Triplark Limited v Martin Howard and 55 Ors

This is an appeal from a decision of the First-tier Tribunal in its jurisdiction under section 27A of the Landlord and Tenant Act 1985 to decide whether service charges are payable under a lease. The application to the FTT was made by 68 leaseholders of flats in Northwood Hall in relation to a number of different charges, but the appeal relates to only one, namely the FTT’s decision that the relevant leases do not enable the landlord to recover legal costs as part of the service charge. The landlord appeals with permission from the FTT; 55 of the leaseholders have taken part in the appeal as respondents and their names are set out at the end of this decision.

The appellant landlord, Triplark Limited, was represented in the appeal by Ms Emily Betts and Mr Cameron Stocks, and the respondent leaseholders by Mr Philip Whale who is one of their number; I am grateful to them all.

The litigation over the management of Northwood Hall is depressingly extensive. There is no need for me to replicate the lengthy accounts of the facts that have had to be provided in a number of judgments in various proceedings. In this appeal, the background facts are irrelevant save insofar as they shed light on the construction of clause 5(11) of the lease, which is the only issue in this appeal.

Suffice it to say that Northwood Hall is a purpose-built residential block built in around 1935 comprising 194 flats of which 159 are held under long leases on near-identical terms, and 35 by the appellant (34 out of its freehold interest and one as a long leaseholder). Over the past decade litigation has raged, between the present parties, an RTM company, the former tribunal-appointed manager Mr Bruce Maunder Taylor, and others. Since September 2019 responsibility for management of the building has been back in the hands of the appellant, and it has appointed its own managing agents.

The present proceedings began in 2022 when 68 individuals, being the leaseholders of 56 of the flats, applied to the FTT for a determination about service charges pursuant to section 27A of the Landlord and Tenant Act 1985, which gives the FTT jurisdiction to determine whether service charges are payable under a lease and, if so, in what amount, to whom and so on. The application related to the service charge years 2011 to 2022. The FTT’s decision dated 24 May 2024 set out the FTT’s findings on a number of issues of principle, and then went through the various items in dispute set out in the parties’ Scott Schedule.

One of the issues of principle, and the only one relevant to this appeal, was whether the landlord’s legal costs in the sum of £55,492.23 in the year 2020/21 could be recovered under clause 5(11) of the long leases. The costs were said by the appellant to include general legal advice on the management of the building, advice about the recovery of rent and service charge arrears, litigation costs incurred in recovering rent and service charge arrears, and the costs incurred by the landlord in proceedings against third parties (including Mr Maunder Taylor) where such costs were reasonable or necessary for the management of the building.

By clause 4(2) of the lease the lessee covenants to pay a percentage of the landlord’s expenditure in carrying out its obligations under clause 5, and clause 5(11) which reads as follows:

“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.”

Clause 5 also contains the following obligation on the landlord:

“5(12) - Enforce (if so required by the Lessee) the covenants similar to those mentioned in Clause 2 hereof and set forth in the First Schedule hereto and those mentioned in Clauses 3 and 4 hereof entered into or to be entered into by the lessees of the other flats comprised in the Building on the Lessee indemnifying the Lessors against all costs and expenses in respect of such enforcement and providing such security in respect of costs and expenses as the Lessors may reasonably require.”

By clause 3(7) the lessee covenanted to:

“Pay all reasonable and proper costs charges and expenses (including Solicitors costs and surveyors fees) incurred by the Lessors or the Superior Lessors incidental to the preparation and service of a notice under Sections 146 and 147 of the Law of Property Act 1925 notwithstanding forfeiture is avoided otherwise than by relief granted by the court and including fees and expenses incidental to the inspection of the flat and the preparation of a Schedule of Dilapidations.”

The FTT took the view that clause 5(11) is directed at the routine costs of management and does not enable the landlord to recover any legal costs; therefore none of the costs the landlord sought to recover could be charged to the leaseholders through the service charge. Clause 5(11), said the FTT, “does not extend even to routine legal advice”. That is the decision now appealed.

It is common ground that the decision of the Supreme Court in Arnold v Britton [2015] UKSC 36 is the leading authority on the construction of the lease and of the clause in question. Lord Neuberger said this at paragraph 25:

“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", to quote Lord Hoffmann in Chartbrook Limited v Persimmon Homes Limited [2009] AC 1101, para. 14. It does so by focussing on the meaning of the relevant words ... in their documentary, factual and commercial context. That meaning has to be assessed in the light of: (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial commonsense, but (vi) disregarding subjective evidence of any party's intentions."

