The Housing and Planning Act 2016: limitations on the recovery of costs

The Housing and Planning Act 2016 obtained Royal Assent on 12 May 2016 and comes into force, subject to exceptions, on dates to be determined. Parts 1-5 concern housing, part 6 concerns planning, part 7 relates to compulsory purchase and part 8 deals with public authority land.

Previously, it has been common practice for landlords to start proceedings in the County Court for recovery of service charge arrears as a debt, thereby engaging any relevant contractual clause rather than wait for a leaseholder to make an application to the tribunal pursuant to section 27A of the Landlord & Tenant Act 1985.

Landlords had been emboldened following the recent decision of the Court of Appeal in Chaplair Limited v Kumari [2015] EWCA Civ 798, which confirmed that the amount of legal costs, including those incurred in the tribunal, was not limited by the costs regime governing small claims.

The 2016 act now provides that where a long lease permits the recovery of legal costs as an administration charge (schedule 11, Commonhold and Leasehold Reform Act 2002), a leaseholder will be able to seek an order reducing or extinguishing his liability for those costs (section 131).

Although this provision is not yet in force, it will give courts and tribunals a discretionary power to restrict the ability of a landlord to recover incurred legal costs from the leaseholder.

The Housing & Planning Bill did not originally contain this important provision. Its genesis can be found in the submissions made on behalf of the charity Leasehold Knowledge Partnership as part of the committee stage of the Bill.

Thereafter, it was inserted by a House of Lords amendment at the report stage, having been proposed by Lord Young of Cookham and accepted by the government as closing a perceived lacuna in the law: “…where a lease allows a landlord to recover the costs of legal proceedings through the service charge, a court or tribunal can decide to restrict the amount that can be recovered in that way. Courts or tribunals do not have similar powers where recovery of the costs of proceedings as an administrative charge is permitted by the lease. This can lead to unfairness, as the leaseholder will have no choice but to pay the cost of proceedings as an administration charge, regardless of the proceedings.” (HL Deb 20 April 2016, vol 771, col 631.)

It remains to be seen how courts and tribunals will consider section 131 applications.

However, given that the purpose of the provision is to strengthen judicial powers to restrict recovery of costs through the service charge or as an administration charge, it is likely that courts and tribunals will retain a wide discretion, similar to section 20C applications, to assess the merits of an application on a case-by-case basis, and restrict legal costs where they consider it just and equitable in the circumstances.

Jeff Hardman is a barrister at Arden Chambers and Ranjeet Johal is a partner at Mills Chody LLP