Section 146 and costs – information for managing agents

Most leases allow landlords and RMCs to recover their legal costs in the event of a Section 146 Notice, but timing can be crucial as Lydia Anderson, property management solicitor at Brady Solicitors explains.

As most residents’ management companies (RMCs) and freeholders will be aware, leases usually contain a costs clause that enables them to seek their costs from a leaseholder in the event that the leaseholder has breached their lease and forfeiture action is required.

These costs clauses are usually worded as follows:

  • To pay all costs charges and expenses (including solicitors’ costs and surveyors’ fees) incurred by the Lessor or otherwise become payable by the Lessor under or in contemplation of any proceedings under Section 146 of the Law of Property Act 1925 notwithstanding that forfeiture may be avoided otherwise than by relief granted by the court.

RMCs and freeholders however are not the only parties to a lease who are able to commence legal action claiming that the other party has breached a term of the lease. Under Section 27A of the Landlord and Tenant Act 1985, a leaseholder is entitled to make an application to the First Tier Tribunal in order to establish whether a service is payable and if so:

  • to whom it is payable;
  • the person to whom it is payable;
  • the amount which is payable;
  • the date at or by which it is payable; and
  • the manner in which it is payable.

We explain more about Section 27A applications in our recent article: Will your charge demands stand the test of reasonableness at the FTT? **

If you are faced with dealing with such an application from a leaseholder, where do you stand with your legal costs?

The answer can only be found in the lease.

Save for a very few leases which provide a ‘catch all’ provision allowing RMCs and freeholders to recover their legal costs, usually the only costs clause you can rely on is that outlined above.

As the costs clause above only allows for RMCs and freeholders to recover their costs in contemplation of a Section 146 notice, costs protection is only provided as a consequence of your own claim – not the defence of a leaseholder’s reasonableness claim under Section 27A.

It is also not possible to bring an action once a leaseholder has made a separate application.

What the Court/Tribunal will do in such circumstances is to simply put a ‘stay’ on one of the proceedings pending the outcome of the other. In all likelihood the proceedings to be stayed will be those that were filed later.

Act quickly 

The costs position means that it is important for RMCs and managing agents to act quickly when a leaseholder is breaching their lease through non-payment of service charge arrears. This is especially important where you are aware that the leaseholder is also alleging a breach of the lease (for example, the landlord not fulfilling the repair and maintenance obligations).

Any delay in taking legal action following a breach could result in the leaseholder making their own application, at which point you lose the right to recover legal costs on a contractual basis under the terms of the lease.

Specialist property management solicitors

If you are facing a property management dispute or need to resolve a service charge issue, talk to the experts at Brady Solicitors. Contact us on 0115 985 3450 or click here to complete an online enquiry form.

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With hundreds of years’ worth of combined experience, our experts have dealt with nearly every leasehold property matter you can imagine. If you’re currently in need of legal support or advice, please get in touch.

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