Service charges and other issues
A guide to service charges, administration charges, ground rent, recognised tenants associations and forfeiture.
By Simon Tye, Legal Adviser
It is common practice in most modern leases to include a clause allowing the landlord (or management company) to recover costs for additional services or costs that might not have been contemplated when the lease was granted but that the landlord might later wish to recover. This is what is known as a “sweeping up“ or “sweeper” clause.
The sweeping up clause may appear in various parts of the lease and is not always obvious from a casual reading of the lease. For example, it may be in the list of chargeable costs in a schedule to the lease or it may be contained in the landlords covenants, for which the leaseholder agrees to pay a service charge. An example of such a clause mentioned above would be:
“Total expenditure means the expenditure incurred by a lessor in any accounting period in carrying out its obligations under clause 3 of the lease and any other costs and expenses reasonably incurred in connection with the building.”
The above clause is drafted very widely, but restricts the landlord to those costs reasonably incurred. Obviously, the Leasehold Valuation Tribunal (LVT) can be used by leaseholders to challenge the reasonableness of costs.
Other sweeping up clauses may be drafted more narrowly to specify the purpose for which the landlord can include the additional costs. For example, by including the words “for the benefit of the tenants in the building as a whole “or “in the interests of good estate management”.
The court or tribunal will not impute meaning to a clause that is not there and will generally interpret such clauses based on the precise wording in the lease, so it is important that the clause is properly thought out when drafted.
There is also the contra proferentem rule which states, broadly, that where there is doubt about the meaning of the wording in a contract (lease in this case) the words will be construed against the person who put them forward. In other words, the courts are more inclined to find in favour of the leaseholder, where the clause is unclear, and the freeholder is arguing it allows him to recover costs.
A sweeping up clause is also often used to allow a landlord or management company to make rules or regulations for the better management of an estate or building. This is a similar principle to the service charge clauses above but allows new regulations, for example, about parking, to be introduced. The wording of such clauses usually also mentions reasonableness.
If a landlord finds that the sweeping up clause does not allow him to recover costs that arise later, the alternative would be to seek the leaseholder’s agreement to vary the lease or to apply to the First-tier Tribunal (Property Chamber) if the property is in England and to the Leasehold Valuation Tribunal if the property is in Wales for the variation of a lease or leases under sections 35 or 37 of the Landlord and Tenant Act 1987