Right to Manage News

Landlords must consider 'proportionality' before incurring costs

Wednesday 13th May 2015

Park Lodge, Billericay.

In an astonishing RTM costs case, Genesis Housing has had its legal costs slashed from a staggering £27,400 to just £1,937.

On 10 April 2014 Park Lodge (Billericay) RTM Company served a Claim Notice on the landlord, Genesis Housing Association. The claim was not contested and on 16th May 2014 their solicitors issued a Counter-Notice admitting the claim.

Genesis subsequently refused to provide any information to facilitate the transfer of management and failed to send Contract and Contractor Notices as required by statute. This prompted the RTM Company to serve a formal section 93 Information Notice. Genesis instructed solicitors to deal with the notice and provide the required information.

This resulted in excessive costs and a hearing at the Eastern Residential Property First-tier Tribunal on 28 April 2015, with Dudley Joiner, RTMF, representing the RTM company and Liam Varnam of Counsel for the landlord.

In his submission for RTM leaseholders Dudley Joiner said the landlord was obliged by the overriding objective to consider proportionality before engaging solicitors and running up costs. He referred to the FTT Rules (3(2)(a) and 3(3)(a)(b) which he said mirrored the civil court rules (CPR 1 and CPR 44). He said the FTT rule went even further in requiring consideration of the resources of the paying party before incurring costs. If the landlord had done so in this case said Mr Joiner, it would have realized that it was unlikely that elderly leaseholders on fixed pensions would be able to pay tens of thousands in legal costs.

Joiner cited the witness evidence of Nick Bignell, RTMF, who said the average s.81 RTM costs from a sample of 265 RTMF blocks comprising 6,918 flats was between £7.95 and £9.11 per flat, indicating costs in this case of about £700.

Mr Joiner said under the new costs regime proportionality took precedence over reasonableness and he invited the Tribunal to deal with the costs solely on this basis and not waste time considering the reasonableness of each item of costs claimed.

Mr Varnham , Counsel representing Genesis, submitted that the overriding objective did not apply to s.88 costs and the financial means of the leaseholders was irrelevant. He said the costs had been reasonably incurred because RTM was a complex process and Genesis had to comply with the law. He said that in a block of 80 flats the paperwork was extensive. He conceded that his client could recover VAT and would not be pursuing that element of costs.

The Tribunal accepted the submission of Mr Joiner and by way of a preliminary issue determined that the overriding objective and the requirement of proportionality does apply to s.88 costs and does take precedence over issues of reasonableness.

Whilst the Tribunal did not suggest that Genesis was being malicious when instructing solicitors, it did think that the landlord should have taken a step back and thought what it was doing. It concluded that a large landlord and property manager should have known that once the RTM Claim was accepted the work involved in transferring management from one managing agent to another could have been undertaken by Genesis in-house employees who would have all the information at their fingertips. The solicitor would not have to check all the facts, but merely check a draft response to ensure that section 93 was being complied with.

On receipt of the decision the RTM company commented "Nick, all the residents at Park Lodge would like to thank you and Mr Joiner on the way the Tribunal case was handled by the RTMF. This is a great relief for Park Lodge residents. A big thank you"