Landlord’s dilapidations claim costs may be recoverable on indemnity basis

The Court of Appeal has held that a tenant’s covenant to pay “all costs and expenses which might be incurred” entitled the landlord in a dilapidations claim to have his costs assessed on an indemnity basis.

Littlestone v Macleish (2016) concerned office premises in Snaresbrook, East London.  The lease under which the offices were held contained a fairly typical costs recovery clause under which the tenant covenanted: “to pay to the Lessor all costs and expenses (including legal costs and fees payable to a surveyor) which may be incurred by the Lessor … [in] the recovery or attempted recovery of arrears of rent or other sums due from the Lessee.”  At lease expiry, the landlord claimed some £75,000 in  dilapidations At trial, the landlord was awarded £48,000 and the tenant ordered to pay the landlord’s costs on the standard basis (on which basis only those costs which are proportionate are allowed and any doubt as to whether or not costs were reasonably incurred or reasonable and proportionate in amount are resolved in favour of the paying party).

The landlord appealed the costs decision.  He argued that, given the lease costs recovery clause, costs should have been awarded on an indemnity basis (on which basis there is no requirement for the costs to be proportionate and the onus is on the paying party to show that the costs claimed are unreasonable).

The Court of Appeal agreed with the landlord.  It said that it had to deal with costs in a way that corresponded with the contractual arrangements agreed by the parties.

It acknowledged that the costs recovery clause did not refer expressly to an indemnity but it was of the view that the clause corresponded more closely with assessment upon the indemnity basis than upon the standard basis.  The obligation was to pay “all” costs and expenses which might be incurred.

The Court pointed out that the indemnity basis was not concerned with proportionality and neither was the lease costs clause.  It said that, as regards reasonableness, again the lease was silent but that, under Court rules, where costs were payable pursuant to a contract, generally the costs would be presumed to have been reasonably incurred and reasonable in amount.

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