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In the late 1970’s, it was standard practice for the payment of service charges to be enforced by the freeholder issuing proceedings seeking forfeiture of the lease (and thereby the property) in the County Court. Forfeiture would be avoided by the leaseholder (or the mortgagee) paying not only what was owed but the landlord’s legal costs on an indemnity basis rather than a standard basis. The difference between the two is that when costs are to be paid on the standard basis, the court only allow costs which are proportionate to the matters in issue. Any doubt they hold as to whether the costs are reasonably incurred or reasonable and proportionate in amount will be resolved in favour of the paying party. When costs are to be paid on the indemnity basis, when the court is assessing the amount to be paid, it will resolve any doubt whether costs were reasonably incurred or reasonable in amount in favour of the receiving party.

At that time it was not expected that the landlord should incur any legal costs and so a ‘sweeper clause’ was interpreted on the basis that there would be no need to recoup them through the service charge.

In the case of Fairbairn v Etal Court Maintenance Ltd [2015] the Upper Tribunal found that whilst the ‘sweeper clause’ can be used to cover unspecified costs incurred in the proper management of the block (including legal costs), it was not there to cover legal costs incurred by the landlord as a consequence of breaching its own repair covenant. Therefore those costs could not be re-charged to the lessees by way of the service charge account.

So, whilst the freeholders legal costs can be recovered through a sweeper clause, they can’t if these costs arise because they have breached their own covenant.

 

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