Landlords are being urged to check existing and future tenancy agreements following a recent decision by the Court of Appeal.
The decision ruled that in cases brought before the Small Claims Court - where a tenant has agreed to indemnify a landlord for costs - the landlord can recover more than the minimal Small Claims Court limit.
Since the limit of the small claims jurisdiction was raised to £10,000 in 2013, landlords have seen legal claims for what can be quite significant amounts in terms of rent, insurance or service charge arrears automatically referred down the small claims track.
While this is a potentially swifter and more cost effective process, it has the disadvantage that Court Rules only allow a relatively nominal monetary amount to be recovered, which may not cover all the costs incurred, particularly if the landlord chooses to be legally represented.
The ruling - made in the case of Chaplair Limited v Kumari - concerned proceedings brought by a landlord in the County Court in respect of rent arrears, and in the Leasehold Valuation Tribunal in respect of service charge arrears, but the amounts were such that the proceedings were allocated to the Small Claims Court.
Having ultimately succeeded in both cases, the landlord sought an order for the payment of the full costs by the tenant, on the basis that the lease contained a typical provision that the tenant would indemnify the landlord in respect of costs arising from any failure to perform the tenant`s obligations under the lease.
The tenant resisted the claim, arguing that the Court Rules stipulated the circumstances where costs were recoverable in the Small Claims Court, and that the landlord was therefore only entitled to the minimal sum.
Although the tenant`s argument succeeded before the District Judge, it was overturned on appeal in favour of the landlord. This decision was subsequently upheld by the Court of Appeal who decided that as the parties had entered into a contractual indemnity for the payment of these sort of costs by the tenant, this could not to be “trumped” or made unenforceable by any rules of Court regarding the costs of proceedings.
Subject to that, it seems that landlords can now choose whether to be legally represented in such claims, safe in the knowledge that they should be entitled to recover the majority (subject to assessment) of the costs they might incur in doing so.
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