Solomon Unsdorfer v Octagon Overseas Limited & Ors

A management order must be construed as a whole and in its statutory and factual setting. A provision allowing a tribunal-appointed manager to recover litigation costs through service charges does not, without clear words, impose additional liabilities on commercial tenants who were not parties to the appointment proceedings.

Commercial tenants may contribute only to costs connected with shared services, where the order and their leases limit their service-charge obligations to those services. Costs recoverable under a clause concerning enforcement proceedings include the original appointment proceedings and the manager’s applications for directions under section 24(4), provided the manager has made reasonable efforts to recover them by any available alternative route.

The appellant was the manager of a mixed residential and commercial estate, appointed by the First-tier Tribunal under Part II of the Landlord and Tenant Act 1987. He sought clarification of a management order concerning his ability to recover litigation costs from commercial tenants through service charges.

In decisions dated 13 May and 27 July 2022, the First-tier Tribunal held that commercial tenants could be charged only for litigation costs connected with shared services and subject to specified conditions. The manager appealed, contending that paragraph 27 of the order also permitted contributions towards wider costs, including costs incidental to proceedings under section 24.

The central issue was the proper construction of the order’s litigation-cost provisions when read together with its limits on the manager’s functions in relation to commercial premises.

1. Appeal dismissed. Although the Upper Tribunal did not wholly agree with the First-tier Tribunal’s reasoning, its conclusions were consistent with both First-tier Tribunal decisions.

2. The management order had to be read as a whole. Clause 4(i) empowered the manager to litigate in connection with the order and residential leases generally, but confined litigation concerning commercial leases and occupational agreements to shared services. Clause 4(j)’s indemnity from the service-charge account meant a right to collect a service charge for litigation costs; it did not identify an unrestricted fund from which the manager could draw.

3. The First-tier Tribunal had power under section 24(1) of the Landlord and Tenant Act 1987 to confer functions beyond lease terms, as explained in Maunder Taylor v Blaquiere [2003] 1 WLR 379. But no clear term of this order imposed further payment obligations on commercial tenants, who had not been parties to the appointment proceedings. The order instead allowed the manager to collect from them only service charges which their leases required for shared services.

4. Paragraph 27 covered costs of proceedings to enforce lease terms. The original section 24 appointment proceedings fell within that description. So did later applications by the manager for directions under section 24(4), and participation in applications under section 24(9) to vary or discharge the order. The phrase “of and incidental to” did not substantially enlarge the primary subject of recoverable proceedings: LB Tower Hamlets v Khan [2022] EWCA Civ 831 applied.

5. Before charging a shortfall through service charges, the manager had to use reasonable efforts to recover costs from the party concerned by any available route. Where no order or contractual right could yield costs, reasonable efforts could be satisfied by considering the order and relevant leases and concluding that recovery was unavailable.

6. Accordingly, commercial tenants could contribute under paragraph 27 only where the proceedings concerned shared services, the costs were enforcement costs, and the manager had unsuccessfully pursued available alternative recovery. Most other litigation costs remained recoverable from residential service charges only.

• Upper Tribunal (Lands Chamber): dismissed the manager’s appeal and upheld the First-tier Tribunal’s conclusion that commercial tenants’ contributions to litigation costs were confined to proceedings concerning shared services.
• First-tier Tribunal (Property Chamber): in decisions issued on 13 May and 27 July 2022, interpreted the management order and gave further clarification concerning particular proceedings.