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Are In House Solicitors Costs recoverable as service charges or administration fees?

In OM Property Management Limited v. Mr Olajide Olaleye [2012] UKUT 102 (LT) the Upper Tribunal (Lands Chamber) had to consider whether legal costs incurred by an in house solicitor of dealing with an application to the Leasehold Valuation Tribunal (“LVT”) could be recoverable as a service charge. At first instance the LVT determined these were not a “cost” and therefore the legal costs were not recoverable. The respondent appealed this decision. They sought to rely upon Re Eastwood (deceased) [1985] 1 Ch 112 which set out the principle that the costs of an in house solicitor are to be dealt with on the same basis as if the costs were incurred by an independent solicitor. The Upper Tribunal agreed there was no reason to depart from this authority. As a result the costs incurred by the in house solicitor were recoverable.
What this decision means is that whilst a person is entitled to challenge the rate charged for work carried out, it will be up to the solicitor to demonstrate how the rate has been calculated and that it is fair. It is not correct or acceptable to say no costs are payable because an in house lawyer is used. Whilst this decision applied to a service charge dispute it seems there is no reason why this cannot apply to all matters under which costs may be an issue in a matter heard before the LVT. This decision is likely to apply to Leasehold Reform Housing and Urban Development Act 1993 claims for costs of enfranchisement or lease extensions made by a freeholder. Simply because a freeholder or managing agent decides to use in house expertise will not necessarily prevent them from recovering the reasonable costs of such an arrangement.

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