Thanet Lodge (Mapesbury Road) RTM Co Ltd v Mirchandani
Landlord and tenant – Services charges – Expenses – Appellant RTM company seeking recovery of legal and mediation expenses as service charges – First-tier Tribunal deciding terms of lease not permitting recovery of those costs as service charges – Appellant appealing – Whether legal advice falling within terms of lease – Whether definition of “total expenditure” wide enough to include legal fees – Appeal dismissed
The respondent held a long lease of 29 Thanet Lodge, 10 Mapesbury Road, London NW2, one of 43 flats in a five-storey block. The appellant RTM company was incorporated by the leaseholders in order to exercise the right to manage the block conferred by the Commonhold and Leasehold Reform Act 2002.
In October 2022, the respondent applied to the First-tier Tribunal for a determination under section 27A of the Landlord and Tenant Act 1985 whether certain service charges were payable. Some of the items charged were challenged by the respondent on the basis that costs were not reasonably incurred within section 19 of the 1985, or that the terms of his lease did not permit the appellant to recover them.
Landlord and tenant – Services charges – Expenses – Appellant RTM company seeking recovery of legal and mediation expenses as service charges – First-tier Tribunal deciding terms of lease not permitting recovery of those costs as service charges – Appellant appealing – Whether legal advice falling within terms of lease – Whether definition of “total expenditure” wide enough to include legal fees – Appeal dismissed
The respondent held a long lease of 29 Thanet Lodge, 10 Mapesbury Road, London NW2, one of 43 flats in a five-storey block. The appellant RTM company was incorporated by the leaseholders in order to exercise the right to manage the block conferred by the Commonhold and Leasehold Reform Act 2002.
In October 2022, the respondent applied to the First-tier Tribunal for a determination under section 27A of the Landlord and Tenant Act 1985 whether certain service charges were payable. Some of the items charged were challenged by the respondent on the basis that costs were not reasonably incurred within section 19 of the 1985, or that the terms of his lease did not permit the appellant to recover them.
The appellant appealed against the FTT’s determination that the terms of the lease did not permit the appellant to recover certain legal fees and mediation costs by way of service charges.
The appellant’s primary argument was that legal advice fell within clause 5(4)(g) of the lease (dispute resolution costs). It relied on the FTT’s observation that the clause gave the landlord a discretion to employ professionals in connection with meeting its obligations, and said that all the fees concerned, with one exception, related to claims in respect of damage to two flats in the building which were said to be the responsibility of the appellant as a result of the landlord’s repairing covenants.
Held: The appeal was dismissed.
(1) The appellant’s primary argument was that taking legal advice fell within the scope of clause 5(4)(g) of the lease, relying on the FTT’s observation that the clause gave the landlord a discretion to employ professionals in connection with the meeting of its obligations. The cost of the repairs was recoverable and, equally, legal fees incurred in connection with them were recoverable.
Clause 5(4)(g)(i) enabled the landlord to employ managing agents and accountants to manage the building and collect the rent and service charges. It was not a licence to use professionals in order to carry out any other obligations and it was not about repairs or maintenance. Clause 5(4)(g)(ii) was in broader terms and authorised the employment of professional persons for the “maintenance safety and administration” of the building. Taken literally that might be said to encompass the taking of legal advice. The absence of a specific mention of legal advice was not fatal to the appellant’s construction.
(2) It was wrong in principle to start from the proposition that, with certain types of expenditure, including the cost of legal services, unless specific words were employed no amount of general language would be sufficient to demonstrate an intention to include that expenditure within the scope of a service charge. Language might be clear, even though it was not specific. However, the purpose and context of the clause in question were critical. Legal costs were outside the contemplation of clause 5(4)(g) of the lease: Assethold Ltd v Watts [2014] UKUT 537 (LC); [2014] PLSCS 359 considered.
In Sella House Ltd v Mears [1989] 1 EGLR 65, the landlord sought to recover by way of service charge legal expenses incurred in pursuing other tenants for rent and service charges. There the landlord argued that the expenditure arose from its fulfilling its obligations under clause 5(4)(j) of the lease, which required it: “(i) To employ at the Lessors’ discretion a firm of Managing Agents and Chartered Accountants to manage the Building and discharge all proper fees salaries charges and expenses payable to such agents or such other person who may be managing the Building including the cost of computing and collecting the rents and service charges in respect of the Building or any parts thereof; (ii) To employ all 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 Building”. That wording was identical to that of clause 5(4)(g) in the respondent’s lease.
The Court of Appeal held in that case that legal costs were “outside the contemplation of either limb of clause 5(4)(j) of the lease”. There was no specific mention of lawyers, proceedings or legal costs. Identically worded clauses did not necessarily generate identical outcomes, but there was nothing in the facts of the present appeal to permit a different conclusion about identical words. A clause concerned with management, or with the provision of services, did not enable the landlord to recover through the service charge its legal costs in a dispute with any of its tenants: Sella, No 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2021] EWCA Civ 1119; [2021] EGLR 37 and Kensquare Ltd v Boakye [2021] EWCA Civ 1725; [2021] PLSCS 199; [2022] L & TR 18 considered.
(3) As regards the definition of “total expenditure” in the fifth schedule to the lease (determining the amount of the service charge), the appellant argued that the wording was deliberately wide, and that the inclusion of legal fees of this kind would make commercial sense, given the proviso that costs had to be reasonably and properly incurred in connection with the building. Moreover, the FTT’s conclusion failed to make commercial sense, because it left the original lessor, and the appellant as an RTM company, unable to get legal assistance or obliged to raise funds for it by way of voluntary contribution from its members.
The appellants relied in particular upon the words “and any other costs and expenses reasonably and properly incurred in connection with the building”. However, the definition had to be looked at in the context of the rest of the lease and of the landlord’s obligations set out in clause 5(4); it was unlikely that the parties to the lease would have contemplated the extension of the service charge by that definition to include something quite different, namely legal and mediation costs, from what had already been specified. Accordingly, none of the legal costs claimed by the appellant as service charges were so chargeable: 89 Holland Park Management Co Ltd v Dell [2023] EWCA Civ 1460; [2023] EGLR 10 and Tower Hamlets London Borough Council v Lessees of Brewster House and Malting House [2024] UKUT 193 (LC); [2024] PLSC 129 considered.
The appeal was determined on written representations.
Eileen O’Grady, barrister
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