ASSETHOLD LIMITED v WATTS [2014] UKUT 0537 (LC): Landlord Legal Costs Unrecoverable In One Area But Part Recoverable In Another

The landlord’s legal costs incurred in party wall proceedings were not recoverable under the provision to “maintain or repair” but part of the costs (for taking professional advice prior to deciding what course to take and the cost of obtaining an injunction) were recoverable as the cost of “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”.

BARRATT v ROBINSON [2014] UKUT 322: Landlord Not Entitled To Recover Legal Costs

Summary: A landlord was not entitled to recover its legal costs under the covenant for reimbursement of costs in contemplation of proceedings under s.146 of the 1925 Act as there was no evidence that the landlord contemplated proceedings for forfeiture and, in any event, the amount claimed was below the prescribed sum.

CHAPLAIR LTD v KUMARK [2015] EWCA Civ 798: Leases With Cost Recovery Clauses

It is common for landlords to issue debt proceedings in the county court to recover service charge arrears, often as a pre-cursor for forfeiture. In the vast majority of cases the amount claimed is less than the small claims limit (£10,000) and the claim is allocated to the small claims track (CPR Part 27). Unless a party acts unreasonably, in such claims the general rule is that there be no order as to costs. In many cases, service charge disputes are transferred to the First-Tier Tribunal (“the FTT”) which is often (wrongly) described as a ‘costs-free’ jurisdiction. Where, however, a lease includes a tenant covenant to indemnify the landlord against any costs incurred arising out of  the lessee’s breach or to pay the landlord’s legal costs in recovering the service charge the landlord will seek to recover his costs. Thus, there is a tension between the costs rules in the small claims track and the FTT on one hand and the terms of the contract (i.e. the lease) on the other.

The issue has now been resolved by the Court of Appeal in Chaplair Limited v Kumari [2015] EWCA Civ 798. The court held that when a lease has a costs recovery clause, the court can and should permit recovery of costs in a small claim, including those incurred in tribunal proceedings, notwithstanding the small claims costs rules. In so holding, the Court of Appeal followed a line of authority which began with the mortgage case of Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 and was followed by Church Commissioners v Ibrahim [1997] EGLR 13. Ibrahim decided that, if the lease has a costs recovery clause the court can and should award costs in line with the recovery clause notwithstanding the fixed costs regime for possession claims under Part 45.

In Chaplair Arden LJ held that the reason Part 27 does not prevent costs recovery is that the costs the landlord seeks are contractual costs under the lease. The court retains a discretion as to whether to award contractual costs, but the contractual right to costs is highly relevant to the exercise. CPR 27.14 which limits small claims costs must be read subject to CPR 44.5 (which deals with contractual costs) which gives statutory effect to Gomba Holdings, and is not excluded by CPR 27.2. The contractual costs are recoverable subject to the court’s equitable jurisdiction to disallow unreasonable expenses.

Gomba Holdings and Ibrahim, are decisions of long standing, but their effect on costs in the small claims track has been much less clear, hence the varying decisions below in this case. The precise reasoning for the disapplication of the small claims costs rules has also been unclear; CPR 27 works differently from fixed costs in possession claims under Part 45, where the court retains an express discretion not to follow the fixed costs rules. In Part 27, there is no such discretion, unless there has been unreasonable conduct. In Chaplair Patten LJ explained that where costs are payable under the contract, not as part of the courts general costs jurisdiction, Part 27 does not exclude the contractual entitlement. This is clearly a useful case for landlords.

CHRISTOFOROU v STANDARD APARTMENTS [2013] UKUT 586 (LC): Landlord Contractual Entitlement To Costs

Summary: A landlord’s contractual entitlement to costs against a tenant is an administration charge which is not caught by paragraph 10(4) of Schedule 12 to the Commonhold and Leasehold Reform Act 2002 – which after 1 July 2013 no longer applies in England – or by any rule in the Tribunal Procedure (First–tier Tribunal) (Property Chamber) Rules 2013.


Summary: The terms of a lease enabled the recovery of the costs of employing solicitors and counsel in connection with an application by 14 leaseholders of flats for the appointment of a manager under s.24 of the 1987 Act through the service charge payable by all 100 leaseholders.

GARRICK ESTATE v BALCHIN [2014] UKUT 407 (LC): Appellant Landlord Able To Recover Service Charges On Account

A tenant’s covenant to pay “by way of service charge the due proportion as hereafter defined of the expenditure incurred or to be incurred …” (emphasis added) enabled the appellant landlord to recover service charges on account.

69 MARINA v ORAM & GHOORUN [2011]: Contractual Rights On Indemnity Basis

Where a contractual right exists (and the lease is a contract) this is often said to be on an indemnity basis meaning that the lessee covenants (promises) that all the Landlords reasonable costs are recoverable and not just the standard costs which a court normally allows “in or in contemplation of proceedings under s146 of the Law of Property Act 1925”. It was the scope of this type of covenant that fell to be considered by the Court of Appeal.

The Court held that the lessor could rely on that provision to recover the cost of a hearing before the LVT, to determine that a breach of covenant had occurred (pursuant to s168 of the Commonhold and Leasehold Reform Act 2002), because the LVT determination was a pre-condition to the service of a section 146 notice.

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