Sinclair Gardens Investments (Kensington) LTD v Avon Estates (London) LTD (2016) [2016] UKUT 317 (LC)

A landlord of residential property, Sinclair, has been denied the ability to recover legal costs from its tenant, Avon, under the service charge clause in its lease.

Sinclair had incurred costs in proceedings against Avon which went before the First Tier Tribunal (“FTT”) in 2010 and 2011. It argued that those costs were payable by Avon under the service charge provisions in the lease which anticipated the recovery of solicitors’ cost. Sinclair had argued that, unlike other clauses within the service charge provisions, the clause in question did not make a reference to solicitors’ costs incurred in management of the estate. As such the clause should be read wide enough to include solicitors’ costs in conducting proceedings.

The Upper Tribunal found that, on proper construction, the particular service charge clause was not intended to impose a liability on the tenant for the costs of litigation.

In dismissing the landlord’s appeal and upholding the FTT’s decision, the tribunal considered two 2015 authorities in particular: the case of Arnold v Britton guided it on the principles of interpretation of written contractual provisions, and the case of Union Pension Trustees Limited v Slavin was concerned with the recovery of legal costs pursuant to a service charge provision.

Sinclair had argued that the Slavin case should not have influenced the FTT so strongly as, in that case, there was in fact no reference at all to solicitors’ or legal costs in the service charge provision and it had been relevant that other clauses in the lease on the recovery of costs made express reference to ‘professionals’ and / or to solicitors’ and counsels’ fees incurred in legal proceedings. Whilst the tribunal agreed that the FTT may have given disproportionate weight to the result in Slavin it considered the FTT’s exercise of construction and its following of the reasoning in Slavin to be sound.

Key points

  • Whilst there is no hard rule that use of general words in a service charge clause prevents recovery of legal costs, in order to be certain, an obligation to pay solicitors’ costs under the service charge provision should be clearly spelt out. If those solicitors’ costs are to include litigation costs then that should equally be made clear.
  • Absent an obligation to pay costs under the service charge provisions, the parties will be safer to look to any other costs covenant in the event the costs are recovered/ payable under those provisions.
  • Remember that, even where the lease makes provision for recovery of costs as part of the service charge, the FTT can nevertheless override the provision by order under s20C of the Landlord and Tenant Act 1985.
  • Interestingly Avon had cross appealed arguing that Sinclair could not in any event bring these proceedings as they had transferred their management functions to an RTM company in 2013. As Sinclair’s appeal was dismissed there was no need for the tribunal to consider the point but did remark that it was surprised that this interesting and difficult point had not been decided in any previous case.