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Dispute resolution costs: the definition of Total Expenditure
Dispute resolution costs: the definition of Total Expenditure
It will be recalled that the Fifth Schedule defines the “Total Expenditure” that determines the amount of the service charge; the text is set out at paragraph 7 above. The appellants rely in particular upon the words “and any other costs and expenses reasonably and properly incurred in connection with the Building”.
Exactly the same words were considered by the Court of Appeal in Holland Park Management Company Limited v Dell [2023] EWCA Civ 1460, where the issue was whether the management company could recover through the service charge the costs of litigation against a third party in a dispute about a restrictive covenant and planning – obviously rather different costs from those in issue in this appeal, but again the Court of Appeal had to consider how far the definition of “Total Expenditure” could extend the leaseholders’ liability beyond what was contemplated in the rest of the lease (which did not enable the landlord to make that charge). Falk LJ at paragraph 64 said this:
“The relevant context includes not only the list of items that follows the words relied on but clause 4(4) itself (to which reference is made in the first part of the definition) and the other provisions of the Lease to which I have referred. The factual matrix also remains the same. Further, the wording is contained within a definition rather than forming part of what might be considered to be the substantive provisions of the Lease. It is inherently unlikely that the parties would have intended to include an obligation to fund uncertain but potentially significant costs of a planning-related dispute with a neighbour within general wording in a definition in circumstances where extensive and specific provision is made for the types of costs that may be included in the service charge both by the preceding words that cross-refer to clause 4(4) and by the list of items that follows.”
Clause 4(4) in that lease set out the landlord’s covenants, as does clause 5(4) in the present appeal. Obviously the charge in issue here is a different one, as it relates to litigation costs incurred against leaseholders rather than third parties, and the amounts likely to be at stake are probably smaller. Nevertheless the relevant considerations are the same: the definition has to be looked at in the context of the rest of the lease and of the landlord’s obligations set out in clause 5(4); it is unlikely that the parties to the lease would have contemplated the extension of the service charge by this definition to include something quite different, namely legal and mediation costs, from what had already been specified.
A similar point arose in the Tribunal’s decision in London Borough of Tower Hamlets v Lessees of Brewster House and Malting House [2024] UKUT 193 (LC), where again the need to look at the definition clause in its context was emphasised.
I am mindful of the appellant’s concern that if legal costs are not recoverable through the service charge it will be deprived of legal advice, or will have to seek contributions from its members. That is the result of the absence on the lease of any clause enabling the recovery of such costs, and the members will indeed have to discuss whether they wish to take, and pay for, legal advice whenever the question arises. The landlords in Sella House, in No. 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd and in Kensquare Ltd v Boakye faced the same difficulty.