Pay first, argue later: Plantation Wharf shows how LVT’s £500 limit on legal costs can be bypassed

If you are in dispute with your freeholder over service charges (see Plantation Wharf case), pay the sum and fight the action retrospectively. Make sure that you are the applicant of the action, rather than the respondent.

The case of Dennis Jackson at Plantation Wharf raises the prospect of  freeholders seeking to circumvent the Leasehold Valuation Tribunal’s £500 limits on legal costs.

Since publishing the article, two leaseholders who own apartments worth several million pounds, have contacted LKP for advice on this issue.

Many leases do allow landlords to pass on their legal charges, but the LVT has the power to limit them being passed on as service charges provided leaseholders have reasonably brought a case and have been able to show that the charges have been unreasonably incurred.

What the Jackson case shows is that if a landlord – in this case a management company – is seeking recovery of a debt he may be able to claim legal costs as administrative charges under Schedule 11 of the Commonhold and Leasehold Reform Act. This would then circumvent the LVT’s ability to limit costs.

It is important not to withhold service charges for any reason to avoid this use of the law. Paying the service charge does not mean you accept liability to pay that amount – you must indicate that you do not accept the liability – and it can be challenged at the LVT retrospectively.

We would emphasise that the following advice on both the Ministry of Justice and LEASE web sites are wrong and we have contacted them to change this information:

Both LEASE and the Ministry of Justice websites spread the myth that LVTs are low cost tribunals

LEASE

LVTs are part of the Residential Property Tribunal Service (RPTS) and provide an accessible and relatively informal way to resolve residential leasehold disputes.

Each party is normally responsible for their own costs of appearing before the LVT, although a lease may make provision for the landlord to recover his professional costs through service charges. The paragraph ‘Limitation of service charges – landlord’s costs’ explains the type of application that can be made to a LVT if this is the case.

In addition, the LVT may determine that a party to the proceedings shall pay another party’s costs incurred in the case. The amount that the LVT can award is currently limited to £500, and only applies in the following limited circumstances:

where the application has been dismissed by the LVT because it believes the application is frivolous or vexatious or otherwise an abuse of process; or

where a person has acted ‘frivolously, vexatiously, abusively, disruptively or otherwise unreasonably in connection with the proceedings’.

Ministry of Justice

Can the LVT order one party to pay the other party’s costs?

No. Save in exceptional, limited, circumstances each party has to pay its own costs. Those circumstances are where:

(a) an application has been dismissed on ground that it is frivolous or vexatious or otherwise an abuse of process, or

(b) a party has in the opinion of the LVT acted frivolously, vexatiously, abusively or disruptively or otherwise unreasonably in connection with the proceedings.

Furthermore, even in such a case the LVT may not award an amount in excess of £500.

Some leases allow a landlord to recover legal costs as part of the service charge. The LVT has the power to make an order preventing a landlord from taking this step. This is known as a section 20C order. A party may ask for a s20C order either in the application form or, by completing a separate form obtainable from the LVT office.