Will I need to pay my landlord’s legal costs at the First-tier Tribunal?

Following the recent decision of Lea v GP Ilfracombe Management Company Limited, which centred on the question of what constitutes 'unreasonable conduct' in litigation proceedings, associate Tom Hopkins examines the key details of the case and what can be learned from it. 

We are often asked by concerned lessors and lessees whether they could be liable for the other party’s legal costs when bringing or defending proceedings at the Tribunal. The short answer is yes: you could be liable for the other party’s legal costs. The general principle in litigation is that the losing party pays the winning party’s costs, in addition to their own.

However, the Tribunal rules limit the Tribunal’s discretion to award costs.  Rule 13(1)(b) of the Tribunal Rules  states that the Tribunal may order costs against a party if they acted unreasonably  in bringing, defending or conducting proceedings.

The recent decision of Lea v GP Ilfracombe Management Company Limited [2024] EWCA Civ 1241 attempted to clarify the appropriate test for ‘acting unreasonably’: "would a reasonable person acting reasonably have acted in this way? Is there a reasonable explanation for the conduct in issue?” 

That doesn’t aid our understanding much, and the Tribunal declined to lay down general guidelines of what constitutes unreasonable conduct, but it did expand on how to apply the above test by looking at the facts of each case. 

If there is no reasonable explanation for the conduct, and no reasonable person could have acted in that way, the behaviour will be adjudged to have been unreasonable and the threshold for making a costs order will have been crossed. The Tribunal then has discretion to make a costs order. 

Unreasonable conduct is not so wide as to include a litigant in person’s failure to appreciate the weaknesses of their own case or to understand the substantive law or tribunal procedure. At the same time, unreasonable conduct is wider than just conduct that is vexatious, abusive or oppressive. 

In Lea, the lessor claimed £2.4 million in service charges from the leaseholders, which the leaseholders refused to pay. The lessor went to the Tribunal to seek a determination.

At the first hearing at the First-Tier Tribunal, the lessor represented itself and failed to show the service charge was properly claimed because it was not supported by any budgets, estimates or accounts. Instead, the lessor argued that the figures produced were founded from professional experience and had been produced to elicit dialogue with the leaseholders. The First-tier Tribunal found that the service charge costs claimed were not payable but did not make a costs order. The leaseholders appealed to the Upper Tribunal for a costs order, but the appeal was refused.

The leaseholders appealed again to the Court of Appeal and this time the leaseholders succeeded. The court found that the lessor’s claim was ‘hopeless’ and an ‘abuse of process’. The lessor had failed to engage properly with the Tribunal and failed to provide proper supporting evidence. A costs order was made against the lessor.

Practical tips for litigants will therefore include taking legal advice to ensure their claim is not speculative or frivolous, complying with deadlines set by the Tribunal, being prepared for hearings, avoiding pettiness and gamesmanship and communicating in a courteous manner. If you are seen to waste Tribunal time and resources, your conduct is more likely to be unreasonable.

The concept of reasonableness is subjective and not especially easy to pin down but, as long as you behave reasonably throughout the claim, it is unlikely that a costs order will be made against you. However, leaseholders should always check the terms of their lease because the lessor may have a right to recover reasonable legal costs either under a specific costs clause or more generally via the service charge.

Leaseholders should consider making an application to the Tribunal under section 20C of the Landlord and Tenant Act 1985 for an order that the lessor’s costs are not to be included in the service charge. There is a section of the tribunal application form for making a s20C application.

Tom Hopkins is an associate in the property litigation team. He represents freeholders and leaseholders, as well as landlords and tenants, in a wide range of disputes.