Assethold Limited v Watts [2014] UKUT 0537 (LC)

This decision should serve as a warning to tenants of the potentially wide ambit for recovery of legal costs by a landlord through the service charge provisions of a lease.

The background was the landlord’s unsuccessful claim against a developer over construction work to a party wall.  That left the landlord facing an adverse costs order of £60,000, which it then sought to recover from its tenants through the annual service charge.

The leases 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 Upper Tribunal (Lands Chamber) held that the recoverable costs of repair and maintenance to the property would not normally include costs of an activity as remote as seeking legal advice on it. The wording of the second general provision, however, wassufficiently clear and wide to allow the landlord to recover the cost of seeking professional advice on issues, prior to deciding what course of action to follow, in order to preserve the safety and amenity of the building. 

In the court’s view, if parties intend a payment obligation to cover a particular type of expenditure, then the lease should make that clear.  However, general provisions can also be used where parties cannot anticipate all eventualities, and use of such clauses should not limit a party to recover only the few listed examples.  Language is capable of being clear even where it is not specific.

This decision will be particularly worrying for tenants currently involved in potential disputes alongside their landlords against third parties.  In this case, although the tenants instructed their own independent experts and settled their issues with the developer at a much earlier stage, they were still obliged to pay the landlord’s costs of continuing the dispute, as its actions were considered to be reasonable.

As in all service charge disputes, the interpretation of the wording used in the particular lease was crucial.  The lesson that broad, general wording can still be sufficiently clear to cover expenditure of this type is one well worth absorbing.