Legal costs and service charge in the Upper Tribunal (Lands Chamber)

In the case of Sinclair Gardens Investments (Kensington) Ltd v Avon Estates (London) Ltd the Upper Tribunal (Lands Chamber) held that legal costs incurred in previous tribunal hearings could not be recovered by the landlord as part of the service charge costs.

The facts in Sinclair Gardens Investments (Kensington) Ltd v Avon Estates (London) Ltd (2016)

Sinclair Gardens Investments (Kensington) Ltd (Sinclair Gardens) was the landlord in this case and Avon Estates (London) Ltd (Avon Estates) was a tenant. Sinclair Gardens and Avon Estates previously had proceedings in front of the First-tier Tribunal in 2010 and 2011. Sinclair Gardens attempted to recover the total sum of £10,112.40 in legal costs from its tenants via the service charge provisions under the lease.

The only issue left to be considered by the Upper Tribunal was whether Clause 6 (A) of the lease was broad enough to encompass the costs of instructing solicitors and counsel in the tribunal proceedings.

Clause 6 (A)

Clause 6 (A) of the lease imposed on the landlord a duty to manage and gave it power to appoint managing agents, to employ a range of persons, including solicitors, and to delegate any of its functions. Further, it allowed the landlord to select solicitors “properly required to be employed in connection with or for the purpose of or in relation to the estate and the Block or any part thereof”.

Sinclair Gardens argued clause 6 (A) expressly stated that the costs for employing solicitors were recoverable from the tenant, because part (ii) of clause 6 (A) did not explicitly say that solicitors were only to be employed for the purposes of managing the estate. As a result, it was argued, the clause could be construed widely enough to include the costs of employing solicitors to conduct tribunal proceedings.

Avon Estates agreed that in certain circumstances, during the ordinary course of managing the estate, litigation costs could be recovered, but that in this case, the full structure of the lease should be considered, which, when read as a whole did not allow the recoverability of the costs.

The decision at first instance

The First-tier Tribunal initially found that the clause 6 (A) was broad enough to allow the landlord to recover the legal costs incurred. However, following an application to appeal, the Tribunal notified both parties that its decision would be reviewed following the case of Union Pension Trustees Limited v Slavin.

The decision in the Upper Tribunal

The Upper Tribunal held that the only legal costs that could be recovered from the tenant were those incurred in the “ordinary course of the management of the estate.” In addition, clause 6 did not mean the landlord could instruct solicitors for any purpose and recover the costs from the tenant. As the costs did not qualify as those incurred in the ordinary course of the management of the estate, the appeal was dismissed.

In holding that legal costs were not recoverable, the Upper Tribunal considered that although the clause made explicit reference to solicitors, the recoverable solicitors fees were only those relating to their employment for the purposes of the management of the estate.

The Upper Tribunal agreed with Avon Estates namely, that as to whether or not litigation costs are recoverable via the service charge the whole lease must be considered, not just one clause. As there were more specific provisions elsewhere, the general wording of clause 6 (A) did not impose liability on the tenant the costs of litigation. In order for legal costs to be recovered under a general service charge clause, it must be clear from the wording that this is the intention.

Landlords should seek legal advice to ensure tenancy agreements are drafted in such a way so as to entitle the landlord to recover legal costs by way of the service charge.

For further information, please contact the Real Estate Disputes Team at Hamlins.