Landlord and tenant – Service charge – Legal costs – Appellant landlord incurring legal costs in dispute with third party – First-tier Tribunal deciding appellant entitled to recover costs from respondent lessees through service charge – Upper Tribunal allowing respondents’ appeal – Appellant appealing – Whether costs of litigation involving third party recoverable as service charge – Whether costs recoverable as general expenditure – Appeal dismissed
The appellant was the freeholder of 89 Holland Park in London, a detached Victorian villa. It was divided into five flats, and the respondent leaseholders each held a share in the appellant.
In 1965, the then freeholder sold a small plot of land to the south of the building, measuring around 23 ft by 140 ft (the garden plot). The purchaser entered into a deed of covenant agreeing not to apply for planning permission in respect of the plot without first having the plans approved by the freeholder, nor to start to develop the land until drawings and specifications had been so approved.
H bought the garden plot in 2012. The appellant and the leaseholders opposed her plan for an underground dwelling with a glass structure above ground. They were concerned about the threat to the structure of their building and to the appearance and amenity of the surroundings. They claimed to have the benefit of the covenant.
Litigation ensued and substantial costs were incurred by the appellant, including the costs of opposing H’s application for planning permission. It sought to recover those costs from the leaseholders by way of service charges. The respondents challenged the payability and reasonableness of service charges demanded as their share of those costs. The First-tier Tribunal (FTT) decided the appellant was entitled to recover the charges under two covenants in the respondents’ lease.
The Upper Tribunal allowed the respondents’ appeal: [2022] UKUT 169 (LC); [2022] PLSCS 113. The appellant appealed.
Held: The appeal was dismissed.
(1) Clause 4(4)(g)(ii) of the lease obliged the landlord, if it considered it necessary or advisable, to employ professionals for the proper maintenance of the building. That included taking specialist advice. The question was whether those general words, and clause 4(4)(l), included instructing legal professionals and expert witnesses in litigation against a third party, or in connection with an objection to a third party’s planning application. Clause 4(4)(l) was a sweeper clause and should not be regarded as extending the range of what the landlord could do, or construed to bring into the service charge expenses that could not otherwise have been included. The FTT was correct to conclude that the disputed costs were not recoverable under clause 4(4)(g)(ii) or (l).
The wording of paragraphs (g)(ii) and (l) was general in nature, rather than ambiguous. The task of the tribunal or court was to determine whether the expenditure in question fell within or outside it. Given the general nature of the words, factors enumerated by Lord Neuberger in Arnold v Britton [2015] UKSC 36; [2015] EGLR 53 other than the natural meaning of the words, in particular the context in which the words appeared, the purpose of the clause and the lease and any relevant factual matrix, would be of particular importance in determining what the parties had intended the words to cover. Commercial common sense would, at least, provide a useful cross-check.
(2) The judge was correct to hold that the overall focus of clause 4(4) was on the maintenance and management of the building. Although relatively major items might be covered (such as substantial repairs), much of what was specified was of a day-to-day nature and/or highly detailed, such as cleaning windows and maintaining fire extinguishers. It was also notable that paragraph (g)(ii) was grouped together with paragraph (g)(i), which contained a routine power to employ a managing agent. Within paragraph (g)(ii), although there was a reference to solicitors and other professionals, that followed a list of “surveyors builders architects engineers tradesmen”, which naturally referred to persons employed to do work on or in relation to the physical structure of the building.
The general words were not necessarily limited to matters that the parties could not have contemplated at the date of grant. But it did not follow that the general words should be read as extending clause 4(4) in a way that took no account of the overall focus of clause 4(4) on maintenance and management of the property. Rather, the specific provisions in clause 4(4), read in the context of the other provisions of the lease, provided the best indication of what might be encompassed by the general words in clause 4(4).
(3) As the present case illustrated, the risk remained that the lessee might be obliged to incur expenditure with which they disagreed. The judge was entitled to treat the risk of open-ended litigation costs, in what was essentially a planning dispute with a neighbour, as a factor in concluding that the disputed costs were not covered by general words in clause 4(4), and rather would require explicit provision.
Each case had to be decided on its own facts. The question was always whether the particular item in dispute fell within or outside a service charge provision. The court did not need to attempt the difficult task of determining where the precise dividing line should be drawn, but only what the correct treatment of the particular item was. That was a decision that had to be reached having regard among other things to the context of the wording and the relevant factual matrix. Even if the costs of disputes with neighbours could in some circumstances be brought within a “sweeper” clause like clause 4(4)(l), it did not follow that planning-related disputes with the owner of the site were covered, given all the contextual and factual background features: Assethold Ltd v Watts [2014] UKUT 537 (LC); [2014] PLSCS 359 and Kensquare v Boakye [2021] EWCA Civ 1725; [2021] PLSCS 199; [2022] L & TR 18 considered.
(4) The disputed costs were not recoverable as “general expenditure”, as defined in clause 3(4). Such expenditure had to relate to the building itself rather than adjacent land. It was inherently unlikely that the parties would have intended to include an obligation to fund uncertain but potentially significant costs of a planning-related dispute with a neighbour within general wording in a definition, where extensive and specific provision was made for the types of costs that might be included in the service charge and by the list of items that followed.
James Fieldsend and Edward Blakeney (instructed by KDL Law, of Heathfield) appeared for the appellant; Mark Loveday and Mattie Green (instructed by Howard Kennedy LLP) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of 89 Holland Park (Management) Ltd v Dell and another
