In the recent case of Plantation Wharf Management Limited -v- Fairman & Others [2019] UKUT 236 (LC), the Upper Tribunal held that a Tribunal did not have jurisdiction to make a Section 20C costs order in favour of leaseholders who were not a party to the application, unless they had given their authority to be specified in the application.

Section 20C Orders

Most modern residential leases will include a provision to enable a landlord or management company to recover their legal costs from their leaseholders by way of the service charge. This will usually enable legal costs incurred in litigation with any leaseholder(s), for example to pursue recovery of unpaid service charges from any leaseholder(s), to be funded via the service charge.

However, Section 20C of the Landlord and Tenant Act 1985 allows a residential leaseholder to apply for an order that any costs incurred by their landlord or management company in connection with any proceedings before a Court or Tribunal are not be regarded as “relevant costs” when determining the amount of service charges payable by that leaseholder “or any other person specified in the application”. A successful Section 20C application will result in the landlord or management company being unable to recharge their legal costs through the service charge; having to bear the costs from their own pocket.

Section 20C applications are commonly attached to applications made by leaseholders to the First-Tier Tribunal (“the FTT”) for determinations as to the payability and/or reasonableness of service charges. There is no time limit for making such an application and any leaseholder can apply, e.g. the leaseholder does not have to be a party to the original application to seek a Section 20C costs order later.

Courts and Tribunals have a wide discretion when it comes to making a Section 20C order, and may make “such order on the application as it considers just and equitable in the circumstances”.

Plantation Wharf Management Limited -v- Fairman & Others [2019] UKUT 236 (LC)

Plantation Wharf is a substantial mixed-use development on the South Bank between Battersea and Wandsworth Bridges. Following an exercise by the landlord to re-apportion the service charges payable under the residential leases, various leaseholders sought to challenge the service charges in the FTT.                                                                                                                           

The leaseholders’ challenge was successful and, in the absence of agreement between the parties, it was directed that the service charges payable should be re-calculated by the FTT.

Two of the leaseholders who had been part of the original application, Mr D and Mr L, then sought Section 20C orders. Both sought Section 20C orders on their own behalf and on behalf of other leaseholders. Both applications were successful, the FTT finding that it was not just and equitable for the costs of the proceedings to be claimed as part of the service charges.

It was accepted that Mr D had the written authority to make the Section 20C application on behalf of a number of other leaseholders. There was no challenge in respect of that Section 20C order. Mr L, however, had no such authority, and it was that Section 20C that was challenged, having been granted on behalf of Mr L as well as all the other leaseholders in his block, as specified in his application.

The Upper Tribunal’s decision

In allowing the appeal, the Upper Tribunal (“the UT”) recognised that there was a need for caution when granting Section 20C orders, given the serious consequences that such orders in favour of all leaseholders on an estate have for landlords/management companies, and the fact that such orders necessarily interfere with the landlord/management company’s contractual rights under the lease.

The UT held that allowing Section 20C orders to affect persons who had not sought assistance of the FTT, and who may positively not want it, has the potential to create real practical difficulties. If the determination of an application made purportedly on their behalf, but without their authority, does not conclude the issue of their entitlement to a Section 20C order, the potential for multiple and conflicting applications is obvious.

Further, the UT held that it is not the usual practice of Courts or Tribunals to come to the aid of those who had not specifically sought a remedy or relief. It was said that if it was the intention of those drafting the Landlord and Tenant Act 1985 to provide a remedy in such circumstances, it might be expected that clear language would have been used to express that intention.

The UT therefore decided that a Section 20C order can only be sought on behalf of those who had consented or had given authority. In the case of Mr L, he had had neither. This essentially was a question that went to the FTT’s jurisdiction to grant an order in favour of parties who had not consented to it.

Conclusion

The decision was clearly right, when taken with the specific wording of Section 20C, and potentially gives landlords and management companies a very easy way to limit the impact of Section 20C orders. However, it is hard not to see the result as a somewhat hollow victory. The result would of course benefit a landlord or management company in circumstances in which the other leaseholders had no interest in challenging the costs/pursing a Section 20C order, but it was always open to those other leaseholders to seek a Section 20C order separate to Mr L’s application later.

For more information, please contact Faye Didcote on 01435 897297 or Faye.Didcote@kdllaw.com.

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