Service charges

Section 47 of the Landlord and Tenant Act 1987 and the recoverability of legal costs under a lease.

Summary

The Upper Tribunal determined that the mere fact that the landlord’s demands for payment of an administration charge were not compliant with s.47 of the 1987 Act did not deprive the FTT of the jurisdiction to make a determination under s.27A of the Landlord and Tenant Act 1985. As to legal costs, the Upper Tribunal found that such costs could not be recovered through the service charge under the specific terms of the lease in question.

Facts

Mr Cannon was the lessee under a long lease. The Respondent was his landlord. Mr Cannon had issued proceedings in the FFT relating to the apportionment of the service charges in the block. By the time of the hearing that issue had been resolved and the FTT were only considering matters relating to the various legal and other costs of the proceedings. The Respondent had incurred legal fees of £16,000 in the course of the proceedings but had not served a compliant demand for these sums in accordance with s.47 of the 1987 Act.

The relevant clause of the lease permitted the landlord to recover, under the service charge, the following sums:

“all reasonable costs and expenses incurred by the lessor for the purpose of complying with or in connection with the fulfillment of its obligations under the terms of [the lessor’s covenants]”

“the cost of management of the building including (without prejudice to the generality of the foregoing) all accountancy management agents’ surveyors’ and audit costs and the establishment of such reserved funds as the lessor’s managing agents shall consider reasonably desirable”

Issues

The FTT had to determine whether i) the non-compliance with s.47 deprived it of any jurisdiction to determine whether or not the administration charge was payable; and ii) whether on the proper construction of the lease, legal costs could be recovered under the service charge provisions.

First instance

The FTT determined that the landlord’s legal costs were not recoverable as an administration charge as, by the date of the hearing, no demand compliant with s.47 of the 1987 Act had been served.

Decision on appeal

The Upper Tribunal found that, contrary to the decision below, the FTT had ample jurisdiction to determine that the administration charge was payable despite the fact that the demand did not comply with s.47 of the 1987 Act. It had already been established by previous cases that the failure to comply with s.47 did not render the demand invalid – the effect was suspensory only and the demand becomes due at such a time as the information required under s.47 is furnished to the tenant. The jurisdiction conferred by s.27A of the Landlord and Tenant Act 1985 is a wide one, and the FTT must be satisfied under that section that a demand is payable, but not necessarily that it is payable here and now.

As to legal costs, the Upper Tribunal noted that the value of previous decisions in this area was limited, given the diversity of lease terms considered by the Tribunal in each case. The Tribunal noted the approach to construction laid down by the Supreme Court in Arnold v Britton, and also the dicta set out in cases such as McHale v Earl Cadogan and Sella House v Mears, which states that clear terms are required before legal costs will be held to be recoverable. The Tribunal also considered the case of Assethold v Watts in which it was held that the failure to specifically refer to legal costs in the lease did not of itself preclude recovery of those costs if the clause was drafted widely enough.

On the facts of this case, the Tribunal held that legal costs were not recoverable under the clause in question. It was the Tribunal’s duty to consider the lease as a whole, and whilst legal costs were referred to in some clauses of the lease, they were omitted from this clause. Whilst the fact that legal costs were not expressly mentioned in the clause was not fatal, it was a consideration that the Tribunal must take into account. Further, it would have been a considerable departure from the ordinary meaning of the terms of the lease to hold that the legal costs of dealing with proceedings relating to apportionment fell within the costs of complying with the lessor’s obligations or managing the block.

This case makes it clear that the FTT can still consider the reasonableness etc. of service charge demands despite the demand not being compliant with s.47 of the Landlord and Tenant Act 1987. This will speed up matters where tenants defend proceedings on the basis of an apparent “knock-out” s.47 point. The landlord can still ask for a determination on liability and rectify the non compliance with by furnishing the tenant with notice under s.47(2).

As to legal costs, this is another case that makes it clear that decisions on this topic are decided on their own facts and are of limited precedential weight. However, whilst landlords might once have felt that the decision in Assethold v Watts signified a more relaxed approach by the Tribunal towards the recoverability of legal costs, it is becoming clearer that this is not the case and cases such as Geyfords v O’Sullivan are more likely to be preferred.