United Kingdom Upper Tribunal (Lands Chamber)

UT Neutral citation number: [2012] UKUT 311 (LC)

UTLC Case Number: LRX/134/2011

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

LANDLORD AND TENANT – right to manage – landlord’s costs – whether lawful for company providing services to landlord to charge for work done by in-house solicitor – held that it was – appeal allowed – Commonhold and Leasehold Reform Act 2002 s 88

IN THE MATTER OF AN APPEAL AGAINST A DECISION

OF A LEASEHOLD VALUATION TRIBUNAL FOR THE

NORTHERN RENT ASSESSMENT PANEL

BETWEEN FAIRHOLD MERCURY LIMITED Appellant

and

MERRYFIELD RTM COMPANY LIMITED Respondent

Re: Merryfield Grange

Bolton

Lancashire BL1 5GS

Determination on written representations

The following case is referred to in this decision:

Beitov Properties Ltd v Martin [2012] UKUT 133 (LC), LRX/59/2011

DECISION

1.       This is an appeal against a decision of a leasehold valuation tribunal dismissing a claim made by the appellant under section 88 of the Commonhold and Leasehold Reform Act 2002 for costs incurred by it in consequence of two right to manage claims made by the respondent RTM company.  The appellant is the freehold owner of the premises, Merryfield Grange, Bolton, in respect of which the claims were made.  Neither claim was effective, either because it was withdrawn or because the respondent failed within the requisite period to apply under section 84(3) for a determination that it was entitled to acquire the right to manage the premises. 

2. Section 88 of the 2002 Act (omitting subsection (3), which is not material for present purposes) provides:

“(1) A RTM company is liable for reasonable costs incurred by a person who is—

(a ) landlord under a lease of the whole or any part of any premises,

(b) party to such a lease otherwise than as landlord or tenant, or

(c) a manager appointed under Part 2 of the 1987 Act to act in relation to the premises, or any premises containing or contained in the premises,

in consequence of a claim notice given by the company in relation to the premises.

(2) Any costs incurred by such a person in respect of professional services rendered to him by another are to be regarded as reasonable only if and to the extent that costs in respect of such services might reasonably be expected to have been incurred by him if the circumstances had been such that he was personally liable for all such costs…

(4) Any question arising in relation to the amount of any costs payable by a RTM company shall, in default of agreement, be determined by a leasehold valuation tribunal.”

2.       The appellant applied to the LVT for a determination under subsection (4) in respect of the costs that it had incurred in the preparation of the two counter-notices it had served in response to the claims.  The amounts were £650.50 and £216.00 respectively.  The counter-notices had been prepared by a company called Estates and Management Limited, and these amounts were its charges for doing this work.  The application to the LVT was determined on written representations.  In its decision at paragraph 7 it recorded as follows the RTM company’s reasons for resisting the application:

“The Respondent considers the counter notices mentioned only ‘minor infringements’ and that there was a ‘genuine’ for service of the notice of claim in an effort to exercise better management.”

It appears that “reason”, or some such word, was omitted after “genuine”.

3.       Having set out the relevant provisions of section 88, the LVT expressed its conclusions as follows:

“9. The Act allows the reasonable costs of the landlord under a lease or a party to such a lease otherwise than a landlord or tenant.  We accept that the work set out in the two invoices submitted by Estates & Management Ltd is work consequent upon the service of the notice and specifies work to an extent that would fall within our range of expectations arising from the notices.  Noting the charging rate we are satisfied that the sums requested are reasonable.

10. We do not consider it relevant as submitted by the Respondent that there was a good reason for service of the notices or that errors detected were minor.  The Respondent is fully entitled to serve counter notices.  It is telling that ultimately the Respondents did not make an application to the Tribunal.

11. We note the invoices relate to work provided by a solicitor.  As such the accounts are payments of a solicitor’s services.  Estates and Management Ltd the billing party does not purport on its letterhead to be a firm of solicitors, it is not on the face of its correspondence regulated or authorised by any professional organisation and the bills do not include or refer to the requirements of solicitors’ professional rules for submissions for accounts of legal costs.  We do not consider the accounts can lawfully be payable in these circumstances they do not reflect disbursements for external legal advice.  No letter of engagement, solicitor client agreement or retainer has been exhibited.

12. Whilst in other circumstances we accept the costs would be reasonable and payable we do not determine in this case the Respondent has a liability for such costs as we find they are not payable by the Applicant.”

The LVT accordingly dismissed the application.

4.       The appellant applied to the LVT for permission to appeal against the decision.  In its application it asserted that the LVT had failed to give any or any adequate reasons for concluding that the accounts could not “lawfully be payable” or that the costs “are not payable by the Applicant.”  It said that the LVT appeared to have considered “the requirements of the solicitors’ professional rules” but had failed to give any particulars of these or to explain how they were relevant.  It submitted that the rules were not relevant.  In refusing permission to appeal the LVT said in relation to these points:

“Liability of Applicant – The Tribunal considered that the Applicant is not liable and hence cannot be reimbursed for services that could not lawfully be charged.  This arises from Rules 12 and 13 of the Solicitors’ Code of Conduct in force at the relevant time.”

When application was made to this Tribunal, I granted permission to appeal.  The appeal is being determined on the basis of written representations.

