Thanet Lodge (Mapesbury Road) & Anor v Arun Mirchandani

Leaseholders are not liable for legal or mediation costs through a service charge unless the lease clearly permits recovery. General wording concerning management, maintenance, safety, administration, or costs incurred in connection with the building must be construed in the context of the lease as a whole. Such wording does not ordinarily extend to dispute-resolution costs, particularly disputes between the landlord or management body and leaseholders. A clause authorising the employment of professional persons may include legal advice in an appropriate context, but the absence of an express reference to lawyers is relevant and the purpose of the clause remains decisive.

The appellant right-to-manage company appealed against the First-tier Tribunal’s determination that legal fees and mediation costs were not recoverable from the respondent leaseholder as service charges. The disputed costs included advice concerning the company’s constitution, legal costs relating to disputes and a compensation claim, advice concerning mediation, and the company’s share of a mediation fee.

The appeal concerned the construction of the lease. The relevant provisions required payment of a percentage of “Total Expenditure” and referred to the employment of managing agents, accountants and professional persons for the maintenance, safety and administration of the building. The central issue was whether those provisions authorised recovery of legal and mediation costs through the service charge.

1. Appeal dismissed. None of the disputed legal or mediation costs was chargeable through the service charge.
2. The costs of advice concerning the constitution, membership and meetings of the right-to-manage company were outside the lease. They were not within the factual circumstances or overall purpose contemplated when the lease was granted, and it was inappropriate to charge non-members for the running of the company.
3. Clause 5(4)(g)(i) concerned managing agents and accountants involved in managing the building and collecting rent and service charges. It did not authorise the use of professionals for every other obligation under the lease. Clause 5(4)(g)(ii), although broader, did not extend to legal advice about disputes with leaseholders on the facts of this case.
4. The identical wording considered in Sella House Ltd v Mears (1988) 21 HLR 147 did not permit recovery of legal costs incurred in pursuing other tenants. The same conclusion applied here, including where the disputes involved the respondent leaseholder. No. 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2021] EWCA Civ 1119 and Kensquare Ltd v Boakye [2021] EWCA Civ 1725 supported the conclusion that management or service-provision clauses do not authorise recovery of legal costs incurred in disputes with tenants.
5. The definition of “Total Expenditure” had to be read with the rest of the lease, including the landlord’s specific obligations. General words referring to costs reasonably and properly incurred in connection with the building did not extend the service charge to the distinct and uncertain category of legal and mediation costs. The reasoning in Holland Park Management Company Limited v Dell [2023] EWCA Civ 1460 was applied.

• Upper Tribunal (Lands Chamber): Appeal from the First-tier Tribunal’s decision dismissed. The Tribunal confirmed that the disputed legal and mediation costs were not recoverable as service charges.