Most modern residential leases include a provision to enable a landlord or management company to recover their legal costs from their leaseholders through service charges. This will usually enable legal costs incurred in litigation with any leaseholder(s), for example to pursue recovery of unpaid service charges from leaseholders, to be funded via the service charge. However, Section 20C of the Landlord and Tenant Act 1985 allows a residential leaseholder to apply for an order that any costs incurred by their landlord or management company in connection with any proceedings before a Court or Tribunal are not to be regarded as “relevant costs” when determining the amount of service charges payable by that leaseholder “or any other person specified in the
application”.

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A successful Section 20C application will result in the landlord or management company being unable to recharge their legal costs through the service charge; having to bear the costs from their own pocket. Section 20C applications are commonly attached to applications made by leaseholders to the FirstTier Tribunal (“the FTT”) for determinations as to the payability and/or reasonableness of service charges. There is no time limit for making such an application and any leaseholder can apply. A
leaseholder does not have to be a party to the original application to seek a Section 20C costs order later. Courts and Tribunals have a wide discretion when it comes to making a Section 20C order, and may make “such order on the application as it considers just and equitable in the circumstances”.

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It was said that if it was the intention of those drafting the Landlord and Tenant Act 1985 to provide a remedy in such circumstances, it might be expected that clear language would have been used to express that intention. TA Section 20C order can only be sought on behalf of those who had consented or had given authority.

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When taken with the specific wording of Section 20C, and potentially gives landlords and management companies a very easy way to limit the impact of Section 20C orders. However, it is hard not to see the result as a somewhat hollow victory. The result would of course benefit a landlord or management company in circumstances in which the other leaseholders had no interest in challenging the costs/pursing a Section 20C order, but it was always open to those other leaseholders to seek a Section 20C order in some cases.

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If you have any questions on property or block management, please contact Pelin Martin to book a 30-minute complimentary property consultation on +0208 994 7327 – pm@bluecrystallondon.co.uk