[2025] UKUT 232 (LC)

For the appellant it was argued, as it was before the FTT, that clause 5(11) of the Northwood Hall lease enables the landlord to recover four categories of legal costs:

The sum of £55,492.23 is in dispute, and it is comprised in various items set out in a schedule in the appeal bundle with each item being classified as falling under one or more of the above headings.

The reason for the inclusion of the final category is that the appellant has commenced proceedings against Mr Maunder Taylor to recover sums said to have been spent by him negligently or in breach of trust. Those sums were service charge contributions, which the appellant says Mr Maunder Taylor should not have spent and which should be available for expenditure now; accordingly the appellant takes the view that it is taking this action for the benefit of the leaseholders to save them from further expenditure.

Ms Betts provided a helpful analysis of clause 5(11):

“The Lessor will themselves or alternatively at their discretion employ a firm of Managing Agents

to

manage the Building

and

discharge all proper fees salaries charges and expenses payable to themselves or to such agents or such other person who may be managing the Building

including

the cost of computing and collecting the rents in respect of the Building or any parts thereof

and

the ancillary costs in connection therewith.”

Accordingly, it is argued, there are three explicit categories of recoverable costs:

I can move fairly swiftly through the initial steps in the appellants’ argument because they seem to me to be uncontroversial, even though the respondents did not agree with all of them.

First, Ms Betts agreed with the FTT that the primary focus of the clause is the management of the building. But she stressed the word “including” which, she said – and I agree – means that management is not limited to “the cost of computing and collecting rents.” That much appears to me to be obvious. There is a lot more to management than calculating and collecting rent, and it would be very odd if the clause was so limited.

Further, “management” under clause 5(11), is not limited to routine matters. That that was the case, it was argued, was shown by the fact that the FTT in another section of its decision decided that accountancy project work, carried out in order to reconcile the accountancy records when management of the building was passed back from Mr Maunder Taylor to the landlord. The FTT said, at its paragraphs 74-75, that the question was:

“whether work on the accounts that arises not in the normal course of management, but because of the serious failures of management, can be a cost that can properly be passed onto the lessees under the terms of the lease?

75.

On balance we consider that the cost does fall within clause 5(11). We have no doubt that accountancy costs fall within the contemplation of the clause and although the expenditure can be characterised as being out of the ordinary, that does not change the nature of the expenditure.”

As Ms Betts put it, it is entirely foreseeable that in a building of this size contentious issues will arise and there are no words in clause 5(11) to limit the recoverable costs to non-contentious matters.

Again, it impossible not to agree with that argument.

The next step in the appellants’ argument is that the final words of clause 5(11), “ancillary costs in connection therewith”, refer to costs ancillary to management, rather than ancillary to the costs of computing and collecting rent. The FTT thought the latter:

“70(b) The third part of the clause extends the power to specifically make payment for those management services to include “the cost of computing and collecting the rents…” and “the ancillary costs in connection therewith.” In our view the ancillary costs could properly include, for example, a book-keeper’s fee or an accountant’s fee which would relate directly to the computation and collection of the rents. We do not consider it can support the recovery of a lawyer’s fee which would only be incurred where a lessee or lessees are in default. This is neither mentioned nor can be inferred.”

This is a scope ambiguity where the traditional absence of punctuation makes it impossible to know that the word “therewith” attaches to. Grammatically, either sense would work. The respondent argued that it refers to the costs of computing and collecting rent. For my part I would read those final words as relating to management rather than simply to computing and collecting rent. As the appellants’ say, that is more in keeping with the overall purpose of clause 5(11), with its focus on management; and it is hard to see the point of making special provision for costs ancillary just to one aspect of management. But it is impossible to be sure.

Furthermore, the appellants argue that far from being “very restrictive” as the FTT described it, clause 5(11) is a broad clause. The FTT found that it includes project accountancy work, and even the cost of Directors’ and Officers’ insurance taken out by the RTM company that at one stage was managing the building. I agree that it is not necessarily restrictive; but it remains the case that its focus is on management.

So far, then, I agree with the appellants’ argument.

Where that argument becomes controversial is at its next and crucial step, which is that “ancillary costs” includes the various categories of legal costs that the appellant seeks to recover. It was said in Sella House that clear and unambiguous wording was needed to cover legal costs, and here, says the appellant, is such wording. Moreover, while the lease in Sella House contained separate provision for professional fees “as may be necessary or desirable for the proper maintenance safety and administration of the Building” (clause 5(4)(j)(ii), paragraph 12 above), the absence of such an additional clause in the Northwood Hall lease means that those costs must be included within the “ancillary costs”. The appellant regards all the litigation costs, including those incurred in action taken against Mr Maunder Taylor, as appropriately and properly incurred in relation to the management of the building, ultimately for the benefit of the lessees so as to recover sums that they paid that have been inappropriately spent.

The appellant relies particularly on the Court of Appeal’s observation in 89 Holland Park that litigation costs could be incurred within the clause there in issue. The appellant disagreed with the view that even “routine legal advice” is excluded in the present case, and said that in a building with more than 190 flats it is inconceivable that legal fees in any of its four categories would not be considered a cost of management.

Reference was also made to the FTT’s remarks in refusing permission to appeal, where it gave a further explanation of its decision and pointed out that the costs sought to be recovered “could easily amount to a significant sum”. That, said Ms Betts, was irrelevant. Furthermore, the fact that other clauses (3(7) and 5(12) do expressly contemplate litigation does not mean that 5(11) does not; those clauses provide for “targeted fee recovery” and refer to solicitors’ fees. By contrast, the general management costs provisions in 5(11) do not mention solicitors’ or counsel’s fees because those professionals will not always be needed. But to interpret “the ancillary costs in connection therewith” so as to exclude legal expenses is to deprive them of any real effect (see Assethold v Watts, paragraph 19 above).

For the respondents Mr Whale argued that since the “ancillary costs” are ancillary to the cost of computing and collecting rent, they cannot encompass legal costs. He pointed out that although each case turns on its own facts the clause in the Northwood Hall leases is almost identical to the relevant clause in Sella House and urged the Tribunal to adopt the same construction. It is not, he said, a “clear and unambiguous” provision for such costs. As regards the litigation against Mr Maunder Taylor in particular he pointed out that this is not something for which the landlord has “a clear responsibility under the lease” (referring to Falk LJ’s words in 89 Holland Park, see paragraph 26 above. The recovery of legal costs is not expressly spelled out, nor do legal costs clearly fall within the general words of Clause 5(11). Mr Whale pointed out that legal costs were irrecoverable under the leases in question in all three of the Court of Appeal decisions cited in argument, Sella House, Kensquare, and 89 Holland Park and argued that the Northwood Hall leases were to the same effect.