A landlord was involved in two sets of proceedings relating to service charges before the Leasehold Valuation Tribunal, now known as the First-tier Tribunal (Property Chamber)
Could the landlord recover their legal costs incurred in these proceedings through the service charges?
This was the question the Upper Tribunal(Lands Chamber)(“the Upper Tribunal”) was asked to consider in the case of Sinclair Gardens Investments (Kensington) Limited v.Avon Estates (London) Limited {2016} PLSCS 227.
The facts
Avon was the leaseholder of a flat in London N16; it is in an end-of–terrace house converted into three flats. Sinclair Gardens was the freeholder.
Since October 2013 the building had been managed by an RTM company under the control of the three leaseholders.
Prior to assumption of management by the RTM company, in 2010 and 2011 there were proceedings in the tribunal between both parties which related to service charges.
Sinclair Gardens sought to recover its legal fees incurred in these proceedings.
The lease
By Clause 3A of the lease the leaseholder is obliged to pay to the landlord an annual sum representing the due proportion of the management charges for the building.
By Clause 6(A) the landlord is required to manage the building and estate with power to appoint managing agents, employ a range of persons including solicitors and to delegate any of its functions.
The issue
Could Sinclair recover as costs and expenses incurred in managing the estate and building its solicitors costs and barrister’s fees incurred in the 2010 and 2011 service charge proceedings at the tribunal?
Among other issues, this question came before the First-tier Tribunal (Property Chamber) (FTT).
What did the First-tier Tribunal decide?
The FTT disagreed with Sinclair in deciding that Clause 6(A) did not enable the recovery of costs incurred in the service charges litigation through subsequent service charges. The FTT felt would be stretching the natural wording of the clause to argue otherwise.
Sinclair appealed to the Upper Tribunal.
What did the Upper Tribunal decide?
Sinclair’s appeal failed because-
- The ability of the landlord to recover service charges based on legal costs run up in tribunal proceedings involving its leaseholders turned on the true interpretation of the service charge clause.
- Each case is fact-specific and would depend upon the particular wording of the clause in the particular lease of the particular property.
- There is no strict rule that legal costs could not be recovered where the service charge clause used general words. However, there would have to be language showing a clear intention that such costs and expenses should be recoverable.
- Clause 6(A) required the landlord to manage the estate. Whilst there was a reference to a power to employ solicitors in a sub-clause, their employment was limited to assisting in the purpose of managing the building and estate.
Accordingly Sinclair could not recover its legal costs under the service charge clause.
What is the ‘takeaway’ of this decision?
Recovery of costs and expenses whether it is in the context of litigation or other matters depends on the wording of the particular lease. Neither side should readily assume that because the landlord digs into its pockets to pay for an item that it can be added to the service charge account.
Moreover in this particular case the Upper Tribunal decided that just because a lease term referred to “solicitors” did not give the landlord a blank cheque to instruct them for any purpose. The limit to their employment was that they had to be employed for the purposes of management.
Related information:
- Service charges podcast
- First-tier Tribunal podcast
- Service Charges and other issues guide–
- Take our quiz to see how much you understand your lease
