69 Marina, St Leonards-On-Sea, Freeholders of v Oram & Anor

A service charge remains subject to the statutory forfeiture regime even where the lease reserves it as additional rent. Enforcement by forfeiture requires both a final determination of the tenant’s liability and compliance with section 146 of the Law of Property Act 1925.

Where a lease separately requires the tenant to reimburse expenses incurred in or in contemplation of section 146 proceedings, that covenant may cover the landlord’s costs of obtaining the necessary tribunal determination. Those costs need not be recoverable through the general service charge covenant.

The freeholders repaired the common parts of a converted building. Two long leaseholders disputed their service charge liabilities, causing the freeholders to obtain a determination from the Leasehold Valuation Tribunal. The tribunal dispensed with consultation requirements and determined the recoverable repair costs, but made no costs order.

The freeholders then recovered sums in Hastings County Court, including half of their tribunal costs from each leaseholder under a covenant concerning expenses connected with section 146 proceedings and repair notices. District Judge Nightingale entered judgment for the freeholders. HH Judge Hollis granted permission to appeal but dismissed the appeal.

The leaseholders appealed against their liability for the amount by which half of the tribunal costs exceeded their respective rateable proportions. The central issue was whether those costs fell within the separate expenses covenant in clause 3(12).

1. Appeal dismissed. A service charge within section 18 of the Landlord and Tenant Act 1985 remained subject to the statutory restrictions on enforcement even though the lease treated it as additional rent. Sections 81 of the Housing Act 1996 and 168 of the Commonhold and Leasehold Reform Act 2002 required the liability to be finally determined by the Leasehold Valuation Tribunal. Those provisions also required or recognised compliance with section 146 of the Law of Property Act 1925. The tribunal determination and a section 146 notice were therefore cumulative conditions precedent to enforcement.
2. The covenant in clause 3(12) was separate from the service charge covenant in clause 1(b). The freeholders’ costs of the tribunal proceedings were not incurred in performing their repairing obligation, apportioning the repair costs or collecting those costs. They consequently did not fall within clause 1(b).
3. Clause 3(12) extended to expenses incurred in or in contemplation of section 146 proceedings and to solicitors’ costs incidental to repair notices and schedules. Because the tribunal determination was a necessary step towards enforcing the repair service charge through the section 146 procedure, the tribunal costs fell within clause 3(12). To the extent that any costs were not strictly costs of those proceedings, they appeared incidental to preparing the necessary notices and schedules.
4. The freeholders had not pleaded liability under clause 3(12), but the point was clearly raised before the District Judge. There was no reason to conclude that the leaseholders had been surprised or disadvantaged, and the objection had apparently not been repeated before the Circuit Judge. The pleading omission did not alter the result.
5. The leaseholders could not complain that costs should have been assessed on the small-claims basis. They had consented to allocation of the claim to the fast track.

Hooper and Rafferty LJJ agreed with the Chancellor.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously. The court upheld the leaseholders’ liability for the disputed balance of the freeholders’ tribunal costs under clause 3(12): [2011] EWCA Civ 1258.
2. Hastings County Court, Circuit Judge: HH Judge Hollis granted permission to appeal but dismissed the appeal from District Judge Nightingale.
3. Hastings County Court, District Judge: District Judge Nightingale entered judgment against the leaseholders for the sums claimed, including amounts attributed to the freeholders’ tribunal costs.
4. Leasehold Valuation Tribunal: The tribunal dispensed with the statutory consultation requirements and determined the recoverable repair expenditure. It made no order for costs.