested from the client and the client needs to be advised. It is not simply a matter of preparing a completion statement as the Applicant suggests. However, as a compromise it is suggested that 8 units for each fee earner is agreed. Allow 8 units 25/01/2024 [NAME] on completion: preparing with client and [NAME] £285.00 60(1)(c) see above £ - See above: 8 units Allow 8 units 25/01/2024 [NAME] on section 60 costs and completion £235.00 60(1)(c) see above £ 117.50 See above: 8 units Allow 8 units