Before embarking on legal action against a difficult tenant, landlords will often be keen to know whether they will be able to recover the costs involved from that tenant.
If court proceedings ensue, then the general rule is that the judge will order the losing party to pay at least a proportion of their opponent’s legal costs, although this will, of course, depend on the facts and circumstances of each individual case.
But what if the dispute is resolved without the involvement of the court? Can the landlord still claim the costs he has incurred from the tenant?
A landlord’s ability to recover legal and other professional costs from the tenant is generally governed by the provisions of the lease. Landlords, or their representatives, should therefore check the wording of any relevant clauses carefully to establish the extent, if any, to which they are entitled to recover these costs.
A recent Court of Appeal case has highlighted the need to carry out this check, and has also shown that the wording of such clauses will be strictly interpreted.
Agricullo Limited v Yorkshire Housing Limited involved a dispute over the tenant’s failure to comply with its repairing obligations in the lease.
The lease contained a fairly typical clause enabling the landlord to recover:
“on demand, and on an indemnity basis, the fees, costs and expenses charged, incurred or payable by the Landlord, and its advisors or bailiffs in connection with any steps taken in or in contemplation of, or in relation to, any proceedings under section 146 or 147 of the Law of Property Act 1925 or the Leasehold Property (Repairs) Act 1938, including the preparation and service of all notices, and even if forfeiture is avoided …”
The landlord, Agricullo, served notice under section 146 of the Law of Property Act 1925 (“LPA 1925”) threatening to forfeit the lease if the tenant did not carry out repairs to its property. However, because the lease had more than three years left to run, the tenant was entitled to serve a counter-notice under the 1938 Act.
The effect of the counter-notice was to prevent the landlord taking any further steps to either forfeit the lease or claim damages without first obtaining permission from the court.
There then followed a period of negotiation, as a result of which agreement was reached and, more than two years after the notice had been served, the tenant carried out the repairs.
Once the works were completed, Agricullo asked the tenant to pay its costs, which totalled over £30,000 and covered both service of the notice and the subsequent negotiations. Perhaps unsurprisingly, the tenant refused and proceedings were issued.
The Court of Appeal agreed with the tenant and held that Agricullo was not entitled to recover any of the costs incurred during the negotiations or in supervising the tenant’s works.
It took the view that the wording of the relevant lease clause restricted the landlord to recovering costs incurred only in connection with, or in contemplation of, proceedings under section 146 of the LPA 1925.
Following service of the tenant’s counter-notice, Agricullo would had to have obtained the court’s permission before it could either forfeit the lease or claim damages. Because it did not do so there were no relevant proceedings either in contemplation or in existence. Therefore any costs incurred after service of the counter-notice could not have been incurred in connection with or in contemplation of proceedings under section 146 of the LPA 1925.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.