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It is standard for a lease to allow L to recover any legal costs from T, if L has to take forfeiture proceedings under s146 LPA 1925. But, it is important to appreciate that the costs clause will be interpreted strictly (against L). This is well illustrated by a recent case which involved a costs clause that will be found in many current leases. The lease allowed L to recover the costs incurred ‘in connection with any steps taken or in contemplation of, or in relation to, any proceedings under s146 LPA 1925’.
What happened was that L served an s146 notice on T, and then negotiated a deal with T regarding repairs, with L then subsequently claiming its s146 costs (including the costs of its agents in those negotiations). But, the court held that L was not entitled to its costs. In its view, on a strict interpretation, the work carried out by L in reaching agreement with T was not ‘in connection with or in contemplation of any proceedings’. Not surprisingly, L argued that it was the service of the s146 notice, and the threat of proceedings, that led to the negotiation, and accordingly that costs should come within the scope of the costs recovery clause. But, on a strict interpretation, the court disagreed. The point to appreciate is that such wording is used in many existing leases. In practice, many Ls will blithely assume that if they serve an s146 notice, then the cost of any subsequent negotiated deal will be fully recoverable from T. That is simply not the case – unless the costs clause is appropriately worded. The answer lies in the wording used in Riverside [2004], where L could recover all costs ‘in connection with the enforcement of any of the Lessees covenants and conditions herein contained’, and therefore extended to enforcement costs. The end result is that you should review your standard lease clauses to check that they provide for (a) costs ‘in connection with or taking any proceedings’, and (b) costs of ‘enforcement’ of the tenant covenants. For the sake of completeness, it is also worth stating that those costs are recoverable whether incurred by L during the term of the lease, or after expiry of the lease. See Agricullo v Yorkshire Housing [2010] EWCA Civ 229 (access free at www.practicalconveyancing.co.uk).
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