He added:

“ … reference was made in argument to service charge clauses being construed "restrictively". I am unconvinced by the notion that service charge clauses are to be subject to any special rule of interpretation. .... The origin of the adverb was in the judgment of Rix LJ in McHale v Earl Cadogan [2010] HLR 412, para. 17. What he was saying, quite correctly, was that the court should not "bring within the general words of a service charge clause anything which does not clearly belong there".

There have been a number of Court of Appeal decisions about whether a landlord’s legal costs can be recovered as part of the service charge. The oldest, and the one to which all subsequent cases refer, was Sella House Ltd v Mears [1989] 21 HLR 14. The obligations of the landlord, for which the lessees had to pay, were as follows:

“5(4)(j)(i) To employ at the Lessors’ discretion a firm of Managing Agents and Chartered Accountants to manage the Building and discharge all proper fees salaries charges and expenses payable to such agents or such other person who may be managing the Building including the cost of computing and collecting the rents and service charges in respect of the Building or any parts thereof.

(ii)

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.”

It will be seen that the wording of (i) above is identical to that of clause 5(11) in the Northwood Hall lease except that the latter also includes the final words “and the ancillary costs in connection therewith”. The Northwood Hall lease, on the other hand, does not include any equivalent to clause 5(4)(j)(ii) in the Sella House lease. The Sella House lease also included clauses in very similar terms to the Northwood Hall clauses 5(12) (landlord covenants to enforce the terms of the lease against other tenants at the lessee’s request and subject to the lessee’s indemnity) and 3(7) (lessee’s covenant to pay costs incidental to the preparation and service of a section 146 notice).

The question in Sella House was whether the landlord was entitled to include in the service charge the cost of recovering rent and unpaid service charges from some of the tenants, including litigation costs comprising solicitor’s and counsel’s fees. The Court of Appeal decided that the landlord was not so entitled. Taylor LJ said at page 156:

“The scope of (j)(i) is concerned with management. In (j)(ii) it is with maintenance, safety and administration. On the respondents argument a tenant, paying his rent and service charge regularly, would be liable via the service charge to subsidise the landlord's legal costs of suing his co-tenants, if they were all defaulters. For my part, I should require to see a clause in clear and unambiguous terms before being persuaded that that result was intended by the parties.”

The requirement for “clear and unambiguous terms” is important, but it does not mean that there has to be an express reference to legal costs or to lawyers for such costs to be recoverable. That can be seen from two decisions of the Tribunal.

First, in Geyfords Limited v O’Sullivan [2015] UKUT 683 (LC) the Tribunal (the Deputy President, Martin Rodger KC) had to decide whether a landlord could recover through the service charge its costs of litigation against leaseholders over unpaid service charges. The lease entitled it to recover expenses incurred “in and about the maintenance and proper and convenient management and running of the Development.” The Deputy President said:

“36.

The words “proper and convenient management and running”, used in the context of a mixed residential and commercial building, are not words which have a precise meaning which either clearly includes or clearly excludes the activity of litigating over the collection or quantification of sums required to repair the building. …

37.

I think the F-tT was right to acknowledge that “management” may sometimes include obtaining professional advice, including legal advice, and I agree … that in some circumstances it might involve litigation.”

However, the Deputy President concluded that the words of the clause were not sufficiently clear to cover the costs of proceedings against defaulting leaseholders.

Second, in Assethold Limited v Watts [2012] UKUT 537 (LC) the landlord was required by the lease:

“To do or cause to be done all works installations acts matters and things as in the reasonable discretion of the Landlord may be considered necessary or desirable for the proper maintenance safety amenity and administration of the Development.”

The landlord had taken proceedings against an immediate neighbour and obtained an injunction to prevent excavations that threatened the structure of the building. The Tribunal held that the landlord’s costs were recoverable through the service charge pursuant to the clause set out above. The Deputy President said:

“58.

