[2024] UKUT 122 (LC)

Paragraph 5A of schedule 11 to the 2002 Act provides:

“(1)

A tenant of a dwelling in England may apply to the relevant court or tribunal for an order reducing or extinguishing the tenant's liability to pay a particular administration charge in respect of litigation costs.”

That provision was enacted in order to give the FTT, which in service charge disputes is a no costs jurisdiction, a discretion to make an order preventing a landlord from recovering litigation costs from its leaseholders where the terms of the lease allowed it to do so by way of administration charges; section 20C of the Landlord and Tenant Act 1985 has the same effect in relation to service charges.

That discretion will not always be exercised in the leaseholders’ favour, even where they have been successful in challenging service charges. In making orders under paragraph 5A and under section 20C the FTT is overriding one party’s contractual entitlement, and so the principles at work are different from those relevant to costs orders in other jurisdictions.

In in Church Commissioners v Mrs Khadia Derdabi [2011] UKUT 380 (LC) the Tribunal (HHJ Nigel Gerald) explained how applications under section 20C and paragraph 5A should be approached:

“18.

In very broad terms, the usual starting point will be to identify and consider what matter or matters are in issue, whether the tenant has succeeded on all or some only of them, whether the tenant has been successful in whole or in part ( i.e. was the amount claimed in respect of each issue reduced by the whole amount sought by the tenant or only part of it), whether the whole or only part of the landlord's costs should be recoverable via the service charge, if only part what the appropriate percentage should be and finally whether there are any other factors or circumstances which should be taken into account.

19.

Where the tenant is successful in whole or in part in respect of all or some of the matters in issue, it will usually follow that an order should be made under s20C preventing the landlord from recovering his costs of dealing with the matters on which the tenant has succeeded because it will follow that the landlord's claim will have been found to have been unreasonable to that extent, and it would be unjust if the tenant had to pay those costs via the service charge. By parity of reasoning, the landlord should not be prevented from recovering via the service charge his costs of dealing with the unsuccessful parts of the tenant's claim as that would usually (but not always) be unjust and an unwarranted infringement of his contractual rights. …

22.

Where the landlord is to be prevented from recovering part only of his costs via the service charge, it should be expressed as a percentage of the costs recoverable. The tenant will still of course be able to challenge the reasonableness of the amount of the costs recoverable, but provided the amount is expressed as a percentage it should avoid the need for a detailed assessment or analysis of the costs associated with any particular issue.

23.

In determining the percentage, it is not intended that the tribunal conduct some sort of “mini taxation” exercise. Rather, a robust, broad-brush approach should be adopted based upon the material before the tribunal…”

That does not mean that there is an entitlement or an expectation that an order under section 20C or paragraph 5A will be made, nor that such an order will always extinguish liability in proportion to a leaseholder’s success in the substantive decision about service charges. The FTT has a discretion, and provided that it takes into account relevant circumstances and does not take into account irrelevant circumstances, and does not make an error of law nor arrive at a decision that no properly directed tribunal could have made, the Upper Tribunal will not interfere. In the Lands Tribunal (HHJ Michael Rich QC) said this about orders under section 20C:

“28.

In my judgement the only principle upon which the discretion should be exercised is to have regard to what is just and equitable in all the circumstances. The circumstances include the conduct and circumstances of all parties as well as the outcome of the proceedings in which they arise.

29.

I think that it can be derived from the decision of the Court of Appeal in [Iperion Investments Corporation v. Broadwalk House Residents Ltd [1995] 2 EGLR 47] that where a Court has power to award costs, and exercises such power, it should also exercise its power under s.20C, in order to ensure that its decision on costs is not subverted by the effect of the service charge.

30.Where, as in the case of the LVT, there is no power to award costs, there is no automatic expectation of an Order under s.20C in favour of a successful tenant, although a landlord who has behaved improperly or unreasonably cannot normally expect to recover his costs of defending such conduct.”

Those observations are equally applicable to orders made under paragraph 5A of Schedule 11 to the 2002 Act.