Archive for August, 2010

Settlement can be a costly business

Costs are a contentious issue when enforcing lease covenants.  Clauses enabling the landlord to seek recovery of advisers’ fees are often narrowly drafted but widely applied, particularly when a case is settled by negotiation.

The meaning and effect of a clause depends precisely on the words used but “fees, costs and expenses … in connection with any steps taken in or in contemplation of, or in relation to, any proceedings under section 146 or 147 of the Law of Property Act 1925 or the Leasehold Property (Repairs) Act 1938, including the preparation and service of all notices” are comparatively common and arose in the case of Argricullo Ltd v Yorkshire Housing Limited [2010] EWCA Civ 229.

The landlord served a s146 notice upon the tenant’s failure to repair.  The tenant claimed protection of the 1938 Act.  The landlord did not seek the court’s consent to issue proceedings (as it was obliged to do under the 1938 Act).  Instead, its legal and surveying advisers opened protracted negotiations with the tenant.  The tenant eventually commenced works of repair but the parties could not agree liability for the landlord’s substantial costs incurred.  The landlord sought recovery through the courts.

The judge at first instance held the case “finely balalnced” but found that in looking at the words of the covenant, they contemplated proceedings for forfeiture or damages being issued pursuant to s146.  No such proceedings had been commenced and negotiation of a settlement was outside the ambit of the covenant.  The Court of Appeal agreed.  Lord Justice Patten, in looking at the relevant cluase, said one comes back to asking if proceedings under s146 were either in existence or in contemplation at the relevant time.  The process adopted was “ultimately consensual” and the problem was dealt with by negotiation.  In construing the clause as written in the light of such a process did not involve or contemplate proceedings.  The landlord’s appeal failed.

If you wish to more about this important issue, contact Hatherleigh Training.