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Enfranchisement Claims – Can Freeholders Recover the Costs of Managing Agent?

Case: Columbia House Properties (3) Limited v Imperial Hall Freehold Limited [2015] UKUT 0045(LC).

Brief Background

Following the conclusion of a successful claim for collective enfranchisement of a block of flats in Central London there was a dispute over the costs which the freeholder wished to claim from the nominee purchaser.  Whilst the freeholder’s legal and valuation costs were agreed the freeholder also claimed to be entitled to the costs of its managing agents which amounted to over £12,000.  The dispute was determined initially by the FTT which found that the freeholder was not entitled to claim for the managing agent’s costs on the basis that there was a duplication of work carried out by the freeholder's solicitor and valuer and also that the work did not fall within the ambit of work for which costs could be claimed under s33 of the 1993 Act.

On appeal the Upper Tribunal found that in principle there was no reason why managing agent’s costs could not be claimed.  It was possible that this work needed to be done in response to an enfranchisement claim that fell within the statutory costs provisions which was over and above that done by the lawyers and valuers, such as the provision of key information. A claim could be for work done either in house by a freeholder or by its managing or other agent. The costs claim was referred back to the FTT for redetermination.

Commentary 

A freeholder can only claim from the nominee purchaser costs which relate to work covering those particular aspects of the claim which are referred to in section 33 of the 1993 Act. These would not normally cover all the work undertaken by or on behalf of the freeholder and the matters for which costs can be claimed are listed in section 33(1)(a) to (e). For example, work relating to an application to the Tribunal cannot be claimed.

As pointed out by the Upper Tribunal there is no requirement that the costs incurred by the freeholder should be those of a solicitor or valuer. Managing agent’s fees would still have to meet the test that costs are only to be recovered insofar as they are reasonable and in respect of such services as might reasonably been expected to have been incurred by the freeholder if the circumstances had been such that he was personally liable for such costs.

A freeholder wishing to claim costs for administrative work in relation to the claim would need to show that costs were necessarily and reasonably incurred.  One example which was given in the Columbia House case was that here the managing agent provided schedules of ground rent, other information and plans of the property which the Upper Tribunal found was work incidental to the valuation of the property.  Freeholders will no doubt see this decision as an opportunity to claim for additional costs which they might in the past have simply absorbed as part of their general admin.  Those acting for the nominee purchaser/tenants will no doubt wish to ask for a detailed breakdown and scrutinise any such claim carefully.  It is far likely to be in respect of claims on larger buildings where there will be a need for managing agents to carry out more extensive provision of information.

It should be noted that the decision of the Upper Tribunal was based solely on written representations so must be viewed in that light although on the face of it does seems to be correct.

There is a similar costs provision in relation to lease extension matters contained in section 60 of the 1993 Act.  However , here It is only probably only going to be in exceptional cases where one can see the need for significant input from a managing agent which would fall within the statutory remit. 

For further information contact Christopher Sykes
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Feb 2015