By Nicholas Kissen, Senior Legal Adviser at LEASE
March 2024
The recent judgment in the case of 89 Holland Park (Management) Limited v. Dell and Dell [2023] EWCA Civ 1460 considered whether certain costs including those arising from litigation incurred by a landlord and which related to long-running disputes with the owner of neighbouring land were recoverable as service charges through “sweeper” provisions in a flatowner’s lease.
The facts
This case concerns 89 Holland Park in West London, a detached Victorian villa divided into five leasehold flats of which one being flat number 5 was owned by Mr and Mrs D.
89 HP (Management) Limited (“the Manco”) own the freehold to the building and is a leaseholder-owned company.
In 1965 the then freeholder sold a plot of land located south of the building.
This plot measured around 23 feet by 140 feet and the purchaser executed a deed of covenant by which they agreed not to seek planning consent regarding the plot without first having the plans approved by the freeholder, nor to start to develop the land until such time as drawings and specifications had been approved by the freeholder.
The plot used to be part of the garden of the building.
In 2012 the plot was acquired by Mrs SH, an architect. She intended to develop the area and create a modern underground residential building with a “glass cube” at street level.
The Manco and the leaseholders of 89 Holland Park opposed the plan as they were concerned about the threat to the structure of their building and to the appearance and amenity of the surroundings.
This led to the Manco running up costs since there were disputes about such matters as the extent of the restrictive covenants in the deed of covenant. Such costs included those incurred in litigation, professional costs for taking expert advice relating to Mrs SH’s plans, and planning costs incurred when objecting to the granting of planning permission.
The Manco. won the litigation which ultimately went to the Court of Appeal and was remitted for a retrial. It was decided the Manco had legitimate concerns for the safety and amenity of the building when resisting Mrs SH’s proposals.
The Manco only recovered a proportion of their incurred costs from Mrs SH and sought to recover the balance of those costs from the leaseholders via the service charges. The amount sought from Mr and Mrs D was for over £430,000.
Mr and Mrs D challenged the payability and reasonableness of the amount demanded of them and made an application to the First-tier Tribunal (Property Chamber) (“the FTT”) in doing so.
The lease
In the lease for flat 5 – which was first granted in 1989 – the service charge apportionment was 19.83% of general expenditure, which was defined with a list. The lease had been extended to 999 years.
Clause 4(4) of the lease listed what the freeholder covenanted to do in a number of sub-paragraphs of which the Manco relied on the following as justifying the recovery of the costs concerned through the service charge.
Clause 4(4)(g)(ii)- “To employ all such surveyors builders architects engineers tradesmen solicitors accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the building.”
Clause 4 (4) (l)- “Without prejudice to the foregoing to do or cause to be done all such works installations acts matters and things as in the reasonable discretion of the Lessor may be considered necessary or advisable for the proper maintenance safety amenity and administration of the building.”
What did the FTT decide?
The FTT held that the sum in question was recoverable by the Manco.
The costs came within the scope of both clauses as the Manco was motivated by structural and aesthetic concerns for the building.
Although high the costs were reasonably incurred and reasonable in amount.
Mr and Mrs D appealed to the Upper Tribunal (Lands Chamber) (“the UT”).
What did the UT decide?
The UT allowed their appeal.
The focus of the two clauses was on management and not litigation. They concerned the Manco’s obligations to maintain the building.
Express wording would have been used had the parties intended for costs of this type to be recovered through the service charge.
The obligation to pay the costs in question did not clearly belong in the two clauses.
The Manco appealed to the Court of Appeal.
What did the Court of Appeal decide?
The appeal was dismissed with the court finding unanimously in favour of Mr and Mrs D.
The wording of the two clauses relied upon by the Manco was general in nature, rather than ambiguous, with the court’s task being to decide whether the expenditure in question fell within it.
The clear focus of the wording was on the maintenance and management of the building, and it would stretch the wording too far to encompass the costs in issue.
Whilst the Manco was motivated by structural/aesthetic concerns, there was no immediate threat to the building and, in reality, the purpose of the expenditure was to stop the intended development by Mrs SH rather than to maintain the building or keep it safe.
There would need to be clear wording in the lease to permit such costs to be incurred and passed on to the leaseholders given the substantial liabilities Mr and Mrs D would face.
Points to note
This case places limits on the right of a landlord to use general words or sweeper provisions in a lease to recover costs which are not directly related to matters concerning the management of the building.
This could well cause problems when, as in this case, the freehold is being held by a leaseholder-owned management company.
Such a company may well have no funds apart from those capable of being recovered through the service charge in which case it might be put in a difficult position when it comes to levying the type of costs that were at the heart of this case.
