Freeholders of 69 Marina, St Leonards-on-Sea v Oram and another

Lease – Service charge — Repairs – Respondent landlords claiming contribution by appellants lessees towards cost of repairs under terms of lease – Court awarding respondents’ costs of proceedings before leasehold valuation tribunal (LVT) against appellants pursuant to covenant in lease – Whether judge erring in law by awarding costs — Appeal dismissedThe property was a substantial seafront Victorian building which had been converted into six flats, of which five had been let on 99 year leases from July 1985. The appellants were the lessees of the basement and top floor flats. The freehold reversion was registered in the names of the other four tenants (the respondents) who held the property in trust for all the tenants and managed the building on their behalf, including the lessees. By clause 1(b) of their leases, the appellants agreed to pay by way of service charge an amount towards respondents’ costs of repairing the common parts of the relevant building. The appellants also covenanted under clause 3(12) to pay all expenses including solicitors’ costs and surveyors’ fees incurred by the respondents incidental to the preparation and service of a notice under section 146 of the Law of Property Act 1925 or incurred in or in contemplation of proceedings under section 146 or 147 of the Act; and to pay all expenses incurred by the respondents of and incidental to the service of all notices and schedules relating to wants of repair of the premises.The respondents carried out repairs to the property but the appellants complained that the amount demanded by way of service charge was too high. The respondents brought proceedings before the leasehold valuation tribunal (LVT) to determine the amounts payable by the appellants. The LVT assessed the sums recoverable and made no order for costs. When the appellants failed to pay the sums awarded, the respondents commenced proceedings in the county court to recover the sums found to be due by way of service charge. The district judge gave judgment against the appellants for the sums claimed and held that the costs incurred by the respondents in connection with the proceedings before the tribunal were recoverable under clause 3(12) of the lease. The circuit judge upheld that decision on appeal. The respondents served a notice on the appellants under section 146 of the 1925 Act in respect of the unpaid service charges. The appellants appealed against the district judge’s decision contending that she had been wrong to hold that the costs of the tribunal proceedings were recoverable under clause 3(12).Held: The appeal was dismissed. There was no doubt that the respondents had incurred costs in the repair of the common parts of the building in performance of their obligation under the lease. That, in turn, created a liability on the appellants to reimburse the respondents for those costs under clause 1(b). The amount of that liability came within the definition of service charge in section 18 of the Landlord and Tenant Act 1985 but could not be enforced except in accordance with the terms of section 81 of the Housing Act 1996 and, in the case of a long lease, as defined, in accordance with the provisions of section 168 of the Commonhold and Leasehold Reform Act 2002. Each of those sections required the amount of the tenant’s liability to have been finally determined by the LVT. Moreover each of those sections required or recognised that, even when so determined, the enforcement of that liability was subject to the provisions of section 146 even if the lease treated it as an additional rent recoverable as such. The enforcement of the liability of the appellants under clause 1(b) required first the determination of the tribunal and secondly a section 146 notice.The covenant contained in clause 3(12) was doubtless separate and independent of that contained in clause 1(b). However, it did not follow that if the respondents’ cost of the repairs was only recoverable under clause 1(b) its costs of the proceedings before the LVT were also only so recoverable. The respondents’ costs of the proceedings before the LVT did not come within the terms of clause 1(b) at all. They were not incurred in performing the landlord’s obligation to repair, the apportionment of such costs or the collection of such costs. Therefore, the district judge was right to have concentrated on the terms of clause 3(12). Liability under that covenant extended to expenses incurred by the landlord in, or in contemplation of, proceedings under section 146 and all solicitors costs incurred by the landlord of and incidental to the service of all notices and schedules relating to want of repair. Given that the determination of the LVT and a section 146 notice were cumulative conditions precedent to enforcement of the appellants’ liability for the respondents’ costs of repair as a service charge, it was clear that the respondents’ costs before the tribunal fell within the terms of clause 3(12). If and insofar as any of them might not have been strictly costs of the proceedings they appeared to have been incidental to the preparation of the requisite notices and schedules.Bruce Speller (instructed by Funnell & Perring) appeared for the appellants; Grace Cullen (instructed by Heringtons LLP) appeared for the respondents.Eileen O’Grady, barrister