legal costs recovery
📖 What is legal costs recovery? Meaning and definition
Legal costs recovery is about who pays the legal expenses when there's a dispute, particularly in landlord-tenant situations. It often comes up when a landlord tries to include their legal costs in the service charges paid by tenants. The First-tier Tribunal or County Court will look at whether the lease agreement actually allows for such costs to be recovered in this way. If the lease permits it, the Tribunal might still limit the amount that can be recovered, for instance, by making an order under Schedule 11, Paragraph 5 of the Commonhold and Leasehold Reform Act 2002, or by using its discretion under Section 20C of the Landlord and Tenant Act 1985.
Tenants often apply for an order under Section 20C of the 1985 Act to prevent or limit the landlord from recovering their legal costs through service charges. The purpose of a Section 20C order is to ensure that the right to claim costs as part of a service charge is not used unfairly. This means the Tribunal considers whether the costs were excessive or unreasonably incurred, and if allowing recovery would be unjust to the tenants.
Even if a lease clause is broadly worded to cover 'fees, charges, salaries, wages, costs, expenses and outgoings', there can be arguments about whether this specifically includes legal proceedings costs. If a Section 20C order is made, it means the landlord cannot recover those specific legal costs through the service charge. However, if the tenants are also shareholders in the landlord company, they might still end up paying the costs indirectly through other means, as the company would need to call for funds from its shareholders.
Ultimately, the Tribunal makes a finding on whether costs are recoverable, and if so, to what extent. This involves interpreting the lease terms and exercising statutory discretion to ensure fairness. The court may also summarily assess costs, ordering a specific sum to be paid by one party to another.
📋 Requirements
- The lease agreement must permit the recovery of legal costs, often through service charge provisions.
- The costs must be reasonable and not excessively incurred.
- The Tribunal or court must determine that allowing recovery would not be unjust.
- An application under Section 20C of the Landlord and Tenant Act 1985 may be made to limit recovery.
📝 Procedure
- A party (e.g., a landlord) seeks to recover legal costs, often by including them in service charges.
- The other party (e.g., a tenant) may apply for an order under Section 20C of the 1985 Act to limit or prevent this recovery.
- The Tribunal or court examines the lease to determine if it allows for legal costs recovery.
- The Tribunal or court considers the reasonableness of the costs and whether recovery would be unjust.
- The Tribunal or court makes an order, which may include limiting the recoverable amount or disallowing recovery entirely, or summarily assessing costs to be paid.
💡 Examples
- A landlord sought to recover legal costs for a dispute over service charges, but the Tribunal found these costs were irrecoverable under the terms of the lease.
- The Tribunal made an order that only two-thirds of the landlord's legal costs could be recovered as an administration charge under the leases, limiting the amount payable by tenants.
- A tenant applied for a Section 20C order to prevent the landlord from passing on legal costs through the service charge, arguing that such costs were unreasonable.
- A County Court ordered a defendant to pay a summarily assessed sum of £9,247 in costs to the landlord following a judgment in the landlord's favour.
📚 Legal basis
- Landlord and Tenant Act 1985
- Commonhold and Leasehold Reform Act 2002
❓ Frequently asked questions
What does 'irrecoverable under the lease' mean for legal costs?
If legal costs are 'irrecoverable under the lease', it means the terms of your lease agreement do not allow the landlord to charge you for those specific legal expenses, often through service charges.
Can a landlord always recover their legal costs from tenants?
No, a landlord cannot always recover their legal costs. The ability to recover costs depends on what the lease says and whether the Tribunal or court deems the costs reasonable and their recovery just, especially after considering any Section 20C applications.
What is a Section 20C order and how does it affect legal costs recovery?
A Section 20C order is made by the Tribunal to limit a landlord's ability to recover their legal costs through service charges. It's used to prevent unfairness if the costs are excessive or unreasonably incurred.
If a Section 20C order is made, do I still have to pay the landlord's legal costs?
If a Section 20C order is made, you generally won't have to pay those specific legal costs through your service charge. However, if you are also a shareholder in the landlord company, the company might still seek funds from its shareholders, which could indirectly affect you.
What if my lease has a very broad clause about costs and expenses?
Even with a broadly worded clause, there can be arguments about whether it specifically covers legal proceedings costs. The Tribunal will interpret the clause and decide if it's sufficient to allow for legal costs recovery.
How does the Tribunal decide if legal costs are 'unjust' to recover?
The Tribunal considers factors like whether the costs were excessive, unreasonably incurred, or if allowing their recovery would create an unfair burden on tenants. The primary aim is to ensure the right to claim costs isn't used unfairly.