Welcome to the first edition of RED Alert of 2024
Also featuring in this month's update:
89 Holland Park (Management) Ltd v Dell & Dell [2023] EWCA Civ 1460
Summary
The Court of Appeal considered whether costs incurred by the landlord in relation to disputes with a neighbouring landowner were recoverable as service charges under "sweeper provisions" in the tenant's lease.
The facts
89 Holland Park is a block of flats located in West London's Holland Park, the freehold of which is held by resident-owned 89 Holland Park (Management) Ltd. The building is divided into five long leasehold flats, of which the Dells are leaseholders of one.
The dispute arose regarding litigation fees in the sum of £2,763,521 incurred by the landlord in a previous dispute with the next-door neighbour, architect Sophie Hicks, in relation to her plans to redevelop land adjoining the premises. The landlord sought to recover a contribution to these litigation and planning costs from the various leaseholders via the service charge.
The landlord relied on the following service charge provisions of the lease:
- 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“.
The First Tier Tribunal initially held that the service charges were recoverable. However, this was overturned on appeal in the Upper Tribunal and the landlord again appealed to the Court of Appeal.
At the Court of Appeal, the landlord relied additionally on the definition of "General Expenditure" in the lease as permitting recovery of the disputed costs, being:
“‘General Expenditure’ means the total expenditure … incurred by the Lessor in any Accounting Period in carrying out her obligations under Clause 4(4) of this Lease and any other costs and expenses reasonably and properly incurred in connection with the Building including without prejudice to the generality of the foregoing…”
The decision
The Court of Appeal dismissed the appeal on the following basis:
- The overall focus of clause 4(4) is on the maintenance and management of the building. It would strain those words to read them as extending beyond costs incurred in maintaining and running the building, and keeping it safe. Although amenity is expressly referred to, that most naturally refers, in context, to the amenity of the building itself rather than to (for example) the attractiveness of views from it.
- While the landlord had valid concerns about the potential threat to the structure of the building as well as the aesthetics, the building was under no immediate threat of being rendered unsafe. More importantly, it seemed to the Court that that the object of the expenditure was to stop Ms Hicks’ proposed development rather than to maintain the building or keep it safe.
- As litigation costs were specifically mentioned elsewhere in the lease, that suggested that these fees are the sort of exceptional expenditure which should be explicitly provided for where it is intended to be covered.
- The Court did not see any merit in the landlord's argument in relation to the definition of "General Expenditure". Many of the points made about clause 4(4) apply. The expenditure must relate to the building itself rather than anything else such as adjacent land.
- In addition, the wording was contained within a definition rather than forming part the substantive provisions of the Lease. It was the Court's view that it is inherently unlikely that the parties would have intended to include an obligation to fund uncertain but potentially significant costs of a planning-related dispute with a neighbour within general wording in a definition in circumstances where extensive and specific provision is made for the types of costs that may be included in the service charge.
Our comment
Whilst the Court of Appeal accepted that this judgment does not mean that no litigation costs could ever fall within the general words of a lease, this will depend on the particular expenditure in question and must therefore be considered on a case-by-case basis.
Whilst this is not particularly helpful for landlords in terms of certainty of recovery, it is clear that this case places a limit on a landlords’ rights to use "sweeper provisions" to recover costs where these do not directly relate to the management of a building.
