Assethold and Franco – Legal costs recovery in service charge disputes

A recent Upper Tribunal case saw a freeholder successfully appeal that the costs of bringing Section 146 proceedings could be recovered under the lease.

Brady Solicitors’ Jeremy Weaver, takes a look at Assethold v Franco and what this means for service charge recovery.

Background to the Assethold v Franco case

The freeholder (Assethold) had originally brought a claim in the County Court in September 2019. The claim was for outstanding and estimated on-account service charges which included an amount for Section 20 works; administration charges for previous proceedings and also the current proceedings, plus ground rent and interest. In addition the freeholder claimed legal costs in the court proceedings. It followed several previous rounds of disputes.

The case was allocated to the small claims track and a hearing set for 18 months later.

At this hearing in May 2021, the case was transferred to the First-tier Tribunal (FTT), as is often the way when service charge matters are mentioned.

The FTT found largely in favour of the leaseholder.

Among other things, the FTT found that there was no provision in the lease to pay the administration charge for the current proceedings as “the lease makes no provision for the payments of such charges”.

The FTT reduced the legal costs claimed from £6,290 to £2,000 on the basis that they were “not proportionate” to the outstanding arrears being claimed even though it accepted that costs were pabyable under the Section 146 cost clause in the lease referred to below.

And, the FTT reduced the estimated service charges by £531 on the basis of that the freeholder hadn’t provided any Section 20 notices, or provided evidence that the work had been done.

Assethold then appealed to the Upper Tribunal (UT)

On the service charge point above, the UT said that the FTT did not have the jurisdiction to reduce the charges on this basis. The leaseholder had not raised any issues on this point, and had failed to file a Statement of Case. Also there was no requirement for Section 20 notices in respect of estimated charges in advance. The estimated costs as claimed were found to be payable.

In terms of the administration changes in the current proceedings, the FTT had overlooked the Section 146 cost clause, which read as follows:

“To pay all costs charges and expenses (including Solicitors’ costs and Surveyors’ fees) incurred by the Lessor for the purpose of or incidental to the preparation and service of a notice under Section 146 of the Law of Property Act 1925.”

This is in line with the important case in 2021 of Kensquare v Bouakye (we wrote about this here), which was referenced by the UT and provided helpful clarification that the costs of proceedings in Section 146 situations can be recovered.

Finally, in terms of the legal costs of the current proceedings, the UT found that the FTT was wrong to reduce these to £2,000. As ‘live costs’ in the current legal proceedings, they were not within the FTT’s jurisdiction.

What does this all mean for freeholders, RMCs and their managing agents?

This was a case where the FTT was sitting as both Tribunal and County Court; what is known as “double hatting”. This case highlights the challenges that can arise if the FTT strays from its jurisdiction which is partly what caused the issues which the UT corrected. Whilst cases like this may involve relatively modest sums of money, they can be both time-consuming and expensive – particularly without effective legal representation!

The point about it being for the leaseholder to raise reasons for charges not being reasonable in amount is an important one. It is not enough for the leaseholder to say ‘the charge is not reasonable’ without giving reasons.

Brady Solicitors have extensive experience in supporting managing agents. If you would like further information or have any questions, please contact our expert solicitors by emailing us here. 

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