Court of Appeal Clarifies Cost Implications in Forfeiture Proceedings: Barratt v Robinson

The recent case of Barratt v Robinson [2014] has clarified the position for landlords as regards costs in property tribunals.

The Court of Appeal also confirmed that determination by a property tribunal is a pre-condition of service of a section 146, under the Law of Property Act 1925, of the landlord’s intention to forfeit the lease.

Barratt v Robinson related to a landlord’s dispute with a tenant who was in breach of covenant to pay building insurance fees.

The Initial Dispute in Barratt V Robinson [2014]

The case involved a disagreement between a landlord and tenant over the payment of building insurance fees. The tenant took the case before the Leasehold Valuation Tribunal (LVT) to ascertain how much she owed. The landlord initially represented that the amount was £324 but the amount awarded by the Tribunal was eventually reduced to £205.

The key question for present purposes was whether the tenant was obliged to pay the costs which were incurred in the proceedings. The total amount of legal fees was significantly more than the award, with the landlord demanding a sum of £6,250.

Clause 4(14) of the lease agreement required the tenant to pay the landlord’s cost in contemplation of any proceedings or preparation of a notice under section 146 of the Law of Property Act 1925 that the landlord intended to forfeit the lease. Such a clause is common in many leases.

A second LVT found that the tenant was bound by the precedent in Freeholders of 69 and was therefore obliged to pay the full amount of costs. This decision was appealed by the tenant.

Barratt V Robinson [2014] in the Court of Appeal

The appeal was successful.

The court declared that while Freeholders of 69 was authority that a determination by the FTT was a necessary element for a section 146 claim, it did not hold that the landlord was entitled to recover costs in all cases where there was a tenant that was in breach of covenant. It was necessary to construe the relevant clause in the lease in light of the factual circumstances.

The court noted that the original argument in this case concerned insurance liability and there was no mention of forfeiture or the issuing of a notice under section 146 in the initial correspondence. The court also took into account the fact that the original amount demanded for insurance was lower than the statutory threshold for forfeiture to kick in and therefore there could be no discernible intention to forfeit the lease.

On this basis, the tenant was not liable to pay costs.

Implications of Barratt V Robinson [2014]

While on the facts, this judgment favoured the tenant, the upside for landlords is that it has clarified the circumstances in which a landlord can recover costs in forfeiture proceedings.

Provided a clause such as 4(14) in this case is included, all landlords must do is indicate their intention to pursue a section 146 claim for forfeiture when dealing with a defaulting tenant. Also it is prudent to include evidence of such an intention in the initial correspondence.

If these steps are taken it is likely that they can avoid the situation which arose in Barratt and successfully recover costs.

For specialist advice contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.