Andrew Lawson Dell & Anor v 89 Holland Park (Management) Ltd

Service charge clauses are construed by identifying the parties’ objective intention from the words used, the lease as a whole, its purpose, relevant background and commercial common sense. There is no special rule requiring restrictive construction, but general words should not be extended to expenses that do not clearly belong within the clause.

A clause requiring expenditure for the proper maintenance, safety, amenity or administration of a building may cover professional costs needed for practical upkeep. It does not, without sufficiently clear wording, make leaseholders liable for the landlord’s costs of defending litigation brought by a third party or objecting to a neighbour’s planning application. Express provisions elsewhere in the lease dealing with particular litigation costs, and the practical focus of the relevant covenants, are important contextual indicators.

The appellants were long leaseholders of a flat at 89 Holland Park. They appealed from a First-tier Tribunal decision holding that service charges totalling £430,411.50 were recoverable under the lease. The charges represented the freeholder’s costs in defending proceedings brought by the owner of adjoining land and in objecting to that owner’s planning application.

The appeal concerned whether those costs fell within clauses requiring payment of expenditure incurred in performing the landlord’s covenants, including provisions concerning professional persons and works or matters necessary or advisable for the building’s maintenance, safety, amenity and administration. Reasonableness was a separate issue, relevant only if the charges were recoverable under the lease.

1. Appeal allowed. The appellants were not required to pay as service charges the respondent’s costs of defending the Second and Third Claims or of objecting to the planning application.
2. The relevant approach was that stated in Arnold v Britton [2015] UKSC 36. The lease had to be construed objectively, having regard to the natural and ordinary meaning of the words, other relevant provisions, the purpose of the clause and lease, the relevant background known to the parties, and commercial common sense. Service charge clauses were not subject to a special rule of restrictive construction. Nevertheless, expenditure should not be brought within general words unless it clearly belonged there.
3. Clause 4(4)(g)(ii), requiring the employment of professional persons for the proper maintenance, safety and administration of the building, could cover professional advice needed for practical upkeep, such as specialist advice concerning a damaged roof. Clause 4(4)(l), the so-called sweeper clause, could not be read as extending the landlord’s obligations beyond that focus.
4. The surrounding covenants concerned the practical management and upkeep of the building. The lease separately made express provision for certain litigation costs. The purpose of clause 4(4) was to fund the landlord’s obligations as landlord, not its wider interests as freeholder. The relevant provisions therefore did not clearly encompass litigation against a third party or opposition to a neighbour’s planning application.
5. Assethold Limited v Watts [2014] UKUT 537 (LC) was materially different because it concerned an immediate physical threat to a party wall and actual damage caused by the neighbour’s works. No decision was made on what level of threat or damage might bring litigation within a similar clause. The Tribunal also considered that planning objections would not fall within the clause on the facts presented.
6. The respondent’s entitlement to refuse consent and defend the proceedings, its legitimate motives, and the reasonableness of the expenditure did not determine whether the lease imposed a service charge liability. The decision left open any different basis on which the appellants might be liable.

• First-tier Tribunal (Property Chamber): held that the disputed charges were recoverable as service charges and reasonable. The decision citation was not stated in the judgment.
• Upper Tribunal (Lands Chamber): allowed the appeal on construction of the lease. The Tribunal did not hear the alternative reasonableness grounds.