The general view of Rule 13 of The Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 is that it allows the First-tier Tribunal (“the FTT”) to make an order for costs if the Applicant or the Respondent has acted unreasonably in issuing, defending, or conducting proceedings.  The rule was introduced with the introduction of the FTT which, on 1 July 2013, replaced the LVT who, at the time, were limited in the amount of costs they could award to £500.

As any managing agent can appreciate, when a case went previously before the LVT, the legal costs would have increased quite substantially, which is normally the case in complying with the LVT directions.  Should the leaseholder then chose to withdraw their case, the landlord or the managing agent were only entitled to recover from the leaseholder the capped amount of costs of £500.  This is despite the fact that the managing agent would have incurred legal costs far in excess of this sum.

The introduction of Rule 13 sought to change this position and put the focus of costs on both parties before they engage in proceedings before the Tribunal.   On reflection, Rule 13 has worked quite well, however the position has recently been clarified in the cases of Sinclair v 231 Sussex Gardens Right to Manage Limited and Willow Court Management Company (1985) Ltd v Alexander.

In these cases the Appellant had an order for costs made against them.  The Upper Tribunal (Lands Chamber) considered these cases and in each case the costs were reserved.

The Upper Tribunal set out their guidance on the interpretation of Rule 13(1)(b).  The guidance provided by the Upper Tribunal set out the threshold of unreasonable behaviour that must be demonstrated, together with the procedure that is expected to be followed.

The threshold laid down by the Upper Tribunal is a high one and can only be satisfied, it appears, in the most extremes cases.  The Upper Tribunal has, however, gone on to state that the required standard of conduct should not be set at an unrealistic level and should not discourage access to justice.  Whilst the test for each case will be judged on its merits, it comes down to whether a reasonable person, in the position of the party, would have conducted themselves in the manner complained of.  The alternative question becomes, is there a reasonable explanation for the conduct complained of?

The procedure to be followed is a three stage test as set out below:

  1. The FTT must first assess (as a value judgement and not as the exercise of discretion) whether the conduct complained of is sufficient to meet the objective standard of conduct threshold;
  2. Secondly, the Tribunal must consider whether, in the exercise of its discretion, and taking account of all relevant factors, it is appropriate to make a costs award; and,
  3. Thirdly, the Tribunal must, as a further exercise of discretion, consider the form and quantum of the costs award.

Whilst the clarification on Rule 13 is very much welcome, the Upper Tribunal has set the benchmark quite high and it is likely that in most cases the test will not be satisfied, and will only be awarded in exceptional cases.  The decision itself, whilst it offers clarity, will mean that landlords and management companies who are legally represented may find that they will be unable to recover costs under Rule 13.  The effect of this will mean that a managing agent will seek to recover the legal costs under the sweeping up clause in the lease, where one exists, which could also have the potential of being challenged by any leaseholder.

At this stage it is not known if any of the Respondents have sought permission to appeal the decision.

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