Service charge wording too narrow to cover costs of suing defaulting tenants.

Does the language of a service charge provision in a lease permit the landlord to recover money which it has spent in contesting legal proceedings against the leaseholders of flats in a residential building?

In Arnold v Britton [2015] Lord Neuberger of the Supreme Court said “the court should not “bring within the general words of a service charge clause anything which does not clearly belong there”.

In the Upper Tribunal (Lands Chamber) case of Geyfords Ltd v O’Sullivan & Ors [2015] paragraph 6 of the service charge covered:

“All other expenses (if any) incurred by the Lessors or their managing agents in and about the maintenance and proper and convenient management and running of the Development”.

The tribunal said “management” may sometimes include obtaining professional advice, including legal advice, and in some circumstances it might involve litigation. E.g. the assistance of the court may be required because the leases of flats are unclear, so the outcome of the proceedings is of concern to both the landlord and to every leaseholder.

It could be said “running” suggests a focus on more day to day or mechanical activities, while “management” is more long term or strategic, but it was neither informative or helpful to dissect the language in that way. It might be said as well that both management and running, when used of a building and its immediate environment, are concerned with the condition of the building and activities there, and that the expression taken as a whole is inappropriate to refer to litigation over the liabilities of tenants to their landlord. Such litigation was concerned with enforcing personal rights and obligations rather than with the physical fabric of the building. The qualifying words “proper and convenient”, might also be thought to be words of limitation, suggesting expenditure which is routine rather than exceptional.

Proceedings to enforce the obligation of an individual leaseholder to make a payment to the landlord did not naturally fall within the scope of “management and running”.

The parties to a lease were unlikely to think such general words were enough to show an intention that any money lost by the landlord in litigating against tenants should be recharged to all the tenants in the building. In the Court of Appeal case of Sella House Ltd v Mears [1989] Taylor LJ said he would “”require to see a clause in clear and unambiguous terms” before being persuaded the parties had intended that a tenant who paid his rent and service charges would be obliged to subsidise the landlord’s costs of proceedings against his fellow tenants who were defaulters”.

Accordingly paragraph 6 was less clear than was to be expected if the cost of litigation against defaulting leaseholders had been intended to be recovered as costs and expenses of “proper and convenient management and running of the Development”.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.