The 1989 case of Sella House Limited v Mears made it clear that provisions in residential leases purporting to make a tenant responsible for subsidising the landlord’s costs of pursuing co-tenants must be “clear and unambiguous”.
The clause relied upon in Sella was not considered clear as there was no specific mention of lawyers, proceedings or legal costs.
The lease simply permitted recovery through the service charge of the costs of collecting the rent and service charges, and employing professionals for the administration of the building.
This was tested six years later in Iperion Investments Corporation v Broadwalk House Residence Limited. In this case the lease provided that the landlord could recover “all costs... properly incurred by the landlord in carrying out its obligations... under the covenants and conditions contained in the Head Lease... and in the proper and reasonable management of in and about [the property]”. In this case the landlord was entitled to recover legal costs because of the breadth of this clause.
In Plantation Wharf Management Limited v Jackson [2011] the test in Sella was examined again. This time the lease said that the service charge included “the fees charges... and expenses... of professional advisers” engaged in “the enforcement... of any covenants... relating to any unit... in the interests of good estate management”.
This was held by the Upper Tribunal (Lands Chamber) to be sufficiently clear and unambiguous because: ·
- The recovery of legal costs was in the interests of good estate management because otherwise there would not be enough money; ·
- The primary method of enforcement of covenants is properly legal proceedings and it is normal to instruct lawyers (even though the words legal costs or costs of legal advisers do not appear in the lease).
The Plantation case shows that it is not fatal if there is no express reference to legal costs, as long as this is a fair interpretation of the lease.
The Plantation case also looked at section 20C of the Landlord & Tenant Act 1985. This provides that a tenant may apply for an order that the costs incurred by a landlord in connection with court or tribunal proceedings are not to be recovered as service charges.
The judge quoted the unreported case of Tenants of Langford Court v Doren Ltd [2001] 5th March, Lands Tribunal.
The court stated in this case that this provision is a power to deprive a landlord of a property right and is therefore something to be used “with justice and equality” to chastise a landlord who has abused or used his rights oppressively and should not be “turned into an instrument of oppression”.
In the Plantation case the judge went a step further by highlighting the importance of giving some weight to the risks of insolvency for a management company deprived of costs.
Provided landlords and management companies take the above into account when drafting leases, they may well recover their legal costs if the need arises.
Claire Hitchman is Senior Solicitor at Blake Morgan
