Service charge provisions in leases are always a bone of contention between landlords and tenants because they enable landlords to spend their tenants’ money. In addition, tenants are often sensitive about the use of sweeper or catch-all provisions, which allow a landlord to recover the cost of items not specifically covered elsewhere – especially if the landlord is seeking to rectify poor or incompetent drafting.
In Rettke-Grover v Needleman [2011] UKUT 283 (LC); [2011] PLSCS 226, the tribunal had to decide whether a landlord was entitled to recover the costs of using accountants to prepare service charge accounts to provide to its tenants. The lease listed the costs that the landlord was entitled to recover. It also made specific reference to a management fee, but did not mention accountancy costs (although the lease stipulated that the landlord must supply an annual service charge certificate free of charge).
Did the costs of engaging an accountant fall within the provisions of the sweeper clause, which covered the cost of providing any other services that the landlord deemed necessary or expedient for the efficient management of the building and its environs? The judge followed the legal tradition of construing sweeper clauses narrowly – and decided that the clause was not sufficiently wide to allow the provision of accountancy services to come within it.
The clause covered services relating to the management of the building and the garden areas, forecourts and footpaths that belonged to it. Sweeping up fallen leaves might constitute such a service, but the landlord’s accounting problems did not fall within the ambit of the clause. The landlord was entitled to use an accountant, rather than prepare the accounts itself. However, if it chose to do so, it must bear the cost because this was part of the cost of managing the building for which it was entitled to levy a management charge.
The decision confirms the courts’ view of sweeping-up provisions in service charge clauses. The latest edition of the RICS Code Service Charges in Commercial Property, which comes into force in October, also tackles the use of sweeper clauses. It states that they should not be used to cover the cost of something that has been omitted from the lease in error – and suggests that landlords should make use of such clauses only to provide additional services that were not identified or contemplated when the lease was granted but that are subsequently considered necessary or desirable.
The trend is clear. Consequently, landlords, lawyers and surveyors need to work together to ensure that service charge provisions list all relevant heads of charge. Failure to do so could leave the landlord out of pocket because the courts regularly reject claims to recover expenditure in the absence of clear contractual provisions to the contrary in a tenant’s lease.
Allyson Colby is a property law consultant
