statutory costs
📖 What is statutory costs? Meaning and definition
Statutory costs refer to the expenses that one party in a legal matter is obliged to pay to another, as mandated by a particular statute. These costs are typically incurred during processes such as lease extensions or claims for the right to manage a property. The First-tier Tribunal (Property Chamber) is often responsible for determining the reasonable amount of these costs, especially when the parties involved cannot agree on them.
For instance, under the Leasehold Reform, Housing and Urban Development Act 1993, tenants extending their leases may be liable for the landlord's reasonable costs. Similarly, under the Commonhold and Leasehold Reform Act 2002, a company claiming the right to manage might be liable for the landlord's costs if their claim expires without an application to the tribunal.
The tribunal's role is to assess what constitutes 'reasonable costs', taking into account the nature of the transaction. Straightforward cases, like multiple lease extensions within the same building, might lead to a reduction in claimed legal fees if they are deemed excessive. The determination specifies the exact amount payable, often exclusive of VAT, and identifies which party is responsible for payment.
📋 Requirements
- A specific Act of Parliament must mandate the payment of costs (e.g., Leasehold Reform, Housing and Urban Development Act 1993, or Commonhold and Leasehold Reform Act 2002).
- Costs must be 'reasonable' for the tribunal to approve them.
- There must be an application for determination of these costs, usually made to the First-tier Tribunal (Property Chamber).
- The costs must have been incurred by one party due to the actions of another party under the relevant Act.
📝 Procedure
- One party (e.g., a tenant or a company) initiates a process under a relevant Act (e.g., lease extension or right to manage claim).
- The other party (e.g., the landlord) incurs costs related to this process.
- If agreement on costs cannot be reached, an application is made to the First-tier Tribunal for a determination of the statutory costs.
- The Tribunal reviews the application and evidence, often through a paper determination, to decide the reasonable amount of costs payable.
- The Tribunal issues a decision stating the determined statutory costs, the amount, and the paying party.
💡 Examples
- A tenant applying for a lease extension under the 1993 Act is determined by the Tribunal to pay £1053.20 plus VAT to their landlord for statutory costs.
- A leaseholder successfully extends their lease, and the Tribunal later reduces the legal fees claimed by the freeholder because the transaction was straightforward.
- A company's claim for the right to manage a property expires, leading to the landlord seeking a determination of statutory costs from the company under the 2002 Act.
- Nottingham City Council, as a landlord, is awarded statutory costs from applicant tenants following a determination by the First-tier Tribunal.
📚 Legal basis
- Leasehold Reform, Housing and Urban Development Act 1993
- Commonhold and Leasehold Reform Act 2002
❓ Frequently asked questions
What kind of costs are considered 'statutory costs'?
Statutory costs typically include legal and valuation fees incurred by a landlord when a tenant exercises their rights under specific laws, such as extending a lease or claiming the right to manage a property.
Who decides if the statutory costs are reasonable?
The First-tier Tribunal (Property Chamber) is usually the body that determines whether the claimed statutory costs are reasonable, especially if the parties involved cannot agree on the amount.
Can statutory costs be reduced?
Yes, the Tribunal can reduce statutory costs if they find them to be unreasonable, for example, if the legal fees claimed for a straightforward transaction are deemed excessive.
Do I have to pay VAT on statutory costs?
The Tribunal's determination will specify whether the statutory costs are exclusive or inclusive of VAT. In some cases, the determined amount is stated as being exclusive of VAT, meaning VAT would be added on top.
What happens if I don't pay the determined statutory costs?
If the Tribunal has determined the statutory costs, and you fail to pay, the other party may take further legal action to enforce the Tribunal's decision. It is advisable to seek legal advice from a qualified solicitor if you are in this situation.