In Mayor and Burgesses of the London Borough of Tower Hamlets v Khan [2022] EWCA Civ 831, the Court of Appeal has reiterated that the question of whether a landlord is entitled to recover contractual costs under the terms of the lease depends on the specific wording of the provision of the lease before the court or tribunal. Each case is fact-specific.
Mr Khan was the long lessee of a maisonette in London. His landlord was the London Borough of Tower Hamlets. Under the terms of Mr Khan’s lease he was required to pay the council service charges. Pursuant to clause 4(4) of the lease, the service charges were recoverable in default as rent in arrears. Clause 6 of the lease enabled the council to forfeit Mr Khan’s lease in the event of non-payment of rent or breach of covenant.
Pursuant to clause 3(9), Mr Khan covenanted: “To pay to the Lessors all costs charges and expenses including Solicitors’ Counsels’ and Surveyors’ costs and fees at any time during the said term incurred by the Lessors in or in contemplation of any proceedings in respect of this Lease under Sections 146 and 147 of the Law of Property Act 1925… including in particular all such costs charges and expenses of and incidental to the preparation and service of a notice under the said Sections…”
In May 2016, the council issued proceedings against Mr Khan for non-payment of service charges. The county court subsequently transferred the matter to the First-tier Tribunal (Property Chamber) to decide issues of reasonableness and payability. Although the council was successful, the FTT refused to award the council its costs under rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (the FTT Rules).
In November 2018, the council issued an application in the county court to recover its contractual costs and costs before the FTT. Relying on clause 3.9 and Freeholders of 69 Marina, St Leonards-on-Sea v Oram and another [2011] EWCA Civ 1258; [2011] PLSCS 263, it argued that the costs were “incidental to the service of a section 146 notice”. Mr Khan was ordered to pay the outstanding service charges including costs summarily assessed in the sum of £20,000.
Mr Khan advanced two main grounds on appeal. First, the decision in 69 Marina was wrong and should not be followed; alternatively, it should be confined to its particular facts. Second, the council’s costs in the county court and FTT were not “incidental to the preparation and service of a notice under [section 146 of the Law of Property Act 1925]” within the meaning of clause 3(9). It was common ground that the council did not serve such a notice.
The Court of Appeal found that 69 Marina was not wrongly decided. It was referred to a variety of cases where provisions comparable to clause 3(9) arose. Aptly, the Court of Appeal observed that such comparisons were not helpful in circumstances where the construction of a particular provision in a lease was fact-specific. To illustrate this point, the court found that there was no inconsistency between 69 Marina and Contractreal Ltd v Davies [2001] EWCA Civ 928, where the clauses in both leases differed significantly as to the recoverability of costs that were incidental to or in contemplation of the preparation and service of a section 146 notice and subsequent proceedings for the recovery of rent.
In the present case, the Court of Appeal found that in circumstances where the council did not prepare or serve a section 146 notice, the costs claimed under clause 3(9) were too remote to be considered incidental to such preparation and service.
Elizabeth Dwomoh is a barrister at Lamb Chambers
