A Cautionary Tale: Avoid the Wrath of the FTT
It seems to us that a great number of managing agents don’t quite know how to deal with outstanding legal costs arising from service charge recovery. Now as we all know, there are a number of remedies, culminating, in extremis, in forfeiture of lease. Generally though the Courts are very reluctant to go down this route, especially for costs.
It’s not so much knowing not what to do, it seems that if initially unsuccessful, costs of action are, somewhat lazily, transferred to the Service Charge account. It can only be supposed that these amounts get swallowed up in the whole of the account and go unnoticed by the lessees. A practice to be avoided if the landlord doesn’t want to end up paying a hefty price in the long run and have their knuckles rapped at the FTT!
The problem is of course that lessees as a body are not generally liable for legal fees incurred in the recovery of outstanding service charge and ground rent arrears. I say ‘generally’ principally because it very much depends of the manner in which the leases are drafted. The very first thing we do here at SLC is conduct a lease review for all our clients, after which, there will be a great deal more clarity around the clauses that allow costs.
The above points were made at the FTT in the case of Chelsea Harbour Limited v All the Leaseholders, where, in a largely unsuccessful application by the leaseholders to reduce the service charge, the FTT did agree with the lessees that legal fees in respect of recovering arrears could not be transferred to the service charge account because there exists a mechanism to recover all legal fees from the defaulting tenants.
And this is, of course, how SLC operates. As a regulated firm we can both charge and claim, from the defaulting tenant, all our fees; from the initial Letter Before Action right the way through to the FTT. This takes the burden away from the freeholder and the lessees. One word of caution though: If the landlord or their agents are not using a regulated firm (solicitors in the main) to collect the arrears then it’s not usually possible to reclaim the arrears fees from the defaulting lessee. So beware!
The cautionary tale here is: understand your lease, get professional, specialist advice from the get go and get what you’re owed without it costing you or your lessees a penny. If you can do that, the FTT will be your friend and collecting arrears will be a whole lot easier.