5.       In its statement of case the appellant says that Estates and Management Ltd (“E&M”) is its appointed agent and deals inter alia with right to manage claims.  E&M is not and did not purport to be a firm of solicitors.  It provides professional services to landlords.  It employs Mr Sandler who is their in-house solicitor.  E&M dealt with the right to manage claim notices that had been served on the appellant by the respondent.  The relevant work was carried out for E&M by their employee, Mr Sandler.  The appellant was liable for the professional services that E&M had rendered to it.  The costs claimed from the appellant were not payment for a solicitor’s services but for the services provided by E&M.

6.       A response on behalf of the respondent has been provided by its agent Clearwater Estate Company.  The agent says that it feels that the appellant’s statement of case is a fair and true representation of the facts of the case as they have occurred.  It says that the reason for dismissal of the application was a specific point of law which it is not qualified to question but which it leaves to the appeal system to determine.  If the appeal is successful it will accept the decision and make the necessary payment.

7.       The appellant has produced copies of the two invoices for the amounts that it claims.  Both are from Estates and Management Ltd and request payment to the company.  The first dated 21 October 2010, says:

“To taking your instructions and acting on your behalf in a Right to Manage application made by Merryfield RTM Company Limited.

Receiving application and perusing the same.  Taking further instructions and serving Counter Notice and being informed of withdrawal of the Counter Notice.

To receiving subsequent application.  Perusing the same and taking further instructions and serving a second Counter Notice.

Grade A fee earner Solicitor inhouse engaged for a total of 3 hours at £180 per hour (inclusive of all correspondence, telephone calls and emails).”

The second invoice, dated 1 April 2011, was in similar form.

8.       The basis upon which the LVT determined that the appellant’s application should be refused – that the demand for payment was unlawful, so that the costs to which it related were not reasonable – was not one that had been advanced by the respondent.  Nor does the respondent now seek to contend that the decision was correct in this respect.  The point was one that the LVT took on its own initiative.  It failed, however, to put it to the appellant so as to give the appellant the opportunity of addressing it.  That, as a breach of natural justice, was a procedural impropriety which has clearly prejudiced the appellant and must inevitably lead to the decision being quashed.

9.       In its decision the LVT said that the accounts could not “lawfully be payable” because they were for the services of a solicitor, and E&M did not appear to be a firm of solicitors, the bills did not include or refer to the requirements of solicitors’ professional rules for submissions for accounts of legal costs, and no letter of engagement, solicitor client agreement or retainer had been exhibited.  In refusing permission to appeal, after the appellant had asserted that no or no adequate reason had been given for saying that the accounts could not lawfully be payable, the LVT said simply: “This arises from Rules 12 and 13 of the Solicitors’ Code of Conduct in force at the relevant time.”

10.    The LVT was in my judgment wrong in saying that the accounts could not lawfully be payable.  The appellant had contracted with E&M for the work that had been done and was contractually liable to pay for it.  The fact that the work had been done by a solicitor employed by E&M does not affect this contractual liability.  The work done was not a reserved legal activity under section 12 of the Legal Services Act 2007, and it was not, therefore, subject to the limitation in section 13 to persons entitled to carry on such an activity.  The LVT did not suggest that it was.  Under section 24 of the Solicitors Act 1974 it is an offence for a body corporate or any director, officer or servant of a body corporate to do an act of such a nature or to do an act in such a manner as to be calculated to imply that the body corporate is qualified or recognised by law as qualified to act as a solicitor.  No such act was, however, done by E&M or Mr Sandler.  As the LVT said, E&M does not purport on its letterhead to be a firm of solicitors, it is not on the face of its correspondence regulated or authorised by any professional organisation and the bills do not include or refer to the requirements of solicitors’ professional rules for submissions for accounts of legal costs.

11.    The LVT said that the illegality that it saw “arises from Rules 12 and 13 of the Solicitors’ Code of Conduct”.  Those rules (in the 2007 Rules, the ones in force at the time) dealt with “Framework of practice” and “In-house practice” respectively.  The LVT did not suggest in what respect or respects acts were done which contravened these provisions.  Clearly E&M can have done nothing to contravene them because it is not a solicitor.  Mr Sandler, as a solicitor, would have been subject to the Rules, but in the absence of some specific indication there is nothing to suggest to me that he was in breach of any of the requirements.  Even if he was in breach of any of the requirements, however, I do not see that this would render it unlawful for E&M to engage in the work that, through him, it did or to charge for the work that was done.

12.    I would add that there is in subsection (3) of section 88 a particular limitation on charges for professional services, but no question arises for present purposes under this provision.  The question is simply whether the costs claimed were reasonable.  The LVT accepted that, apart from the question of legality, the costs of the work done were reasonable, and I can see no reason why this should not be so.  Its conclusion on the lawfulness of the charges was, in my judgment, wrong.

13.    I am satisfied, therefore, that the appeal should be allowed.  Accordingly I determine that the amounts, £650.50 and £216.00, are payable.

14.    It should be noted that this case is another instance (cf Beitov Properties Ltd v Martin [2012] UKUT 133 (LC), LRX/59/2011) of an LVT of its own motion taking a point against one of the parties and deciding the case on that basis.  Here not only had the point not been taken by the other party but that party does not now seek to advance any arguments in its support or ask that it should be upheld.  The decision was made, in breach of natural justice, without the point having been raised with the parties in order to give them the opportunity to comment upon it.  The reasons given for the decision were inadequate, and the decision itself was, in my view, plainly wrong.  It is unfortunate that the parties should have been put to the inconvenience and cost of an appeal.

Dated 10 September 2012

George Bartlett QC, President