A decision by the LVT has been overturned by the Upper Tribunal, which means that landlords may now be able to recover legal costs from their leaseholders via the service charge.

It is not as clear-cut as it sounds though! Brady Solicitors outline the case that led to this decision and what it means for landlords who are unsure of what to do when faced with legal fees.

Assethold Ltd v Watts and others [2014]

Assethold Ltd was the landlord of a block of flats. The respondents were the leaseholders of those flats. In 2011 the owner of a neighbouring building started works on his property, which should have been the subject of a notice under the Party Wall Act 1996. Assethold Ltd issued proceedings against that neighbour, seeking an injunction preventing the works unless and until the 1996 Act had been complied with. The proceedings incurred a significant bill for legal and surveyor’s fees.

Assethold Ltd sought to recover these costs from the leaseholders through a service charge, relying on a clause in the lease:

“all works installations acts matters and things as in the reasonable discretion of the Landlord may be considered necessary or desirable for the proper maintenance, safety, amenity and administration of the development.”

The leaseholders denied that litigation with a third party fell within the scope of the clause, so Assethold Ltd issued proceedings in the LVT, which found for the leaseholders. The Upper Tribunal, however, allowed an appeal which held that although the words used in the clause were quite general, they were sufficiently clear to include the costs of engaging lawyers to ensure that the building obtained the protection of the Party Wall Act 1996.

The outcome – the costs incurred by a landlord in forcing an adjoining property owner to comply with the Party Wall Act 1996 were recoverable from the leaseholders of the affected building.

So, what does this mean?

Generally, this is good news for landlords, but it still doesn’t mean that all legal expenses are automatically recoverable via a service charge. Even when obtaining legal advice is in the best interests of the leaseholders (which it usually is), it will depend on the wording of the service charge clause in the lease as to whether or not the fees are recoverable.

We suggest you get your leases examined by a legal professional before embarking on any legal proceedings because, in our opinion, the outcome of this case still raises questions about the approach towards recovering legal costs, compared with claiming back other professional fees such as surveyors’.

Are your legal costs recoverable?

If you are facing a similar situation with your block, get in touch with Brady Solicitors – our experts will take a look at your lease to assess whether or not you can recover legal costs and what the appropriate next steps are for you and your leaseholders.