In the recent case of 56 Westbourne Terrace RTM Company Ltd -v- Jeremy Polturak & others [2025] UKUT 88 (LC) the ability to introduce a costs recovery clause into a residential lease was decided by the First Tier Tribunal (“FTT”) and the Upper Tribunal (“UT”).
Background
This case involved a property known as 56 Westbourne Terrace containing 11 self-contained flats, all on long leases. In addition to the freeholder, there was also the RTM Company. There was a history of disagreement between various parties involved in the case and refusal to pay service charges by some of the lessees.
The costs recovery clause in the leases for the costs incurred in enforcing covenants relating to recovery of service charge arrears, allowed recovery of costs incidental to the preparation and service of a Section 146 and 147 Notice of the Law of Property Act 1925. Such a covenant related to steps in the forfeiture process, but in this case, it was the RTM Company who was entitled to collect the service charge from the lessees, but it did not have the power to forfeit the leases. As a result of that, the RTM Company did not have the benefit of a covenant entitling it to recover the costs of such enforcement action.
The application to be considered by the FTT and ultimately the UT was the introduction of a clause to enable recovery of reasonable costs and expenses, including solicitors’ and other professionals’ fees, which are incurred in connection with the enforcement of covenants.
The Legal Position
If a long residential lease is defective, any party may apply to the FTT for an order to vary the terms of the lease to rectify the defect pursuant to Part IV of the Landlord and Tenant Act 1987 (as amended) (“the 1987 Act”). If the FTT is satisfied that the lease fails to make satisfactory provision in respect of one of the matters listed in Section 35(2), it may make an order to vary the lease to remedy this.
In this case, the lack of a costs’ recovery clause was to be determined by the FTT and ultimately the UT on appeal. The grounds relevant to such an application pursuant to Section 35(2)(a)-(f) of the 1987 Act, if the lease fails to make satisfactory provision, include those relating to repair, insurance, provision or maintenance of services, the recovery of expenditure and the computation of service charge payable under the lease.
In addition to the grounds under the 1987 Act, consideration is given to whether any party would be substantially prejudiced by the variation of the terms of the leases, which could not be adequately compensated by money or if there is any other reason why it would be unreasonable to make the variation.
Decision
The UT agreed to the variation of the leases to allow the introduction of a new costs’ recovery clause. Whilst lessees may not be so happy to hear the outcome of this case, lessors and RTM companies will be pleased with the outcome of this case to enable enforcement action with costs recovery.
If you are a lessor, RTM Company or lessee and are concerned about your lease covenants, please contact us on 0345 646 0406 and a member of our Team will be in touch.