16 June 2022 by

Legal costs recovery in Landlord and Tenant disputes

What are Legal Costs?

Legal costs are costs incurred by a party to a legal dispute. These costs usually comprise solicitors’ charges, Court fees and any payments to third parties such as barristers or experts.  The Court will usually require the unsuccessful party to the litigation to pay its own and its opponent’s legal costs (or at least a proportion of them).  However, there are specific rules for certain situations and the Court has wide discretion to order otherwise.

Methods of Recovery

There are three possible ways a landlord may recover its legal costs:

  1. From the tenant following a Court judgment or order;
  2. Recovering legal costs as an administrative or service charge; or
  3. From the tenant as a condition for granting relief from forfeiture.

Recovering Legal Costs from the Tenant following a Court Judgment or Order

Service charge related claims in the County Court are usually allocated to the small claims track. This is, by definition, “a court procedure for dealing with the resolution of civil disputes usually used for claims of £10,000 or less”.  The small claims track imposes a restrictive cost regime, limiting the successful party’s costs recovery. This restrictive costs regime can be bypassed, however, if the lease requires the tenant to pay the landlord’s costs in the event of dispute.

Recovering Legal Costs as an Administrative or Service Charge

In circumstances where a landlord is unable to recover the legal costs of proceedings directly from the tenant or there is no clear provision within the lease allowing for the recovery of administration charges, it is common practice for a landlord to seek to recover the legal costs through the general service charge.  Whether the landlord is permitted to recover such legal costs from its tenants via the service charge will depend on the precise wording of the lease.

In Staghold Ltd v Takeda [2005] 3 E.G.L.R. 45 and Christoforou v Standard Apartments Ltd [2013] UKUT 586 (LC), it was held that a landlord may recover legal costs that have been incurred from proceedings in the Tribunal to determine whether service charges are payable.  The Tribunal is unable to order the tenant to pay the landlord’s legal costs, however the landlord may, after the proceedings, serve a compliant administrative demand on the tenant for payment.

Restricting the Landlord’s Recovery of Legal Costs

In most service charge related disputes between a landlord and tenant, a tenant will almost always make an application to the Tribunal for the legal costs of the proceedings not to be added or recovered via the service charge.

The tenant may also make an application to prevent the legal costs being recovered as an administration charge. Such determinations in favour of the tenant will prevent the landlord from recovering the legal costs from its tenants via payment of their service charge.

Recovering Legal Costs from the Tenant in Forfeiture Proceedings

Where a landlord successfully brings Court proceedings to terminate or ‘forfeit’ the lease, it is entitled to have its legal costs fully reimbursed by the tenant.  Where relief from forfeiture is granted, the tenant will be ordered to pay the landlord’s legal costs of the forfeiture proceedings as a condition of relief being granted.

A Court will only order one party to pay the other party’s legal costs once proceedings have been issued.  Where proceedings have not commenced, the landlord may serve a compliant administrative demand on the tenant for any costs incurred by the landlord as a consequence of the tenant’s breach.

For further information about legal costs in landlord and tenant disputes, please contact Hansel Ariburun in our Real Estate Disputes team.

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