This recent decision of the Upper Tribunal marks something of a sea change in the interpretation of lease clauses concerning costs and in particular the costs of litigation. Often it has historically been the case that ‘sweeper clauses’ that seek to recover ‘all costs’ are not sufficient to cover specifically legal costs incurred in pursuing general or other legal activity which is incidental to the management of the property, particularly where this relates to residential service charges. The result being that often freehold owners (be they tenant run freehold management companies, or third party landlords) have had to bear some or all of their own costs when engaging in activity that is not strictly within the ambit of the costs clause in the lease.
Assethold marks a ‘change’ in that the tribunal held that a general sweeper clause was sufficient to cover the cost of the landlord engaging in litigation concerning a dispute relating to a boundary with adjacent land. At first instance the FTT held that the landlord could not recover these costs from the tenants but the Upper Tribunal disagreed, holding that the ‘sweeper’ wording was sufficient to cover these costs and that there was nothing in principle to stop these costs being passed to the tenants under the service charge.
It is important to remember that this does not take away the possibility of a challenge to such costs on the question of quantum (i.e. the amount) on the basis that under the service charge legislation not only does it have to be reasonable to incur the costs in question but the costs themselves also need to be ‘reasonable’ in the particular context. However, the decision does make clear that there are no special rules of construction that apply to costs clauses in a residential case involving service charges and that the normal rules of interpretation will apply.
Click here for a note on the case: Assethold – residential landlord ability to recover costs through service charges 10-02-2014
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