Chaplair Limited v Kumari [2015]

Terms of lease overriding factor

Chaplair brought County Court proceedings against its tenant Mrs Kumari in order to recover unpaid rent and service charges. As part of its case, Chaplair claimed that its costs were recoverable from Kumari, both in respect of the County Court proceedings and a related case dealt with by the Leasehold Valuation Tribunal (“LVT”), which has since changed name to be known as the First-tier Tribunal (Property Chamber).

The service charge paid by tenants of the block was challenged in the LVT and therefore this element of Kumari’s case was transferred to the LVT by the County Court. Although the landlord won the proceedings, which were brought and run by other tenants, Kumari did benefit from a reduction in service charge. Costs were incurred by Chaplair in dealing with the LVT case.

Under the lease, the landlord reserved the right to recharge various costs incurred to the tenant, including the costs incurred in respect of any forfeiture proceedings and the reasonable professional expenses incurred in relation to notices and schedules concerning wants of repair. Further, the tenant is obliged to pay the reasonable expenses of the landlord (including any managing agents or solicitors it appoints) in respect of requests for information and the tenant agrees to indemnify the landlord from and against all costs, losses and expenses arising out of failure by the tenant to observe the lease covenants. There was therefore in place an enforceable contractual covenant whereby the landlord could recover costs.

Having concluded the LVT proceedings, the County Court proceedings also came to an end. Chaplair applied to the County Court for determination of costs by Court Order, which could later be used in forfeiture proceedings if necessary. The question arose as to whether the County Court had the power to order the tenant to pay costs to the landlord under the terms of the lease where the costs had been incurred in respect of the LVT proceedings.

The Law

Chaplair applied to the LVT unsuccessfully, citing schedule 12 of the Commonhold and Leasehold Reform Act 2002, for reimbursement by some of the tenants of its costs on the basis that they had conducted the LVT proceedings ‘vexatiously, abusively, disruptively or otherwise unreasonably’.

Referencing Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) and Church Commissioners v Ibrahim, the judge held that any award of costs should be made in reflection of the contractual rights to costs existing between the parties; that is, with regard to the terms of the lease.

Crucially, the County Court proceedings were allocated to the Small Claims Track. Under the Civil Procedure Rules, the Court cannot make an order for costs other than the costs of issuing the claim in the sum of £260. The County Court held that, as a result, no more than this sum could be awarded. On appeal, the Court of Appeal held that this did not apply to the Chaplair case because costs incurred in both sets of proceedings were payable not under the Civil Procedure Rules but under the terms of the lease instead.

The Decision

Two questions were addressed:

• Did the County Court have power to order a tenant to pay costs to the landlord under the terms of the lease where the costs were incurred under LVT proceedings; and
• did the County Court have power to order a tenant to pay costs to the landlord under the terms of the lease where the case is being dealt with on the Small Claims Track?

The Court of Appeal held in favour of the landlord, determining that Kumari was unable to demonstrate that the County Court judge had not had power to deal with costs in the LVT proceedings. The County Court was right to assess the landlord’s contractual right to costs.

The landlord was able to pursue the claim for costs in the County Court because, although the LVT had not made an order for costs, the landlord could not be estopped from making a claim on the basis that the LVT could not have made a costs order under the terms of the lease. As the Court was correct in its judgement to base a costs award on the contractual terms of the lease, this negated the argument that allocation to the Small Claims Track limited the sum of the award.

JB Leitch’s Phil Parkinson comments on the judgement:

“Chaplair is of fundamental importance to institutional landlords, as well as to tenants; the principle of the decision being that the terms of the lease and the essence of the contractual agreement between the parties will override in small-track LVT cases means that tenants unsuccessful at court may face substantial costs awards in favour of landlords. Generally, the case sets a useful precedent and point of reference for cases dealing with recovery of contractual costs.”