INTRODUCTION
On 22nd November 2021 the Court of Appeal handed down its judgment in the above case. Mark Warwick QC was Leading Counsel for the landlord. The Court of Appeal decided a series of questions as to:
- the machinery relating to the recovery of service charges; and
- the landlord’s ability to recover its legal costs in bringing proceedings in the First Tier Tribunal before suing a tenant.
MACHINERY
- The Court of Appeal has stated that there is a strong presumption against time being of the essence when the machinery for the recovery of final service charges is concerned. This is because “The parties to a lease should not likely be assumed to have intended that a landlord should lose any right to recover service charges for a year” – [33].
- The position is different where interim service charges are concerned. Insofar as there is any presumption against time being of the essence, then this can be displaced by the wording of the lease.
RECOVERY OF LEGAL COSTS
- Many leases include a tenant’s covenant “to pay all costs charges and expenses (including solicitors’ costs and surveyors fees) incurred by the lessor for the purpose of or incidental to the preparation and service of a notice under Section 146 of the Law of Property Act 1925 notwithstanding forfeiture may be avoided otherwise by relief granted by the Court…”. There has been much debate as to whether these words are wide enough to apply to the costs of FTT proceedings, which a landlord must bring if it wishes to serve a Section 146 notice. The Court of Appeal has now resolved the debate in favour of the landlord. The landlord can recover such costs from the tenant.
- In view of this decision, the landlord’s “fallback” argument, that the costs could be recovered from all of the tenants, was not commercially important. However the Court of Appeal decided this point in favour of the tenants. The landlord sought to argue that its costs fell within “the cost of employing such professional advisers and agents as shall be reasonably required in connection with the management of the building”. The Court “on balance” decided that the landlord’s costs of FTT proceedings did not fall within such wording.
OTHER POINTS ARISING IN THE CASE
- In the course of its decision, the Court of Appeal made a number of additional points namely:
- “Comparison with leases which are featured in other cases does not provide a reliable guide to how [this] lease is to be construed” [42]. It was emphasised that each case was “fact specific”.
- “What matters are the words of the covenant. It does not matter what the statutory provisions, if any, might have said at the date when the lease was made” [43].
- “Service charge provisions are not subject to any special rule of interpretation, but the Court should not “bring within the general words of a service charge clause anything which does not clearly belong there”.” [52]
The full judgment can be found here.