Special Conditions Sale At Auction - Are They Binding? Do They Include Legal Costs?

Hi I have an ongoing Tribunal LVT case relating to Section 20, on account payment. The tribunal earlier this year ruled 1/3 in my favour but the management company’s’ on demand payment’ was upheld with slight reduction on the on amount payable. The tribunal also concluded that as my case had 3 other leases all joining as Co-respondents any legal costs of the management company should be apportioned 4 ways with no more than 60% of my Flat’s share payable. The management company is appealing this decision and would like all £24K costs to be put on my flat for me to pay.
This has dragged out over months and has been a traumatic experience. I am still waiting for the tribunal’s final decision on management companies appeal. At every step the management company has sent demands for the full £24K threatening forfeiture even though the tribunal has not fully concluded any appeal process.
In parallel I placed my flat for sale at Auction house with special conditions eluding to the fact that any unpaid demands / service charges or legal fees would be the sole responsibility of the buyer. The flat indeed sold at auction with completion now 3 weeks away. On a similar note I am still waiting for the tribunal to pass their decision relating to costs payable. If I were to complete on the sale under the special conditions terms, would any outstanding legal costs be passed onto new owner (as stipulated in Special Conditions) or would I still be liable as this relates to the Tribunal case in my name? As I was the first respondent.
The flat sold at the very bottom end of my reserve / expectation probably as many read the special conditions and realised potentially there were some outstanding factors to take into account. The solicitor who drafted the special conditions is very confident that as I exchanged on the flat the new buyer signed special conditions. Was in fact binding as he agreed to the terms laid out. ie Any pending legal costs will be responsibility of the new buyer. However, the barrister that represented my case at the LVT is of the opinion the legas costs will remain with me to resolve. I was wondering if you had any thoughts on this matter. Should I make the tribunal aware that the flat has been sold and therefore any determination of legal costs will be taken on buy the new owner upon completion? Or do you think the Barristor is correct and that I will still be liable even though the special conditions outline that anything pre auction outstanding would fall on the new buyer?

1 Answers

Whe you own a leasehold property any debts that accrue under the lease (such as the debts you are describing) during your period of ownership are contractual, so that they are personal to you (it can be a bit more complicated than that but that will do for the purpose of this question). A covenant on the other hand is capable of binding successors. An obligation to pay service charges and other similar costs will usually arise out of a covenant in the lease. So, where a tenant is liable for costs relating to his period of ownership and he sells the lease the landlord has two options. He can either pursue the former owner for breach of contract or he can commence forfeiture proceedings for breach of covenant against the new owner. Faced with the prospect of losing his property the new owner although not strictly liable for the debt will most likely pay it if he can (and if he can't, the landlord gets the property). The former owner on the other hand, if pursued by the landlord, might declare bankruptcy, offer to pay back the debt atca small amount a month or just disappear. Unsurprisingly landlords usually choose the forfeiture route.

The standard conditions of sale (and common law) say that the seller of a leasehold property is liable to the buyer to settle any debts owed under the terms of the lease such as service charges and legal costs so that if a buyer finds himself having to settle arrears relating to the seller's period of ownership he can sue the seller to recover his loss.

So your barrister is right - the debt is yours and the landlord is entitled to recover it from you. As for where you stand then it depends on precisely what the contract clauses say. If they say that the buyer will indemnify you against claim by the landlord then whatever you have to pay the landlord you can recover from the buyer (if he has the money and if the court doesn't find some mitigating circumstance that gets him out of it). If on the other hand, and this is more likely, the contract with your buyer merely says that you are not liable to him for any loss he suffers as a result of forfeiture proceedings for the debt you owe then you are ok as long as the landlord decides to go down the forfeiture route to recover the debt. If he decides to pursue you under the contract however your buyer has no liability to you and you will have to pay the debt unless you can argue that the debt isn't justified