No Order as to Costs?
Key Contact: Jennifer Butcher
Author: Hugo Hiley
On 27 April 2021, David Hodge QC in Shearbarn Holiday Park Ltd v Wornell and others ruled against the landlord’s appeal to recover litigation costs through service charge provisions in a lease due to a “no order as to costs” provision in a court order.
The landlord was an operator of a holiday park. The park contained hundreds of “chalets”, owned and operated by the leaseholders. Under a restrictive covenant in the respective leases, the tenants were only allowed to use the chalets for 37 weeks of the year. The application brought forward originally by the tenants, under section 84(1) of the Law of Property Act 1925, was to discharge the restrictive covenants. 149 leaseholders joined the application.
Eventually, the matter was settled by a compromise agreement and consent order in which it was agreed that there would be no order as to costs between the parties.
The landlord later sought to recover its c.£35k legal costs through its annual service charge statement, claiming it was entitled to do so as its contractual right to recover costs in the lease(s) was not affected by a costs order from the court.
The Upper Tribunal (Lands Chamber) (UT) dismissed the landlord’s appeal and held that the landlord was excluded from recovering legal costs through its service charge provisions.
While the UT ultimately ruled that there was no single, definitive answer to whether a “no order as to costs” provision would override a landlord’s contractual entitlement to recover legal costs through a service charge provision in a lease, the UT made their position clear in the current case. It did not matter that the order did not specifically specify that the landlord should bear its own costs. David Hodge QC stated that it would be unjust and contradictory to allow the landlord to reclaim costs when any reasonable person would have understood that the parties agreed at the outset that each would bear its own costs.
The case serves as a useful reminder to Landlords that a service charges should not be seen as a way to recover litigation legal fees ‘through the back door’ when they have previously agreed a contrary position elsehow.