Legal Costs Incurred Against One Tenant Cannot Be Recovered From Others Via Service Charges

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Reference :

LON/00AD/LSC/2021/0366

Property :  Flats 1 & 2 [ADDRESS], [POSTCODE] Applicants :  [redacted] :  NA Respondent : [redacted] : NA Type of Application :

Application for a determination as to the payability and reasonableness of service charges Tribunal Members :

Judge Shepherd Sarah Phillips MRICS

Date of Decision :  22nd March 2022

DETERMINATION

1. In this case the Tribunal is asked to deal with a discrete point of interpretation of a lease in order to decide whether legal costs incurred by the landlord in enforcing the terms of a lease are recoverable from [NAME] who are not involved in the proceedings in which the costs have been incurred.

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Background

2. The Applicants own the leasehold of two properties at [ADDRESS], London S82O RX (“the building”). Ms [NAME] is the lessee of flat 1 and [NAME] is the lessee of flat 2. These are two - bedroom flats in a Victorian building which has been converted to create four flats. The applicants challenge a single service charge demand dated the 14th of May 2021 under which the [NAME] (The Respondent) required them to pay £1972.86 each which was 25% of the legal costs of £7981.34 incurred by the Respondent in seeking to enforce a legal covenant against another lessee. The Applicants in their application and correspondence raise other issues but the application itself solely concerns the payability of the legal costs.

The lease clause relied on

3. The Respondent relies on a clause in the Applicants leases which is in the definitions section at Clause 6 of the lease and states the following:

(2) (A) the annual service cost shall be the aggregate of the expenses and outgoings reasonably and properly incurred by the landlords in each year of the term hereby granted and proportionately for part of a year in connexion with the management and maintenance of the building and in particular and without limiting the generality of the foregoing shell include the following matters:

…

All reasonable and proper fees charges and expenses payable to any solicitor accountant surveyor valuer or architect whom the landlords may from time to time employ in connection with the management and/or maintenance of the building …

4. The Respondent says that this lease clause allows them to recover the legal costs concerned.

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The law

5. As a general proposition in order to recover legal costs through the service charge clear and unambiguous lease terms are required see [COMPANY] v [COMPANY] [2002] EWCA Civ 1491 the Court of Appeal held that the legal costs incurred in proceedings for the recovery of arrears of rent and service charge were not recoverable under a sweeping up clause contained in the service charge provisions which entitled the landlord to recover the cost of all other services which the lessor may at its absolute discretion provide or install in the said building for the comfort and convenience of the lessees and the reasonable and proper fees of the lessors auditors and the reasonable and proper fees of the lessors [NAME] agents for the collection of the flats in the said building and for the general management thereof . Similarly in [COMPANY] v Mears [1988] 11 WLUK 194, the Court of Appeal held that legal costs incurred in recovering rent and service charges from [NAME] were not recoverable under a service charge provision that was expressed to cover the costs of employing professional persons as may be necessary or desirable for the proper… administration of the building and the costs of ….collecting the rent and service charges…

6. In [COMPANY] ([COMPANY] v [COMPANY] the Upper Tribunal held that the question of whether a landlord was entitled to recover legal costs incurred in relation to tribunal proceedings against its tenants depended on the true construction of the service charge clause. Service charge clauses were not subject to any special rule of interpretation but should be construed as any other written contractual provision. The clause in question had to be construed in the light of its context which in the case of a service charge clause involved consideration of the lease as a whole taking into account the circumstances existing at the time of the grant. Each case was fact specific. However, context while important was not everything. The clearer the natural meaning of the provision the more difficult it would be to justify departing from it. There was no hard and fast rule that legal costs could not be recovered where the clause employed general words even if they made no specific mention of

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lawyers or the costs of proceedings however the requirement of clarity meant that in such circumstances there had to be other language apt to demonstrate a clear intention that such expenditure should be recoverable.

7. In [NAME] clause 6(a) of the lease imposed on the landlord the duty to manage and gave it power to appoint [NAME] agents, to employ a range of persons, including solicitors and to delegate any of its functions. Those powers were clearly intended to enable the landlord to manage the estate. Although the clause made explicit reference to solicitors, it could not possibly mean that the landlord had carte blanche to instruct solicitors for any purpose – the limit to their employment was that they had to be employed for the purposes of the management of the estate. If that was done their proper fees could be paid and the sum so expended recovered from the tenant pursuant to the service charge clause.

Determination

8. Having considered the law and the surrounding circumstances of this case the Tribunal determines that the clause relied upon by the Respondents is not sufficiently clear to justify the collection of fees for solicitors enforcing the terms of leases separate from the [NAME] involved. The law involved in this area is relatively complex however it does seem clear that in order for there to be an enforceable clause of the type that the Respondent requires that clause has to be unambiguous. In the present case the landlord is seeking to rely on a definition clause. It is the Tribunal’s view that at the time that the leases were granted this clause would be interpreted as allowing the landlord to recover costs of [NAME] and maintaining the building itself i.e. the communal areas which are shared between the [NAME]. It is too much of a stretch to suggest that this clause allows the landlord to recover the cost of enforcement against an [NAME] when the enforcement is in relation to that particular [NAME] lease rather than the building itself. Whilst it may be said that the collection of service charges is part of the management function carried out by the [NAME] or a [NAME] agent that does not necessarily mean that it comes

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within the clause concerned which deals with the management of the building rather than the management of individual [NAME].

9.

Accordingly, the Tribunal determines that the legal costs concerned in this application are not recoverable from the Applicant. In addition, because in the Tribunal’s view this application was well made and justified the Tribunal exercises its discretion pursuant to section 20(c) of the Landlord and Tenant Act 1985 to confirm that the [NAME] is precluded from seeking to recover the costs of these proceedings from the service charge of the Applicants.

Judge Shepherd

22nd March 2022

ANNEX - RIGHTS OF APPEAL Appealing against the tribunal’s decisions

1. A written application for permission must be made to the First-tier Tribunal at the Regional tribunal office which has been dealing with the case.

2. The application for permission to appeal must arrive at the Regional tribunal office within 28 days after the date this decision is sent to the parties.

3. If the application is not made within the 28-day time limit, such application must include a request for an extension of time and the reason for not complying with the 28-day time limit; the Tribunal will then look at such reason(s) and decide whether to allow the application for permission to appeal to proceed despite not being within the time limit.

4. The application for permission to appeal must state the grounds of appeal, and state the result the party making the application is seeking. All applications for permission to appeal will be considered on the papers 5. Any application to stay the effect of the decision must be made at the same time as the application for permission to appeal.