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Geyfords Limited v O’Sullivan [2015] UKUT 683 (LC): Landlord Unable to Claim Legal Costs

Summary: A landlord was not able to claim legal costs under a sweeping up clause which entitled the landlord to recover expenses incurred “in and about the maintenance and proper and convenient management and running of the Development”.

Facts: The landlord incurred professional costs in both County Court and LVT proceedings and subsequently sought to recover a contribution towards them through the service charges for the three accounting years from 2011 to 2014. The lessee covenanted to contribute a sum called “the Maintenance Contribution” which was to be one-twelfth of the “costs expenses outgoings and matters” mentioned in the Fourth Schedule. Para 6 of the Fourth Schedule refers to: “All other expenses (if any) incurred by the Lessors or their managing agents in and about the maintenance and proper and convenient management and running of the Development.”

As a preliminary issue, the FTT determined that legal costs were not recoverable under para 6 of the Fourth Schedule. The landlord appealed.

Decision On Appeal: The UT (Martin Rodger QC, Deputy President) reviewed a number of authorities on the recovery of legal costs, including Reston Ltd v Hudson [1990] 2 EGLR 51 and Sella House Ltd v Mears [1989] 1 EGLR 65, in the light of the Supreme Court’s recent decision in Arnold v Britton [2015] UKSC 36, a case which itself concerned the construction of service charge provisions. In Arnold v Britton Lord Neuberger held that no special rule of interpretation applied to service charge clauses but found no difficulty in approving Rix LJ’s observation in McHale v Earl Cadogan that “the court should not “bring within the general words of a service charge clause anything which does not clearly belong there”.” In the instant case, the Deputy President held that the language of para 6 was “less clear than [was] to be expected if the cost of proceedings against defaulting leaseholders had been intended to be recovered as costs and expenses of “proper and convenient management and running of the Development”.” Moreover, the President held that “commercial common sense would lead one to expect the employment of clear language to impose onerous and unpredictable burdens.” Accordingly, the landlord’s appeal was dismissed.

Comment: This is an important case on the recovery of legal costs under a sweeper clause. For many years, the courts and tribunals adopted a restrictive approach to the construction of service charge clauses (e.g. Sella House, culminating in Rix LJ’s comments in McHale v Earl Cadogan). In recent years, it appeared that the courts were adopting a more relaxed approach (see Assethold v Watts – also a decision of the Deputy President), making it more likely that a landlord could recover legal costs under a sweeper clause. That trend looked set to continue following the Supreme Court’s decision in Arnold v Britton. This case, however, marks a retreat to the old approach that legal costs will not be recoverable through a service charge in the absence of clear words. 

 

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