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Disputes: New tribunal decision bad news for landlords

by on for PrimeResi

A new ruling by the Property Chamber of the Upper Tribunal could have a big impact on landlords who have disputes with their tenants, explains Emma Wells…

In brief, the decision means that it will be very difficult for landlords who win a case against a tenant in the tribunal to recover their costs from them. For landlords, this could make tribunal cases, whether brought by them against the tenant or the other way round, even more of a financial risk.

If you win a dispute in court, you will usually be able to recover around 60-75% of your costs from the losing party. But many disputes between landlords and tenants, such as service charge disputes and enfranchisement matters, fall within the jurisdiction of the First-tier Tribunal (FTT) and so cannot be taken to court

You might assume that the same “loser pays” rule that applies in the courts also applies in the FTT. However, the FTT is almost entirely a ‘no-costs jurisdiction’: both landlords and tenants are generally expected to bear their own costs regardless of whether they win or lose. The only exception to this rule is where a party has acted unreasonably in bringing, defending or conducting the proceedings in the FTT.

This exception to the no-costs rule has previously allowed landlords some room to recover costs from tenants who have acted unreasonably in proceedings. Landlords often feel particularly aggrieved where a tenant has represented themselves in the proceedings, which often causes the landlord’s lawyers to run up fees dealing with the inexperienced tenant’s mistakes. Until recently, it appeared that the FTT was becoming more and more willing to award costs under this exception, making it riskier for tenants to behave unreasonably and landlords more likely to be able to recover their costs.

In June, however, the Upper Tribunal, which takes appeals from the FTT, passed down a decision that set the bar for recovering costs so high that it is unlikely to be overcome except in the most exceptional of circumstances.

In its decision, the Upper Tribunal (comprised in this instance of both the Deputy Chamber President and the FTT Chamber President – reflecting the importance of the issue) cautioned that the FTT ought not to be “over-zealous” in how it determines unreasonable conduct by a party. Instead, it said that the FTT must recognise that cases are often “fraught and emotional” and that many tenants who find themselves before the FTT are “inexperienced” with legal advice coming only at “disproportionate expense.”

The Upper Tribunal set out new guidance for determining whether a cost order should be made against a party. This guidance means that parties who represent themselves will more likely be held to a lower standard of ‘reasonable conduct’ than those that have sought legal advice. And even if the losing party has been found to have behaved unreasonably, this is no guarantee that an award for costs will automatically follow. The FTT will instead have to use its discretion, with a focus not only on the costs incurred by the winning party, but also on the resources available to the loser, as to whether a costs order ought to be made and the terms of that order.

This decision is particularly bad news for legally represented parties – usually landlords – who in practice will be held to a higher standard of conduct than those who do not employ lawyers. It is often the case that landlords are up against inexperienced and unrepresented leaseholders who are not familiar with the technicalities of landlord and tenant law and don’t trust the landlord or their solicitors.

If the FTT does not award costs, the landlord may still be able to seek recovery of their costs through the provisions in the tenant’s lease or through the service charge, but these options present their own difficulties (for example the terms of the lease may restrict this ability). One must pity ordinary leaseholders in buildings where there is that one problematic tenant who regularly enters into frivolous legal disputes with the landlord: if the landlord is forced to recover their costs through the service charge, all the leaseholders will pay the price.