Summary
1. This section allows a leaseholder to make an application to a court or tribunal to request that an Order be made stopping a Landlord recharging their legal costs (associated with any proceedings in a Court, Tribunal, or Arbitration) being recharged through their Service Charge.
2. On the Application Form which Leaseholders must complete if they wish apply for the First Tier Tribunal for a decision on the payability of their Service Charges, there is a Section entitled ‘9. Limitation of Costs’. If a Leaseholder wishes to make a Section 20C Application they must tick the Yes box in this part of the Form and give reasons for their request.
Why is This Important to Leaseholders?
1. Many leases allow for a Landlord to recover their legal costs through the Service Charge. This means that the Landlord can recharge Leaseholders for their costs (and those charged by their lawyers) in preparing for and attending a court or tribunal as part of the normal service charge.
2. Even if a Landlord loses their case, they may still be able to recover their legal costs through the Service Charge unless an Order is made under Section 20C stopping them from doing so.
If a Section 20C Order is Made Does This Entirely Stop a Landlord from Charging a Leaseholder Legal Costs?
1. Not necessarily. Section 20C only covers Service Charges. Depending on the way the lease is written, a Landlord may be able to make a direct charge to a Leaseholder which is known as an Administration Charge.
2. An Administration Charge is different to a Service Charge. Service Charges are calculated as the Landlord’s costs of managing a building split between the residents within that building. An Administration Charge is a direct charge to a Leaseholder.
How Does A Tribunal Decide Whether to Make a Section 20C Order?
1. Section 20C says that a court ot tribunal may make an Order as “it considers just and equitable in the circumstances”. This means that a court or tribunal will make its decision on the merit of each case.
2. Whilst each application is left to the discretion of the court or tribunal, case law suggests that they are likely to consider one or more of the following factors in deciding whether to make an Section 20C Order.
i. Whether the lease allows a Landlord to recharge legal costs as a Service Charge.
ii. Whether the Leaseholder has made adequate attempts to resolve the issue with their Landlord before commencing legal proceedings.
iii. Whether the Landlord has responded ‘unreasonably’ to earlier attempts by a Leaseholder to resolve a dispute.
iv. The financial circumstances of each party. Tribunals sometimes make an Order simply on the basis that the Landlord has much greater financial resources than the Leaseholder.
3. As a general ‘rule of thumb’ a Leaseholder is much more likely to convince a court or tribunal to make a Section 20C Order if they can show that the Landlord is at fault in such a way as to have caused legal proceedings to have occurred.
Relevant Case Law
See the section of our case law library on Legal Costs for Leaseholders.
Click on the link to read more about the Landlord and Tenant Act 1985