Two recent service charge ‘costs’ cases have clear messages for landlords and their managing agents when it comes to maximising chances of recovering legal costs. Clare Brady explains.

The two cases in question are Willens v Influential Consultants Ltd and Chaplair Limited v Kumari. I don’t plan to go into detail of the two cases (there are plenty of academic analyses available for those who wish to seek to them out), but their outcomes have important implications for managing agents and RMCs to ensure you are not burnt when it comes to recovering your legal costs.

Costs ‘in contemplation’

Willens v Influential was heard in the Upper Tribunal case and concerned the extent to which the landlord’s costs could be recovered ‘in contemplation of proceedings’.

The leaseholder was appealing the FTT’s decision to award the landlord the costs he had incurred prior to bringing proceedings against the leaseholder.

The Tribunal considered emails and communications to both the leaseholder (advising that proceedings will be brought if the arrears are not settled) and the solicitors (instructing them to issue proceedings and prepare a section 146 notice).

The leaseholder lost their appeal, as the Tribunal judge found that there was a clear intent to bring proceedings against the leaseholder.

Be professional – have a plan

This case has a clear message for landlords and managing agents. Namely: if you want to recover costs incurred before a service charge case makes it to the FTT, you need to be able to show clear evidence of your intention to issue proceedings.

Make sure the leaseholder is clearly aware of your intentions and the implications of not settling their arrears. A paper trail will help should you face a cost-recovery challenge.

Don’t allow cases to evolve and escalate in a haphazard fashion – it should be you and your legal team – not the leaseholder – leading the case.

Top tip: When instructing your solicitors to recover a service charge debt, ensure you reference your intention to proceed to forfeiture if the arrears are not settled.

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And what about costs incurred in the Small Claims Track?

It’s relatively common to issue a ‘money claim’ in the county court for service charge arrears and for this to be allocated to the Small Claims Track. This of course has an implication on costs recovery. Cost limits in the Small Claims Track are very low – and there has been no express discretion to allow judges to ignore these limits.

The Chaplair Ltd Court of Appeal case however has the potential to change all this, as the judge decided that costs can be recovered, finding that the smalls claims track costs rules cannot overrule contractual costs obligations.

Cost recovery clause – 1; Smalls Claims Track limits – 0

This is an encouraging development for property managers and a sensible one too. Whilst county court judges will retain the right to dismiss ‘unreasonable expenses’, they do now have express guidance that they can override the fixed cost limit and apply the contractual clause in the lease.

It all flows from the lease

So, the message from Chaplair is: if there’s an effective cost recovery clause in the lease, costs at the small claims track can be recovered. Check your leases to make sure they have an effective costs recovery clause and make sure you understand, from the outset, exactly what the lease will and won’t permit from a costs recovery angle.

Specialist service charge solicitors

For help or advice on any service charge matter please get in touch with the property management experts at Brady Solicitors. You can contact us on 0115 985 3450 or send us an email.

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