Property Litigation Newsletter – June 2010
In certain circumstances is a Landlord left with no alternative but to litigate?
Should a Landlord always litigate or is it better to try to settle by negotiation? The decision in Agricullo v Yorkshire Housing provides the Landlord with some interesting food for thought.
The Facts
The Tenant was in breach of its obligations to repair the premises, which included the roof and roof space. The roof and roof space also provided cover and protection to commercial premises retained by the Landlord.
The Landlord served notice under Section 146 of the Law of Property Act 1925 and advised the Tenant of its right to claim the benefit of the Leasehold Property (Repairs) Act 1938. The Tenant served a counter notice in the usual way, claiming the benefit of the 1938 Act.
As the counter notice had been served the Landlord was unable to either forfeit the Lease or recover damages without leave of the Court. However, the Landlord still took the view that having served the Section 146 Notice this provided it with some leverage as regards negotiations with the Tenant.
Discussions took place and, after a period of time, the Tenant agreed to carry out the relevant works. The Landlord then decided to recover its costs from the Tenant.
What did the Court decide?
The Lease obliged the Tenant to pay the Landlord:
"on demand, and on an indemnity basis, the fees, costs and expenses charged, incurred or payable by the Landlord, and its advisors or bailiffs in connection with any steps taken or in contemplation of, or in relation to any proceedings under Section 146 or Section 147 of the Law of Property Act 1925 or the Leasehold Property (Repairs) Act 1938, including the preparation and service of all notices, and even if forfeiture is avoided (unless it is avoided by relief granted by the Court)".
The Court's view was that the Landlord was not entitled to recover its costs. Once the counter notice had been served invoking the protection of the 1938 Act, the Landlord could only pursue a forfeiture claim based on its 146 Notice with leave of the Court. As the Landlord had decided not make any such application there were no relevant proceedings "in contemplation" or any actually in existence.
The Landlord had elected to proceed by negotiation rather than by using its strict legal remedies and, by doing so, had taken its costs of dealing with the Tenant outside the scope of the clause contained within the Lease.
Where does this leaves Landlords? Does this mean that negotiation should no longer be seen as the way to resolve disputes?
The answer probably depends on the strict terms of the Lease and the usual commercial considerations that apply when considering how best to pursue a Tenant.
Of course, the easy solution to this type of issue is to ensure that the lease contains a clause providing for the recovery of costs incurred as a result of a Tenant's failure to comply with the terms of its lease and/or enforcing or seeking to enforce Tenant covenants by whatever means.
If, however, the clause is as per the Lease in the Agricullo case then clearly there is an issue as to recoverability. If the Landlord wants to try to cover the point then the Tenant can be asked to provide an appropriate costs undertaking before negotiations commence. If it is made clear to the Tenant that it either provides the undertaking or the Landlord will be forced to litigate, this may lead to the undertaking being provided.
Even without the costs undertaking, the decision in the Agricullo case need not drive every Landlord to see litigation as the only route open to it. It is often the case that the better route for a Landlord, in terms of net recovery and time taken to achieve resolution, is to negotiate. The answer might well be to negotiate for a limited period of time and then, if this fails, to litigate. Either way, reading and understanding the Lease is a very good starting point!
Rob Nicholson is a partner at Michelmores and Head of the Property Litigation Team. For further information on the issues raised in this article, please contact Rob at rob.nicholson@michelmores.com.
This information has been prepared by Michelmores LLP as a general guide only and does not constitute legal advice on any specific matter and should not be relied upon as such. We recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not taken as a result of this information.