I accept that, as a general principle of interpretation, if contracting parties intend that a payment obligation such as a service charge should cover a particular type of expenditure they will wish to make that clear. Unclear language should therefore be read as having a narrower rather than a wider effect. Nonetheless, I do not think that principle should be pushed to the point where language which was clearly intended to encompass expenditure in a wide variety of situations which the parties have not explicitly catalogued should be so restrictively construed as to deprive it of any real effect. It seems to me to be wrong in principle to start from the proposition that, with certain types of expenditure, including the cost of legal services, unless specific words are employed no amount of general language will be sufficient to demonstrate an intention to include that expenditure within the scope of a service charge. Language may be clear, even though it is not specific.”

In No. 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2021] EWCA Civ 1119 [2021] EWCA Civ 1119. The landlord was there seeking to recover from a tenant a proportionate share of costs which the landlord had incurred in litigation with the tenant. The landlord relied on, among other things, service charge provisions referring to:

The Deputy President considered that "[t]he language is directed towards the provision of management services, not litigation",

In Kensquare Limited v Boakye [2021] EWCA Civ 1725 the service charge was defined to include:

“"The cost of employing such professional advisers and agents as shall be reasonably required in connection with the management of the Building"

The Court of Appeal looked at the decisions in Sella House and in No 1 West India Quay; at paragraph 54 Newey LK (with whom Stuart-Smith and Andrews LJJ agreed) concluded

“54.

… read naturally, paragraph 5 does not extend to litigation costs. While the reference to "professional advisers" is apt to apply to lawyers, they are not mentioned specifically and nothing is said about legal proceedings. As in No. 1 West India Quay, the focus is on management services rather than litigation and, to adapt words of Rix LJ which Lord Neuberger quoted in Arnold v Britton, a decision in favour of [the landlord] would involve "bring[ing] within the general words of a service charge clause" something "which does not clearly belong there". The fact that paragraph 5 speaks of advisers and agents being employed "in connection with" the management of the Building, not "for" its management, does not seem to me to matter.”

Finally, in 89 Holland Park Management Limited v Dell [2023] EWCA Civ 1460 the clause in question again referred to the employment of professionals, at clause 4(4):

“(g)(i) At the Lessor's discretion to employ an Agent to manage the Building…

(ii)

To employ all such surveyors builders architects engineers tradesmen solicitors accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the Building.

…

(l)

Without prejudice to the foregoing to do or cause to be done all such works installations acts matters and things as in the reasonable discretion of the Lessor may be considered necessary or advisable for the proper maintenance safety amenity and administration of the Building.”

The legal costs in question were incurred by the landlord in litigation against a neighbour in connection with a planning dispute and the landlord’s objection to a building proposed to be built next door. Such costs were not recoverable under the clause set out above. Falk LK said:

“37.

The key operative words of paragraphs (g)(ii) and (l) are "for the proper maintenance safety and administration of the Building" and "for the proper maintenance safety amenity and administration of the Building" respectively. In the context of a clause that clearly focuses on management and maintenance of the building itself, these words naturally refer to expenditure of that kind. In my view it would strain those words to read them as extending beyond costs incurred in maintaining and running the building, and keeping it safe.”

Falk LJ did not rule out the possibility of litigation costs being recoverable under the clauses in question. She said:

“44.

This does not mean that no litigation costs could ever fall within the general words of clause 4(4) (g)(ii) and (l). It might well be that certain costs would do so in appropriate circumstances, particularly if they relate to something for which the Lessor has a clear responsibility under the Lease. One example might be a dispute relating to poor workmanship on a repair. Another example, discussed in oral argument, might be a claim against the building's insurers after a refusal to pay out on a claim. But, as discussed below in relation to Assethold , the answer will depend on the particular expenditure in question.”

The unsuccessful appellant in Dell criticised the Tribunal’s decision on the basis that it had been unduly influenced by the “potentially ruinous cost” ([2022] UKUT 169 (LC), paragraph 57) of the litigation. Falk LJ agreed with the respondent that the Tribunal’s intention had been to refer to potential rather than too actual cost, but went on to say:

“what is critical here is the nature of the dispute in question. A dispute over a building repair or insurance claim might prove very expensive, but it would be of a different nature to a dispute of the kind in issue here, principally because the remainder of clause 4(4) provides the strongest indication of the sorts of expenditure that was intended to be covered.”

It is against that background of caselaw that the present appeal is argued. As one might expect, both parties lay particular emphasis both on Arnold v Britton and on Sella House.

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.

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.

These appeal fails and the FTT’s decision was correct; none of the legal costs making up the sum of £55,492.23 sought to be recovered by the appellant fall within the scope of clause 5(11).