The Right to Manage, at all costs!

The starting point is s.88(1), which entitles any recipient of a claim notice to recover any reasonable costs incurred by the recipient “in consequence” of that notice. Unlike the corresponding cost recovery provisions in enfranchisement cases, the liability is broad and generic in scope.

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Those costs are recoverable not only from the RTM company, but also from each existing and former member of the RTM company (s.89(3), 2002 Act). Further, the liability is joint and several. It is conceivable; therefore, that one member could be made to pay the entirety of the landlord’s s.88 costs. Where a RTM claim has been unsuccessful, those costs could potentially be quite significant. However, this is commonly overlooked.

This broad liability is subject to two important qualifications. The first, contained in subsection (2), is that any costs incurred in respect of professional services will only be reasonable “if and to the extent that costs in respect of such services might reasonably be expected to have been incurred by him if the circumstances had been such that he was personally liable for all such costs”.

The second, set out in s.88(3), is that costs incurred as a party to any proceedings before an “appropriate tribunal” can only be recovered “if the tribunal dismisses an application by the company for a determination that it is entitled to acquire the right to manage the premises”.

Where a claim notice is withdrawn, or ceases to have effect (e.g. where the tribunal finds in favour of the landlord), s.89(2) provides that the liability for costs under s.88 means costs incurred “down to that time” (e.g. down to the date of the withdrawal).

One question which arises is whether a landlord can recover the costs it incurs in connection with proceedings before a tribunal, where the RTM company withdraws its application, e.g. a few days before the hearing. The FTT considered this question in a decision which was handed down in January of this year. The FTT decided in favour of the RTM company; however, the landlord has applied for permission to appeal, relying on two recent decisions of the High Court and Upper Tribunal (Lands Chamber), respectively.

Among other things, the landlord is arguing that (i) the tribunal must consent to the withdrawal, and that consent amounts to a “dismissal” for the purpose of s.88(3) (R (Twelve Baytree Ltd) v Rent Assessment Committee [2014] EWHC 1129); and (ii) following the Addendum to Fencott Ltd v Lyttelton Court RTM Companies [2014] UKUT 27 (LC) (particularly Para. [88]), the costs fall to be recovered under s.88(1), while s.88(3) does not arise. The FTT’s permission to appeal decision is expected imminently.

Cost recovery remains a contentious issue. Whether you are acting for a RTM company or a landlord, you would do well to ensure that your clients are properly advised about their liabilities.