Service Charge Provisions: Recoverability of legal and professional costs

89 Holland Park is a detached block in West London which is divided into 5 flats (;the Building’). Each flat in the building is held on a long lease. The freehold of the Building is owned by 89 Holland Park (Management) Ltd (“Holland Park”), which is a lessee run company. 

 

Next to the Building is a plot of land (‘the Land’). The Land used to be part of the garden of the Building, and the Building enjoys the benefit of restrictive and positive covenants over the Land. The restrictive covenants precluded the development of the Land without the consent of the owner of the Building. 

 

In 2012 the Land was acquired by the architect, Sophie Hicks (‘Ms Hicks’) who sought to develop the Land and create a modern residential dwelling. This included a glowing glass box entrance hall. This was opposed by Holland Park on various grounds. Holland Park was successful in opposing but incurred significant costs in the proceedings against Ms Hicks. Only a proportion of the costs incurred were recovered from Ms Hicks. Holland Park sought to recover the remainder of the costs from the leaseholders through the service charges provisions in their leases. 

 

All the leaseholders had agreed to support Holland Park in the case against Ms Hicks but in 2014 the Dells, who were the leasehold owners of Flat 5, objected to payment of their part of the bill and brought proceedings in the First Tier Tribunal (‘the FTT’) 

 

Holland Park relied on the ‘sweeper’ clauses in their lease as follows: 

 

1. 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.” 

 

2. 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 Della argued that the above service charge provisions did not cover litigation costs relating to restrictive covenants over the Land and the cost of opposing planning applications on the Land. 

 

The FTT found in favour of Holland Park but this was overturned by the Upper Tribunal who found that the costs of the proceedings fell outside of the scope of the service charge provisions in the lease. 

 

The landlord appealed the decision arguing the above ‘sweeper’; clauses included the ‘expenditure’ of the proceedings. 

 

The Court of Appeal found in Dells’ favour in that the key words in the two service charge clauses were that expenditure had to be for the proper maintenance safety and administration of the Building and for the proper maintenance safety amenity and administration of the Building. The expenditure did not relate to the Land and therefore costs of proceeding in respect of the land fell outside of the service charge provisions. 

 

 

This case serves as a reminder for landlords to take care in the drafting of the service charge clause as its crucial to include provision for all the services that may be incurred. A landlord should avoid simply relying on a sweeper clause. While a sweeper clause may extend coverage to some expenses its scope is not unlimited. A landlord is unlikely to be able to claim service charges for services which they have omitted from the drafting in error.