In Zaid Alothman Holdings Limited and others v Better Intelligent Management Limited and Phoenix Place (Liverpool) Management Limited [2024] the Upper Tribunal (Lands Chamber) (UT) ordered the respondent landlord and management company to pay the appellant leaseholders' costs of the FTT proceedings because of their failure to serve a letter before action and issue of proceedings where the FTT did not have jurisdiction.
The Property
The case concerned Phoenix Place, which is a building consisting of 348 units of accommodation across two blocks. There are 74 self-contained studios with a bedroom, bathroom and kitchenette, and 274 ensuite bedrooms which were grouped together in "clusters" with each cluster sharing a kitchen and common room.
The units were held on long leases by investor landlords and were let as student accommodation by agents. Each long lease contained the usual covenant to keep the demised premises in good repair and condition and to pay a service charge and the windows of the units appear to have been demised as part of the leases.Better Intelligent Management was the landlord and Phoenix Place (Liverpool) Management Limited was the management company responsible for the day-to-day running of the blocks.
Correspondence between the parties
Having identified the need to replace windows in the blocks, over the course of 2022, the respondent landlord bombarded the leaseholders with various conflicting demands and assertions as follows:
- They issued service charge demands to cover the cost of replacing the windows;
- They argued that the leaseholders were in breach of covenant and gave them 56 days to replace the windows;
- They offered to replace the windows as part of a large scale project but only if the leaseholders admitted being in breach of covenant;
- They served consultation notices under section 20 of the Landlord & Tenant Act 1985 in relation to replacement of the windows; and
- They alleged that they were entitled to re-enter the units to undertake the works and recover the costs of doing so as a debt and that if the leaseholders did undertake the works now this would constitute a trespass which could be restrained by injunction.
In response to this, solicitors for the appelllants wrote to the respondents requesting:
- Confirmation that an injunction would not be sought;
- Confirmation that the respondents would not take any steps to try to forfeit the leases on the basis of non-payment of service charges without first serving a notice pursuant to section 146 of the Law of Property Act 1925 (having first sought a determination from the FTT that there had been such a breach) or otherwise than by proceedings i.e. that they should not simply try to re-enter the units; and
- A meeting to discuss the matter.
The respondents did not engage and, in the meantime, had issued contradictory proceedings in the FTT for (i) a determination that the leaseholders were in breach of covenant for failing to repair their windows, and (ii) dispensation from service charge consultation requirements in relation to replacement of the windows on the basis that work urgently needed to be done during the summer vacation.
The FTT's decision
On the FTT's preliminary review it considered the units were not "dwellings" for the purposes of the Commonhold and Leasehold Reform Act 2002 and, therefore, that the FTT did not have jurisdiction to determine the applications made.
The appellants made an application for costs under Rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 on the basis that:
- The respondents had acted unreasonably in bringing proceedings against the leaseholders of the cluster units given that the FTT did not have jurisdiction to determine the applications (which the respondents subsequently admitted); and
- No letter before action had been sent by the respondents. If the respondents had done so, the parties could have agreed the position with respect to the cluster units prior to issue. This would have avoided the issue in the FTT and avoided incurring the costs of the proceedings.
The FTT did not consider that the respondents had acted unreasonably and did not make a costs order. The appellants sought to appeal this finding to the UT.
The appeal
Martin Rodger KC, Deputy President of the UT, gave permission for the appeal to proceed, noting that the point about the sending of a letter before action raised "an issue of principle about the standard of conduct by professional representatives in tribunal proceedings which merits consideration by the Upper Tribunal". The question was "whether professionally represented parties should be expected to avoid unnecessary tribunal proceedings by first seeking to identify such common ground as may exist through pre-application correspondence, and whether commencing tribunal proceedings without first sending a letter before action is unreasonable conduct."
Judge Elizabeth Cooke, deciding the appeal, held that bringing proceedings without liaising with the appellants' solicitors as to the question of jurisdiction was objectively unreasonable. Had the respondents done so, the proceedings could have been avoided, or brought on a precautionary basis with the appellants' agreement, either of which would have saved unnecessary costs. The Judge highlighted that the behaviour was objectively unreasonable as "it failed to meet the standard expected of parties who have taken legal advice" and awarded costs against the respondents in favour of the appellants who hold cluster units.
The Upper Tribunal acknowledged that it may have been difficult to have reached agreement with all leaseholders, given a number were represented by different solicitors, but that this was no reason not to send a letter before action.
Judge Cooke also noted that correspondence had been sent to the respondents' solicitors by the appellants' solicitors highlighting points about the relevance of a determination under the Commonhold and Leasehold Reform Act 2002, that it would have been "prudent (as well as courteous)" to respond and that it was "unfathomable" that they had not done so.
Costs awards in the FTT are unusual. They are only awarded where there has been unreasonable behaviour, and this power is sparingly exercised. The case is a clear warning to would-be litigants to omit pre-action correspondence at their peril.
