We disputed a cost for legal charges put on our statement for £360.
Although the rest of the service charge was up to date, the management company issued court proceedings which we defended, but the court determined the cost for legal charges was payable. We have now paid what the judge ordered.
However, the management company are now asking for around £2500 in legal costs for chasing the original debt. Do we have to pay this? I don’t want to rack up more costs by disputing further, but it seems like an outrageous amount to pay.
Reply from Service Charge Disputes Guide
1. The short answer to your query is that you can challenge these costs at a First Tier Tribunal (FTT), but there is no absolute guarantee that in doing so you may not end up with even more legal costs to pay. For leaseholders whose landlord have shown a propensity to seek legal costs against their leaseholders (some landlords don’t in order to maintain good relations) careful thought needs to be given before making a legal challenge.
2. The legal basis for a leaseholder challenging the landlord’s charge for legal costs depends upon whether the landlord is raising the cost as ‘Service Charge’ or an ‘Administration Charge’. A charge for legal costs could fall under the legal definition of both a service charge and an administration charge. If you pursue this matter you will need to clarify which type of charge your landlord considers it to be.
3. This is important as your legal rights are different depending on the type of charge the legal costs are, and there are different types of application that can be made to the FTT, with different forms.
The application form to dispute Administration Charges can be found at: https://hmctsformfinder.justice.gov.uk/HMCTS/GetForm.do?court_forms_id=3080
For disputing a Service Charge the application form can be found at: https://hmctsformfinder.justice.gov.uk/HMCTS/GetForm.do?court_forms_id=3082
4. For both types of application there is a section called ‘limitation of costs’, where a leaseholder may apply under section 20c of the Landlord and Tenant Act 1985 for an order stopping the landlord from later recharging any associated costs back to the leaseholders as a service charge, although significantly an Order under section 20c does not place any limitations on legal costs being recharged an ‘Administration Charge’. The FTT has a wide discretion in deciding whether to make an order under section 20c, and applicants are often required to state good reasons for such an order to be made.
5. The FTT is a ‘no costs’ jurisdiction where, except in exceptional circumstances, none of the parties will be awarded their legal costs. Whilst in the vast majority of cases leaseholders do not end up being ordered to pay a landlord’s costs in an FTT case, we should though make you aware that there have been a number of cases where the FTT has made no order for the payment of legal costs and a Landlord has gone to make a further application to a Court which has ordered the Leaseholder to pay vast sums of money in legal costs, generally under the guise of those costs being chargeable under the Lease concerned as an ‘Administration Charge’.
6. For both types of case (service charges or administration charges), the key points are likely to be 1) whether the lease allows a landlord to raise a charge for legal costs, and in what manner, and 2) whether the costs are ‘reasonable’. In relation to service charges Section 19 of the Landlord and Tenant Act 1985 says they are only payable in so far as they are “reasonably incurred”. Schedule 11 of the Commonhold and Leasehold Reform Act 2002 says an administration charge is only payable to the extent that the charge is “reasonable”.
7. There may be a good case for a leaseholder to argue that either a service or administration charge is ‘unreasonable’ if it does not reflect the landlord’s actual costs. If successfully argued, a Tribunal may reduce the costs so that they reflect the actual costs incurred.
8. A sensible way forward for a leaseholder in this situation is to try writing to their landlord with some questions before deciding on taking further steps such as seeking professional legal advice, making an FTT application, or simply giving up and paying the charge. Some good questions to ask the landlord would be:
i. Is the charge a ‘service charge’ under the meaning of section 18 (1) of the Landlord and Tenant Act 1985, or an ‘administration charge’ as defined by Schedule 11 of the Commonhold and Leasehold Reform Act 2002?
ii. What clause in my lease entitles you to make this charge?
iii. Please can you provide a breakdown of the amount you are charging?
Click on the link to read more Reader’s Questions and Answers on Administration Charges and Legal Costs