[2025] UKUT 232 (LC)

The heart of the question here is whether legal costs are included within, or “ancillary” to, the concept of management. The majority of the Court of Appeal and Upper Tribunal decisions have said they are not. The Court of Appeal said they were not in Sella House on identical wording except that in Sella House the additional words about “ancillary costs” was not present and there was a further sub-clause relating to the employment of professionals.

The extra sub-clause in Sella House required the landlord:

“To employ all 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.”

What is conspicuous by its absence there is any mention of lawyers. The omission of an express reference to “surveyors builders architects engineers tradesmen accountants” cannot be the basis of an argument that clause 5(11) therefore requires the landlord to employ not only those professionals but also lawyers.

The appellant’s argument turns on the words “the ancillary costs in connection therewith”. Those words cannot carry the weight the appellant seeks to place on them. They are not even grammatically clear; as I said above there is a scope ambiguity and it is very much a matter of opinion as to whether these costs are ancillary to the cost of computing and collecting rents or are ancillary to management. I am quite sure they cannot cover litigation, because litigation is not “ancillary” to management – the word implies something incidental and subordinate, whereas litigation is a step beyond management.

In Thanet Lodge (Mapesbury Road) RTM Company Limited v Mirachandahi [2024] UKUT 205 (LC) I said this at paragraph 28:

“In both No. 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2021] EWCA Civ 1119 and in  Kensquare Ltd v Boakye [2021] EWCA Civ 1725 the Court of Appeal had to decide whether a similarly worded clause encompassed a charge for legal costs incurred in a dispute with the tenant who contested the charges, and came to the same conclusion: 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.”

I remain of that view; the costs in the landlord’s categories (iii) and (iv) cannot be recovered as part of the service charge. That applies to costs incurred in proceedings against leaseholders; it is even more applicable to disputes with third parties..

I would add that the parties had turned their minds to the cost of litigation, and included clauses 5(12) and 3(7). That is not conclusive in favour of there being no legal costs within clause 5(11); but it does indicate that the parties were well able to be clear and unambiguous about legal costs when that was what they meant.

As to the costs in the landlord’s first two categories, the second is expressly related to litigation and to disputes with other leaseholders and I take the view that it is indistinguishable from the litigation costs in category (iii) so far as the construction of the clause is concerned. Costs in the second category are not recoverable.

As to the first category, it is not clear to me what “general legal advice on the management of the building” means. The FTT referred to “routine legal advice”, and it seems to me that legal advice is not taken as a matter of routine in very many contexts and certainly not in this one. In fact, in the schedule setting out and describing the various components of the £55,492 in dispute, there are several items listed as belonging to category (i) and/or (ii), but none listed as category (i) alone. That is not surprising; routine management does not require legal advice; management of course is not always routine, things go wrong, and disputes happen, but advice about the recovery of rent and service charges will inevitably involve discussion of litigation and advice about steps preparatory to it. Hence the items linked with category (i) and/or (ii) include advice about service charges, and “extensive advice about service charge matters and pursuing MT”, as well as the cost of obtaining leases from the Land Registry (which does not by itself require legal advice) and work on the analysis of the leases which in context appears to be related to the ongoing disputes. None of the descriptions appear to me to relate to “general legal advice on the management of the building”; all seem specifically to arise from the extraordinary situation of conflict and litigation in which this property is embroiled.

I would not rule out the possibility of “general legal advice on the management of the building” being recoverable under this clause if the advice was truly general and non-contentious, but in the present case the appellant has not provided any example – among the items claimed or by way of hypothetical example – of legal expenses that would be recoverable under this clause.