Landlord’s recoverable costs on an enfranchisement claim?

John Lyon’s Charity v Terrace Freehold LLP [2018] UKUT (LC)

Leaseholders making a claim to buy their freehold or extend their lease under the Leasehold Reform, Housing and Urban Development Act 1993 will not only have to pay the cost of the proprietary interest they will be acquiring, but also their landlord’s reasonable legal and valuation costs of dealing with the claim.  For the purposes of collective enfranchisement, Section 33(2) of the Act  provides some guidance as to what ‘reasonable’ might mean:

…costs incurred by the reversioner… in respect of professional services rendered by any person shall only be regarded as reasonable if an to the extent that the costs in respect of such services might reasonably have been expected to have been incurred by him if the circumstances had been such that he was personally liable for all such costs.

This, of course, does not clear up the situation and we are still left with the question of what costs a landlord would be happy to pay if they were footing the bill themselves.

In Trustee’s of John Lyon’s Charity v Terrace Freehold LLP the Upper Tribunal was asked to decide on this very question I the context of a collective enfranchisement claim.  The freeholder had initially claimed £12,045 plus VAT in legal costs from the leaseholders on completion of their claim.  On initially challenging this a reduced legal costs bill of £10,997.50, which the leaseholders disputed still and applied for determination of these costs in the First-tier Tribunal (Property Chamber).  The freeholder had also been claiming £15,495.00 plus VAT in valuation costs.  The FTT determined that reasonable legal costs were £4,187.50 plus VAT and reasonable valuation costs were £7,620.00 plus VAT.

The FTT found that the two fee earners employed on the matter should have their hourly rates reduced from £395.00 plus VAT to £350.00 plus VAT (for a consultant solicitor with 25 years’ experience) and from £265 plus VAT to £225.00 plus VAT (for a junior solicitor with 3 years’ experience).  They also disallowed certain costs from the time recording given by the freeholder’s solicitor and held that some of the work done by the senior, more expensive solicitor should have been done by the cheaper, more junior solicitor.

The freeholder sought to challenge the decision on the reduction in legal costs and appealed to the Upper Tribunal.  Interestingly, they elected not to appear at the appeal hearing on grounds that, as a housing charity, they did not want to incur further expenditure on legal fees which would otherwise have been used for charitable purposes and would only come to diminish the amount of costs they would eventually recover.

The appeal centred on three grounds:

  • The reduction of the hourly rate of the senior solicitor;
  • The disallowing of the recovery of certain costs; and
  • The decision that a junior solicitor should be doing more of the work involved

The Upper Tribunal dismissed the first two complaints made by the freeholder, finding that the hourly rate was within the range one would expect, albeit at the lower end of that range, and deciding that they could not disturb the decision of the FTT on the second ground because it was for the freeholder to submit sufficient evidence to the FTT to support their arguments and they had not done so.

On the third ground, however, the freeholder was successful in their appeal.  At Paragraph 40 of his decision, HHJ Bridge stated:

…it is important that there is a degree of certainty of principle upon which those acting for the reversioner can depend… [I]n view of the specialised nature of leasehold enfranchisement work it is reasonable for the reversioner to use an experienced practitioner rather than a lower grade fee earner, even where the firm instructed is itself a firm specialising in this kind of work.

The Upper Tribunal noted also that the FTT had allowed a factor of ‘double-discount’ in its reasoning, whereby they had reduced both the number of hours recoverable and the seniority of the solicitor working on the matter, which effectively reduced the cost recoverable for each of the reduced number of hours.

This decision is consistent with the position stated in Sinclair Gardens Investments (Kensington) Ltd v Wisbey [2016] UKUT 203 (LC) that a landlord is entitled to instruct a Grade A fee earner to carry out conveyancing work following a claim under the 1993 Act and confirms that landlords are free to instruct specialists of their choosing.

Whilst this may seem like grim reading for leaseholders, the effect of the decision in the present case was not too severe.  Owing to the reductions in hourly rate and disallowing of certain costs, the Upper Tribunal’s reassessment of the costs recoverable increased the amount from £4,187.50 plus VAT to £4,712.50 plus VAT.

Written by Associate Solicitor, Chris Last

Contact Chris:
Call: 0208 667 2286