Recovery of Legal Expenses Through Service Charge – ASSET HOLD v WATTS (2014) UKUT0537(LC)
Recovery of legal expenses through the service charge may now be permitted further to a decision of the Upper Tribunal (Lands Chamber), which has overturned the decision of the Leasehold Valuation Tribunal and which now holds that a residential landlord was entitled to recover legal expenses it had occurred in dealing with a party wall issue as an item of the service charge.
The landlord held a head lease for 999 years of the building and there were 13 long leases held by the tenants. Party wall works were required to the adjoining land and a developer served direct notices on the landlords and tenants. The tenants appointed their own building surveyor, refusing the landlords suggestion to use the same building surveyor. The tenants reached an early settlement with developer’s surveyor, but the landlord and the developer ended up in protracted litigation, which resulted in a significant legal and surveyor’s bill. The landlord then attempted to recover those expenses via service charge, to which the tenant’s response was to seek a determination under Section 27a of Landlord and Tenant Act 1985.
In the head lease, there was a ‘sweeper up clause’ allowing other expenses incurred by the landlord to be recovered via the service charge and the Upper Tribunal held that the landlord was able to recover legal expenses by using this particular wording of this particular clause.
Whilst this case turned on the interpretation of the wording of this particular lease, it does illustrate how the wording of the charging provision was examined in its context and against all background and in light of the commercial purpose of the clause. It also illustrates that normal rules of contractual interpretation apply to leases and their service charge clauses. This is not to say that running every particular legal expense via service charge will work it will depend on the wording of the clause which needs to be examined very particularly before attempting to do so but in general this is good news for landlords.