The Upper Tribunal (Lands Chamber), has recently overturned the decision of the Leasehold Valuation Tribunal, and has held that a residential landlord was entitled to recover legal expenses it had incurred in dealing with a party wall issue as part of the service charge.
In the case Assethold v Watts and others  UKUT 0537 (LC), The landlord held a headlease for 999 years of the building in which 13 tenants held flats on long leases. A developer wished to carry out party wall works to the adjoining land and served the requisite notices on the landlord and the tenants.
The tenants appointed their own building surveyor, refusing the landlord's suggestion to use the same building surveyor as the landlord. The tenants then reached an early settlement with the developer's surveyor. However, the landlord and the developer subsequently engaged in lengthy litigation, which resulted in significant legal and surveyors' expenses (over £55,000 for legal fees). When the landlord attempted to recover these expenses via the service charge, the tenants sought a determination under section 27A of the Landlord and Tenant Act 1985. By way of background, the sums claimed in the same year for all other service charge items including insurance, cleaning and management were only £16,391.
The standard form lease did not specifically permit the recovery of legal costs, although it did permit the recovery of surveyors' and accountants' costs. However, there was a sweeper clause that allowed the landlord to do or cause to be done all works, installations, acts, matters and things as in the reasonable discretion of the landlord may be considered necessary or desirable for the proper maintenance, safety, amenity and administration of the building (paragraph 6 of the first schedule).
The Deputy President of the Upper Tribunal held that the landlord was able to recover its legal expenses under the sweeper clause. He stated that:
- The proper question was not whether the salient paragraph contained specific, or magic, words enabling recovery of the relevant costs, but whether the costs in question had been incurred for the purposes mentioned in the paragraph. If the costs were incurred in connection with an act, matter or thing done for one of those purposes (proper maintenance, safety, amenity and administration of the building), the costs were recoverable.
- Although the words of paragraph 6 of the first schedule were general, they were sufficient to encompass the landlord taking professional advice prior to deciding what course of action to follow in order to preserve the safety and amenity of the building.
- It was clear that the language was not limited to carrying out work to the building itself, because the acts, matters and things covered may include those for administration, as well as for safety, amenity and maintenance.
- The activities within the scope of paragraph 6 to the first schedule were widely expressed, extending to "all works installations acts matters and things" for the specified purposes.
The Deputy President accepted that, as a general principle of interpretation, contracting parties should make it clear if they intend that a payment obligation such as a service charge should cover a certain type of expenditure, and unclear language should therefore be read as having a narrower rather than a wider effect. However, the Deputy President did not think that principle should be pushed to the point where language that was clearly intended to encompass expenditure in a wide variety of situations, which the parties had not explicitly listed, should be so restrictively construed as to deprive it of any real effect. It was wrong to say that certain types of expenditure, such as legal costs, are only recoverable if specific words are employed.
This case does not establish any new law but it does apply the principles set out in the case of Arnold v Britton  EWHC 3451 (Ch), which involve examining the wording of the charging provision, in its context and against all the admissible background and in the light of the apparent commercial purpose of the clause, and then deciding what it meant and how it operated.
Tenants should therefore exercise caution when challenging the reasonableness of legal costs within service charges and should seek legal advice on whether the relevant clause in their lease puts them in a good position to challenge or not.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.