Historically, the courts tend to interpret sweeper clauses in service charge provisions narrowly. Union Pension Trustees Ltd v Slavin [2015] UKUT 103 (LC); [2015] PLSCS 150 is no exception to the rule.
The tenants’ leases envisaged that the landlord might employ managing agents and “such surveyors, builders, architects, engineers, tradesmen, accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the landlord’s property”. In addition, the service charge provisions made provision for the landlord to recover “any other costs and expenses reasonably and properly incurred in connection with the landlord’s property including without prejudice to the generality of the forgoing (a) the cost of employing managing agents and (b) the cost of any accountant or surveyor employed to determine the total expenditure and the amount payable by the tenant”.
Was the landlord entitled to recover legal costs incurred in proceedings against its tenants to establish whether an interim service charge had been reasonable? The landlord cited Assethold Ltd v Watts [2014] UKUT 537 (LC); [2014] PLSCS 359. In that case, the tribunal suggested that it would be wrong to start from the proposition that, absent specific words, the cost of legal services will not be included within the scope of a service charge – and allowed the landlord to recover the cost of legal advice obtained in connection with a dispute with an adjoining landowner under the Party Wall etc Act 1996 since the costs were incurred to preserve the building.
The landlord argued that the parties must have anticipated the possibility of legal proceedings regarding costs incurred by the landlord in performing its repairing and other obligations. Unless those costs were collected through the service charge, the condition of the building would deteriorate. Therefore, there was a direct connection between the costs of proceedings and the performance of the landlord’s obligations, and its legal fees fell squarely within the sweeper clause.
The Upper Tribunal disagreed. The lease dealt extensively with the employment of professionals without referring to lawyers or the cost of legal proceedings. The tenant had expressly covenanted to pay to the landlord legal costs incurred under sections 146 and 147 of the Law of Property Act 1925. The explicit and noticeably contrasting language of the different clauses dealing with liability for professional fees suggested that the parties did not intend the cost of legal proceedings relating to the maintenance or administration of the building to be part of the service charge.
The tribunal distinguished Assethold by reference to the language of the lease and facts of that case. It rejected the idea that the parties had intended that the tenants should be collectively responsible via the service charge for litigation costs that had not been recovered from one or more of their number. The parties could not seriously be taken to have intended that all legal or other professional expenses incurred by the landlord in connection with the building should be recoverable from all tenants through the service charge. On the face of it, this would include the cost of contested proceedings under the Landlord and Tenant Act 1954 over the renewal of the lease of commercial premises on the ground floor, or the costs of a rent review arbitration. Very clear language would be required to support such an improbability.
Allyson Colby is a property law consultant