Déjà Vu? The recovery of legal costs has recently come before the Upper Tribunal once more, proving that the issue continues to perplex the Tribunals and Courts alike.

In Plantation Wharf Management Company Ltd -v- Jackson and Irving [2011 UKUT 488 (LC), the management company (“the Company”) issued County Court proceedings against two leaseholders for withholding their service charge payments for the years 2007 and 2008. When the two leaseholders disputed the reasonableness of the charges, the case was transferred to the LVT for determination.

Save for some modest amendments, the LVT was not persuaded that the charges were anything other than reasonable and recoverable. However, the LVT went on to rule that the leases did not entitle the Company to recover its legal costs by way of service charge, and the Company appealed on this point.

The clauses in question were somewhat complicated and cross-referenced with a number of other clauses in the lease, but in essence read like many service charge clauses. The relevant clauses permitted the recovery of “the fees charges salaries and expenses of…professional advisers” in the :

“…enforcement whenever and as often as the Lessor or the Company shall think fit of any covenants or conditions contained in the lease…where in the opinion of the Lessor and/or the Company such enforcement will be in the interest of good estate management”.

The LVT relied on the earlier decision of Stella House -v- Mears (1989). In the absence of any express reference to ‘legal costs’, the clauses stopped short of the clear and unambiguous provision required for legal costs to be recoverable. It went on to consider that if such costs were recoverable, a reduction of one third would be applied under section 20C for what the LVT found to be repeated over-budgeting and failures to communication properly with the leaseholders.

The Upper Tribunal, however, took a practical approach and reversed the LVT’s decision. The Tribunal considered that the primary, if not only, proper method of enforcing the covenants against the leaseholders is by bringing legal proceedings. It went on to find that, as it is “extremely difficult to contemplate the bringing of legal proceedings” without engaging lawyers, it was “overwhelmingly clear” that such costs were included on a fair construction of the lease. The Upper Tribunal disagreed with the findings of the LVT on over-budgeting and remitted the section 20C application back to the LVT on the basis of its findings.

Plantation Wharf is clearly a welcome decision, showing the Tribunal taking a commonsense approach. Whilst Stella remains good authority (the Tribunal purposely using the Court’s terminology to bring legal costs within the scope of the clause), it is refreshing to see the Tribunal taking the practical effects of the lease into account, rather than imposing a blanket ban where any clause omits reference to “legal” or “solicitors’” costs (see the case of Greening featured in our last eBulletin). The Upper Tribunal’s comments also make it clear that, when faced with a section 20C application by a leaseholder, the LVT ought to take into account the risk of a leaseholder owned management company becoming insolvent, if it is unable to recover its legal costs of enforcing service charge provisions.

It remains to be seen whether the decision will be appealed and for the balance to again swing in favour of the leaseholders. In the meantime, we suggest that a belt and braces approach is always taken when drafting service charge clauses, with explicit reference to legal and solicitors’ costs, in order to minimise the chance of a challenge.