A common issue in residential block management is the extent to which costs of different types can be recovered by a landlord, from its tenant[s], via the service charge. Two cases from the last month address the issue. Both will represent helpful future authority for landlords, tenants and property managers.

Tower Hamlets LBC v Lessees of Maltings House and Brewster House

In the recent Tower Hamlets [1] case, the Upper Tribunal (UT) refused to allow the cost of works to remedy structural defects to be included in the service charge.

The works in question were to remedy structural defects caused by the large panel system in the construction of the two blocks of flats. The works were necessary to make the building safe in case of abnormal loading.

The landlord submitted that the works were payable by the tenants as part of the service charge under the clause relating to maintenance; under the clause relating to safety; or because they fell within the definition of ‘Total Expenditure’ in the service charge ‘sweeping up’ [2] provision. (The relevant clauses included wording typical of many residential long leases.)

The UT concluded that neither a covenant to repair, nor a covenant to maintain, was a covenant to repair structural defects. Nor were they covenants to make safe a building that wasn’t safe when it was built.

The UT also found that such a potentially huge cost couldn’t be charged under the general sweeping up clause. Express wording would be needed. The UT explained that it’s not appropriate to read a sweeper clause literally, as including absolutely anything that a landlord might reasonably and properly do in connection with a building. Instead, such a clause takes the scope of the service charge beyond what the landlord is obliged to do under specifically stated obligations, but not to the extent of including potentially open-ended and ruinously expensive costs. That would still less be the case where, as here, the tenants’ obligation to pay would be derived merely from the words of a definition within the clause.

Thanet Lodge (Mapesbury) RTM Co Ltd v Mirchandani

The Mirchandani [3] case was concerned with recovery of landlord’s legal costs via service charge provisions.

The relevant wording was fairly standard. It entitled the landlord to recover the costs of managing agents and chartered accountants and “such other person who may be managing the Building”, or those of “such surveyors, builders, architects, engineers, tradesmen accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the Building”. The relevant sweeper provision entitled the landlord to recover a specified percentage of the ‘Total Expenditure’ (as defined) of any “costs and expenses reasonably and properly incurred in connection with the Building”.

The issue was whether such wording allowed the landlord to recover its legal fees and mediation costs of a lease dispute. The UT concluded it didn’t. Itrecited law from previous cases [4], which stated: “a clause concerned with management, or with the provision of services, does not enable the landlord to recover through the service charge its legal costs in a dispute with any of its tenants”; and it also stated ” it is unlikely that the parties… would have contemplated the [sweeper clause] to include something quite different, namely legal and mediation costs, from what had already been specified.”

The other issue considered was whether the costs of advice in relation to the constitution of the RTM company could be recovered from the tenants. The UT decided that they couldn’t. It said those costs were not contemplated by the original parties to the lease, because the right to manage legislation hadn’t been enacted at the time they signed the lease. The UT also said there was no reason why the cost of the running a company, of which not all leaseholders were members, should be an expense charged to all of the leaseholders.

Residential block management and service charge disputes

Walker Morris’ specialist Block Management team has extensive experience and particular expertise in helping developers, landlords, RTM companies, resident management companies and block managers to successfully look after all aspects of their residential long lease portfolios. For further information, training or advice in connection with block management and/or any service charge dispute, please contact Karl Anders, Pawan Pandit or Asia Munir.

[1] [2024] UKUT 193 (LC)

[2] See our earlier briefings on service charge ‘sweeping up’ (or ‘sweeper’) provisions: Service charges and sweeper clauses; Recovering costs via service charge ‘sweeper’ clauses: Landlords beware!

[3] [2024] UKUT 205 (LC)

[4] No. 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2021] EWCA Civ 1119 and Kensquare Ltd v Boakye [2021] EWCA Civ 1725