Recovering costs via service charge ‘sweeper’ clauses: Landlords beware!

Why is Dell v 89 Holland Park (Management) of interest?

This case [1] is significant because it shows the ambit of sweeping up clauses, in the service charge provisions in leases, can be more restricted than you might think.

What practical advice arises?

Many leases contain ‘sweeper’, ‘sweeping up’ or ‘catch-all’, provisions. These aim to bring charges which are not specified, but which the landlord might want to recover from time to time, into the scope of the service charge clause. As with any contractual provision, whether such clauses actually ‘catch-all’ depends on the drafting.

Residential landlords and managing agents shouldn’t automatically assume that all items of service charge expenditure can be recharged to leaseholders using the general wording of a sweeping up clause. In fact, landlords and agents need to exercise real caution where an item of expenditure is not specifically covered in the service charge provisions of a lease.

Dell v 89 Holland Park is the latest in a line of cases considering the correct approach to interpretation of service charge clauses. It highlights the courts’ reluctance to depart from the natural, ordinary meaning of wording, or to imply or impose terms. Although the case doesn’t establish any general principle that service charge provisions should be construed restrictively, landlords are unlikely to welcome its narrow interpretation of the general wording, and the fact that it is an example of a sweeper clause failing to ‘catch-all’.

Landlords should try to make sure that service charge provisions are widely drawn in new or re-negotiated leases, to avoid similar difficulties arising in future.

What happened in the case?

This case concerned 89 Holland Park, in Kensington, London. The landlord owned the freehold to the building. The next door neighbour wanted to construct an underground property, which would be accessed via a glass cube situated above ground level. The freeholder of 89 Holland Park had been involved in litigation with the neighbour in relation to this intended development, and had incurred substantial costs. The freeholder wanted to recover these costs from the owners of the flats in the building, via the service charge provisions in their leases.

The freeholder tried to rely on the following clauses in the service charge provisions of the leases:

To employ all such surveyors builders architects engineers tradesmen solicitors accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the Building

Without prejudice to the foregoing to do or cause to be done all such works installations acts matters and things as in the reasonable discretion of the Lessor may be considered necessary or advisable for the proper maintenance safety amenity and administration of the Building

What did the Upper Tribunal decide?

The Upper Tribunal said that the general words of the clauses didn’t cover instructing legal professionals and expert witnesses in litigation against a third party, nor in connection with an objection to a third party’s planning application. The clauses were concerned with managing and maintaining the building.

The Upper Tribunal went on to say that an obligation drafted in general terms is open to interpretation. The court must decide what specific obligations fall within such a clause. It repeated the principle, derived from Arnold v Britton [2], that the court should not bring within general words something that does not clearly belong there.

The Upper Tribunal said that if the original parties had wanted to include an obligation for the owners of the flats to pay service charges such as those in dispute in the case, then they would have expressly provided for that.

How we can help

Walker Morris’ dedicated Housing Management & Litigation team specialises in advising landlords, management companies, managing agents and leaseholders – especially in relation to service charges and other residential leasehold property management issues.  For further advice, information or training on any aspect of housing management, please contact Pawan Pandit, who will be very happy to help.

[1] Dell and another v 89 Holland Park (Management) Ltd [2022] UKUT 169 (LC)

[2] [2015] UKSC 36 (leading authority on contractual interpretation)