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Who does a section 20c order apply to?

It is common practice for freeholders to charge the legal costs incurred in dealing with determination proceedings to the leaseholders’ service charge accounts. This means that freeholders can seek reimbursement of their legal costs from the money paid into the service charge pot. Pursuant to section 20c of the Landlord and Tenant Act 1985, a leaseholder can ask the Court or Tribunal to make an order preventing their freeholder from using their portion of service charge to pay for their freeholder’s legal costs.

The standard application form that a leaseholder completes to dispute their service charges contains a section, which invites the leaseholder to consider whether or not they wish for the Tribunal to assess whether a section 20c order should be made. A leaseholder may tick the box in the section of the form asking for a section 20c order, and there is space to provide details of who they wish for the section 20c order to apply to.

The Tribunal ultimately decides whether the section 20c order should be granted, and the Tribunal will usually analyse the overall result of the substantial application, when deciding whether or not to award the section 20c order.

Plantation Wharf Management Limited v Fairman & Others [2019] UKUT

In this case, one of the leaseholders to the application sought to ask the Tribunal to make a section 20c order in respect of all of the leaseholders at the development. This request therefore included leaseholders who were not actually named as part of the application. The Upper Tribunal did not agree that they had jurisdiction to apply a section 20c order across all non-participating leaseholders. The Tribunal deemed that this would alter the operation of the leases of the non-participating leaseholders. The Tribunal commented as follows:

“A section 20C order in favour of all the residential lessees on an estate has serious consequences for any landlord (or management company). In allowing Mr Low’s application in this case, the FTT denied the landlord or the management company the opportunity to recover their costs of the proceedings by levying service charges from any of the tenants of the estate. Such an order comprises a significant interference with the landlord’s contractual rights.”

The Tribunal made it clear that in order for a leaseholder to receive the benefit of the section 20c order, then they have to be a party to the application, or at the very least consent to the application.

What does this mean for leaseholders?

This decision makes it clear that leaseholders need to engage with an application, even if a neighbour is offering to deal with a matter on their behalf. Sitting back is not an option and ideally the passive leaseholder should be named on the application form to improve the likelihood of receiving a benefit of the section 20c order. Without such protection, it is open for the freeholder to argue that the section 20c order only applies to those who participated in the application.

The case of Plantation Wharf follows the theme set down in Iain Robert MacGregor v B M Samuels Finance Group plc [2013] UKUT 0471 (LC). The case of MacGregor concerned a leaseholder who attempted to argue that his application for a determination of his service charges should apply to all the leaseholders at his development, as well as himself. The Tribunal decided, as a preliminary issue, that the decision should only apply to the leaseholder who was a party to the application.