14 October 2024
Legal and mediation costs cannot always be charged to leaseholders through service charges unless clearly permitted by the lease.
A recent case (Thanet Lodge RTM Company Ltd v. Arun Mirchandani [2024] UKUT 205 (LC)) confirmed that legal costs related to managing a Right to Manage (RTM) company and resolving disputes are not recoverable if the lease doesn’t specifically allow it.
Leaseholders should carefully review their lease before charging legal fees as part of service charges, especially when some leaseholders are not part of the RTM or freehold-owning company.
Key Case Details:
Mr. Mirchandani, a leaseholder in a block managed by an RTM company (TL), challenged several service charges, including legal fees incurred by TL.
The legal costs were for solicitors’ advice on RTM membership, disputes with other leaseholders, and mediation involving Mr. Mirchandani.
TL argued these fees were recoverable under the lease clauses for managing the building.
Tribunal Decision:
Both the First-tier Tribunal and Upper Tribunal found that the lease didn’t allow TL to recover these legal costs via service charges.
The tribunals emphasized that legal costs must be explicitly covered in the lease, particularly when related to dispute resolution or RTM company management.
Key Takeaways:
Always check if the lease specifically allows legal fees to be recovered through service charges.
This is especially important if not all leaseholders are part of the RTM or freehold-owning company, as disputes could arise over responsibility for these costs.
Further Detail:
The 1995 lease required leaseholders to pay service charges, but it did not explicitly mention legal costs.
The Upper Tribunal ruled that legal costs related to the RTM company’s management weren’t recoverable because the RTM legislation wasn’t in place when the lease was created.
Similar cases have shown that leases need clear and unambiguous language to include legal costs in service charges.
Conclusion: Leaseholders and RTM companies should carefully consider their lease terms before attempting to charge legal fees through service charges. Clear terms in the lease are essential to avoid disputes.
