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Court procedure

Costs

Negotiated settlement

Agricullo Limited v Yorkshire Housing Limited
[2010] EWCA Civ 229

Summary

A covenant relating to the recoverability of costs following service of a s146 notice did not entitle a landlord to recover his costs where the dispute was resolved by negotiation.

Facts

Premises were let by L to T under the terms of a 29-year lease dated 9 November 2001. The lease contained a provision that T pay L:
    “on demand, and on an indemnity basis, the fees, costs and expenses charged, incurred or payable by the Landlord, and its advisors or bailiffs in connection with any steps taken in or in contemplation of, or in relation to, any proceedings under section 146 or 147 of the Law of Property Act 1925 or the Leasehold Property (Repairs) Act 1938, including the preparation and service of all notices, and even if forfeiture is avoided (unless it is avoided by relief granted by the Court)”.
A dispute arose between the parties as to T’s compliance with its repairing obligations. In February 2003, L served T with a notice under s146 of the Law of Property Act 1925 with an attached schedule of dilapidations. The s146 notice complied with the provisions of the Leasehold Property (Repairs) Act 1938, advising T that he was entitled to claim the benefit of the 1938 Act. T duly served the necessary counter-notice to protect its rights.

Once a counter-notice has been served, a landlord may only forfeit a lease or commence proceedings for damages with leave of the court and such leave will not be given unless the landlord can prove one or more of 5 statutory grounds set out in s1(5) of the 1938 Act. In this case, L did not in fact seek the court’s leave as the disrepair was dealt with on a consensual basis

Issue

Was the landlord entitled to recover his costs incurred after T’s counter-notice?

Decision

The court considered it reasonable to assume that those drafting the lease had chosen their words with care and noted that there was no specific provision for the landlord to recover its costs of enforcing T’s repairing obligations. Once the counter-notice was served by T, no further steps were taken by L either to forfeit the lease or claim damages. As a result there were in place no “proceedings under section 146 or 147 of the Law of Property Act 1925 or the Leasehold Property (Repairs) Act 1938” which would trigger the costs covenant. The costs incurred by L after service of T’s counter-notice were therefore irrecoverable. Patten LJ at para 21:
    "[L] decided to deal with the problem by negotiation [which meant that]..... the steps subsequently taken by the solicitors and surveyors on [L’s] behalf fell outside the ambit of clause 9.3. There were no s.146 proceedings contemplated or in existence and none could be taken without the leave of the court. As a consequence, no steps (within the meaning of clause 9.3) were or could have been taken in relation to them.”
The court was not persuaded by L’s argument that the consensual process adopted was a direct alternative to forfeiture proceedings and had resulted, at least in part, from the threat of such proceedings following service of the s146 Notice.

Comment

Patten LJ noted that had the costs clause been worded differently the costs after service of the s146 notice would have been recoverable, and gave as an example the case of Riverside Property Investments Limited v Blackhawk Automotive [2004] EWHC 3052 (TCC) where the lease contained the following clauses:
    "To pay all proper costs and expenses (including solicitors costs and surveyors fees) incurred by the Lessor in or incidental to the preparation and service of any notice or schedule relating to dilapidations and whether or not the same is served before or after the expiration or determination of the said term".
    AND
    "To pay all costs and expenses incurred by the Lessor in or in connection with the enforcement of any of the Lessee's covenants and conditions herein contained whether during the currency of or after the termination of the said term."



Discontinuing proceedings

Effect on rent

Mount Cook Ltd v The Media Business Centre Ltd
[2004] EWHC 346 (Ch)

The service of forfeiture proceedings brings the tenancy to an end. However, where the claim is dismissed or discontinued by agreement, or where relief is granted, the lease is restored and treated as if it has always been in existence; the tenant is obliged to pay the rent.

In this case the court took that principle one stage further and held that the position is the same where the landlord has unilaterally discontinued the claim. L had instigated a rent review before starting the forfeiture claim. Before that claim was dealt with the expert determining the rent review fixed a revised rent substantially to Ls advantage. This is what led to L to discontinue the claim. Held: L was entitled to do so and could claim the reviewed rent backdated to the review date.

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