Strengthening leaseholder protections over fees, charges and services: consultation

iv) Proposal to set exemptions to the landlord application requirement in order to recover litigation costs as an administration charge

171. The 2024 Act includes powers to make exemptions to the requirement for landlords to apply to the court or tribunal to recover their litigation costs from leaseholders via secondary legislation. This means the Secretary of State and Welsh Ministers can create and amend exemptions to the application requirement both now and in the future where deemed necessary.

172. We think that the power to set exemptions to the application requirement should only be used where necessary and proportionate. This is to ensure leaseholders are protected from unjust litigation costs from their landlord.

173. Views are sought on a proposal to use the exemption power relating to landlord’s recovering their litigation costs as an administration charge in cases where a landlord seeks to recover a debt (e.g. for unpaid service charges) through the County Court and the leaseholder admits the debt or does not respond to or defend the claim. We understand the majority of such claims in the County Court, in particular to recover service charge debts, are undefended. Under court rules, landlords must include their litigation costs in the “particulars of claim” (part of their court application) if they are relying on a contractual right to costs by relying on a term in the lease. If a claim is undefended, landlords can apply to the County Court for a default judgment. The process to do so is quick and does not require a hearing or for a judge to consider the underlying facts of a case.

174. Similarly, where a leaseholder admits a debt, the County Court will issue an order for the leaseholder to pay the amount admitted. Again, this does not require a hearing to be held, or for a judge to review the facts of the case (for the admitted part of the claim).

175. We anticipate that it would therefore be burdensome for the courts to consider an application for the landlord’s litigation costs where a debt claim has been admitted to or undefended; in these cases the leaseholder would likely be deemed “at fault” for the debt and therefore it is likely a court would allow a landlord to recover their litigation costs as an administration charge (as long as the lease has a relevant term upon which the landlord is able to rely).

176. A possible impact of such an exemption might be that more leaseholders defend debt claims where they may not otherwise have done so, so as to require their landlord to make an application for their litigation costs. However, our preliminary view is that if a leaseholder does owe the debt and they only defend the claim in order to require their landlord to make an application for their litigation costs, it is likely that the relevant court or tribunal will find in favour of the landlord on the debt and will allow the landlord to recover their litigation costs from the leaseholder.

177. For cases where a leaseholder defends a claim brought against them for debts, the landlord would then be required to apply to the relevant court or tribunal to pass on their litigation costs to leaseholders (whether that is from the individual leaseholder as an administration charge; or from multiple leaseholders as a service charge).

178. We are proposing that this exemption to the landlord application requirement only applies to landlords seeking to recover their litigation costs from an individual leaseholder through the administration charge. This will mean the exemption does not extend to landlords in these cases seeking to recover their costs from multiple leaseholders through the service charge. Our initial view is that litigation costs recovered from an individual leaseholder as an administration charge will be from the leaseholder involved in proceedings who, in the proposed case, has admitted or not defended the claim. It may not be fair or appropriate for landlords to be able to recover their litigation costs from such cases from multiple leaseholders (including those not involved in proceedings) via the service charge without applying to the court or tribunal to consider whether this is just and equitable in the circumstances.

v) Further detail on the proposed exemptions regarding debt claims – partially defended claims and appeals

179. There may be debt claims in the civil court where the leaseholder partially admits the debt but defends another part of the debt. In these cases, we understand the claim goes to a hearing for a judge to deal with the defended part, and they will consider any associated litigation costs. We are minded not to extend the exemption to the requirement for landlords to apply to the court/tribunal in order to recover their litigation costs as an administration charge in cases where a debt claim is only part admitted.

180. In addition, there may be some instances where a leaseholder applies to the court to set aside a default judgment, which is how a leaseholder can appeal a default judgment. For example, if the landlord has served papers to the incorrect address (and therefore the leaseholder did not receive notice of the claim).

181. Where a leaseholder has successfully applied to set aside a default judgment (and therefore the claim becomes defended), we are proposing the exemption will cease to apply. This means if a leaseholder has successfully applied to set aside a default judgment, the landlord will need to apply to the relevant court or tribunal to recover their litigation costs from the leaseholder.

182. Where a leaseholder has unsuccessfully applied to set aside a default judgment however, and the landlord has incurred further litigation costs defending the application, we anticipate it would be burdensome for the court to consider any further application for the landlord’s litigation costs. We therefore propose that the exemption to the landlord requirement to apply to recover their litigation costs through an administration charge should extend to cases where the leaseholder has unsuccessfully applied to set aside a default judgment.

vi) Further proposed exemptions in relation to cases that are “automatically” struck out

183. The civil court is able to strike out certain cases “automatically” or without formally reviewing the case.[21] The court is able to automatically strike out cases where a party has not complied with an order which states that the case shall be struck out or dismissed if the party fails to take a particular step. For example, a court might “automatically” strike out a case for failure to file a defence by a certain date. We propose a limited exemption to the requirement for landlords to apply for their litigation costs as an administration charge where the court has automatically struck out a leaseholder’s case (whether a claim or defence) because of something they have done or failed to do. For clarity, this exemption would apply to any case before the civil court which is brought by either a landlord or a leaseholder, not only debt cases (which has been the focus on the proposed exemptions in this consultation so far).

184. If a case is “automatically” struck out because of something a landlord has done or failed to do, the exemption would not apply, and the landlord would be required to apply to the relevant court or tribunal in order to recover any litigation costs from leaseholders.