In Assethold Limited v Watts [2014] UKUT 0537 (LC) the Upper Tribunal (Lands Chamber) held that costs incurred by a landlord in forcing an adjoining property owner to comply with the  Party Wall Act 1996 (“the PWA 1996”) were recoverable from the leaseholders of the affected  building. This is a reminder for tenants currently involved in potential disputes alongside their  landlords against third parties.

The Facts

Assethold Ltd (“the Landlord”) was the head lessor of a block of flats in London. Mr Watts and his  fellow lessees (“the Tenants”) were the leasehold owners of 13 of the 14 flats in the block. The  block’s flank wall was built on the boundary with the neighbouring property which was owned by Freetown Ltd (“the Developer”).

The Developer served notices on the Landlord under Sections 2 and 6 of the PWA 1996, informing them  of its intention to exercise its right to carry out works on the boundary between the two sites as  part of the development of the adjoining land. Notices were also served on the Tenants.

Despite the Landlord’s suggestion for the Tenants and the Landlord to use the same surveyor, the  Tenants instructed their own who reached an early settlement with the Developer’s surveyor and  agreed a party wall award under the PWA 1996.

The surveyor acting for the Landlord found it more difficult to reach an agreement with the  Developer. Before an agreement was reached the Developer commenced works on the adjoining land,  including trial excavation for new foundations adjoining the wall of the Landlord’s building.  Consequently, lengthy and protracted litigation ensued and the Landlord obtained an injunction  against the Developer

The Landlord sought to recover its costs from the Tenants.

The lease contained standard provisions requiring the Tenants collectively to pay for annual expenditure reasonably incurred for providing services,  including repair and maintenance of boundary walls. Crucially, a second general provision extended  the definition of services to include doing “whatever acts were necessary in the reasonable  discretion of the Landlord to preserve the safety and amenity of the building”. The Tenants denied  that litigation with a third party fell within the scope of the clause.

Decision

The Upper Tribunal, overturning the decision of the Leasehold Valuation Tribunal, considered that  the costs in respect of pursuing the litigation against a third party were not recoverable under a  general repairing and maintaining obligation but fell within the general words concerning the costs  of taking steps for the maintenance, safety, amenity and administration of the building. It did not  matter that the clause made no specific reference to legal costs.

In the Court’s view, the proper question was not whether the salient paragraph contained specific  words enabling recovery of the relevant costs, but whether the costs in question had been incurred  for the purposes mentioned in the paragraph. If the costs were incurred in connection with an act, matter or thing done for one of those purposes (proper maintenance, safety, amenity  and administration of the building), the costs were recoverable.

Comments

The decision will be of concern to tenants who are involved in potential disputes alongside their  landlords against third parties.

Although this case turned on the interpretation of a particular lease, it illustrates how the  wording of the charging provision was examined. It shows that the normal rules of contractual  interpretation apply to leases, having regard to the context of the clause and its apparent  commercial purpose, and that there are no special rules of interpretation when interpreting service charge clauses.