Landlord and tenant – Service charge – Legal costs – Appellant landlord incurring costs in party wall dispute – Whether entitled to recover costs from respondent lessees through service charge – Whether cost of counsel and solicitors in legal proceedings recoverable in addition to surveyor’s fees – Interpretation of lease – Appeal allowed
The respondents were the lessees of flats in a building owned by the appellant landlord. The flank wall of the building lay on the boundary of the appellant’s property, abutting a cleared site that, in 2011, was awaiting development. The owner of that site served notices, under the Party Wall etc Act 1996, of its intention to carry out works on the boundary in connection with the development of the site. Thereafter, surveyors were instructed under the statutory party wall process and party wall awards were issued. In addition to appointing a surveyor, the appellant incurred legal costs in seeking and obtaining an injunction against the site owner, to prevent it from continuing with works to the site until agreement was reached on a party wall award, and in pursuing to the Court of Appeal a procedural issue on a challenge advanced by the site owner to the award ultimately made (see Freetown Ltd v Assethold Ltd [2012] EWCA Civ 1657; [2013] 1 EGLR 57; [2013] 11 EG 82).
The respondents applied to the leasehold valuation tribunal (LVT), under section 27A of the Landlord and Tenant Act 1985, for a determination of whether the appellant was entitled to recover its costs of the party wall proceedings from them through the service charge. The appellant contended that such costs were recoverable by reference to the landlord’s general repairing and maintenance obligation contained in the First Schedule to the leases. Alternatively, it argued that they fell within para 6 of the First Schedule, so far as this obliged the appellant to “do or cause to be done all works installations acts matters and things as in the reasonable discretion of the Landlord may be considered necessary or desirable for the proper maintenance safety amenity and administration of the Development”, or within the Second Schedule, where it referred to “The “proper fees and disbursements… of the Surveyor the Accountant and any other individual firm employed or retained by the Landlord for (or in connection with) such surveying or accounting functions or the management of the Development purposes of assessing the full cost of rebuilding and reinstatement and any individual firm providing caretaking or security arrangements and services to the Development”.
The LVT determined that the appellant was entitled to recover the costs of employing a surveyor in connection with the party wall dispute but not the cost of employing solicitors and counsel in the same dispute. It held that the former, but not the latter, fell within para 6 of the First Schedule or within the Second Schedule. The appellant appealed.
Held: The appeal was allowed.
No special rules of construction applied to provisions for the recovery of service charges, which instead fell to be construed in accordance with the ordinary rules of contractual interpretation. As a matter of broad principle, one would expect payment obligations to be clearly spelled out, since they were important provisions for both parties and one would not expect either party to be content with ambiguity. Unclear language should therefore be read as having a narrower rather than a wider effect. However, that was not a derogation from the ordinary principles of interpretation but rather an application of those principles. The service charge provisions had to be examined in their context, against all the admissible background and in the light of the apparent commercial purpose of the clause, in order to decide what they meant and how they operated: Arnold v Britton [2013] EWCA Civ 902; [2013] 3 EGLR 37 [2013] EGILR 25 and Philips v Francis [2014] EWCA Civ 1395; [2014] PLSCS 300 applied.
The legal costs of the party wall dispute could not be recovered by reference to the appellant’s obligation as landlord to maintain and repair the building. Those costs could not be described as costs incurred in, or incidental to, providing the service of maintaining and keeping the building in repair. To repair involved undertaking work to restore the subject of the covenant to a former condition from which it had deteriorated, while to maintain involved preserving a functional condition by acts of maintenance performed on or to the thing to be maintained. In neither case was the expression apt to describe a process or activity remote from the thing to be repaired or maintained. A building could not be repaired or maintained by providing legal services at a distance. Moreover, as a matter of ordinary language, the risk against which maintenance was directed was a risk of deterioration through use, rather than injury or damage caused by the exceptional activity of another such as the site owner. It was further relevant that the appellant covenanted affirmatively to perform the obligations contained in the First Schedule. It would be surprising for a landlord to covenant in terms that positively obliged it to commence proceedings against a neighbouring owner, especially where individual lessees, with a more valuable interest to protect, were able individually or collectively to take action on their own behalf.
The LVT had also correctly concluded that only the surveyor’s fees, and not legal costs, were included in the additional expenditure recoverable under the Second Schedule. The scope of that expenditure seemed to be limited to the fees of surveyors and accountants performing the three functions identified. Those functions, surveying, accounting or management of the development, were not apt to encompass legal services, The final reference to “caretaking or security arrangements and services” was a composite expression covering caretaking arrangements and services and security arrangements and services, rather than referring to “services” in general. In any event, litigation against a third party was not properly regarded as a service.
However, the appellant’s legal costs could be recovered under para 6 of the First Schedule. Although the words of para 6 were general, they were sufficient to encompass the landlord taking professional advice prior to deciding what course of action to follow in order to preserve the safety and amenity of the building. The language was not limited to carrying out work to the building itself, because the acts matters and things covered included those for administration as well as for safety, amenity and maintenance. The activities within the scope of the paragraph were widely expressed, extending to “all works installations acts matters and things” for the specified purposes. Those purposes were described in broad terms by reference to their general character. The principle that unclear language should be read as having a narrower rather than a wider effect should not be pushed to the point where language that was clearly intended to encompass expenditure in a wide variety of situations, which the parties had not explicitly catalogued, should be so restrictively construed as to deprive it of any real effect. A general provision such as para 6 was included in a lease precisely because the parties appreciated that they could not anticipate all eventualities; para 6 was intended to allow for the recovery of such unanticipated expenditure through the service charge so long as it was for the proper maintenance, safety, amenity and administration of the building. It would be wrong in principle to start from the proposition that, with certain types of expenditure such as legal costs, specific wording had to be employed and no amount of general language would be sufficient to demonstrate an intention to include that expenditure within the scope of a service charge. Language could be clear even though it was not specific.
The general language of para 6 of the First Schedule was sufficiently clear to entitle the appellant to recoup through the service charge the cost of engaging solicitors to take steps which, in themselves, were agreed to have been reasonable, to ensure that the protection afforded to the building by a party wall award under the 1996 Act would not be lost. Those steps could appropriately be described as having been taken for the proper maintenance, safety, amenity and administration of the building. There was nothing in the context or commercial purpose of the leases to suggest that the preservation of the building from external interference ought not to be the responsibility of the landlord: Gilje v Charlegrove Securities Ltd [2001] EWCA Civ 1777; [2002] 1 EGLR 41 and Sella House Ltd v Mears [1989] 1 EGLR 65 distinguished.
Philip Sissons (instructed by Conway & Co, of Henley-on-Thames) appeared for the appellant; Justin Bates (instructed by Blake Morgan LLP, of Eastleigh) appeared for the respondent.
Sally Dobson, barrister
