Stephen Richard Walsh v Star and Garter Mansions (Management Company)

This appeal from a decision of the First-tier Tribunal raises yet again the vexed question of whether a landlord can recover litigation costs from its leaseholders as part of the service charge.

The appellant, Mr Stephen Walsh, is the leaseholder of three residential flats at Star and Garter Mansions, London SW15. The respondent, Star and Garter Mansions (Management Company) Limited is the freeholder. The appellant was represented by Mr Graeme Kirk and the respondent by Mr Henry Webb, both of counsel, and I am grateful to them both.

The First-tier Tribunal has jurisdiction under section 27A of the Landlord and Tenant Act 1985 to determine whether leasehold service charges are payable. Although in some cases that requires a determination as to whether a relevant cost was reasonably incurred, in others the issue is whether the lease, properly construed, allows the landlord to demand a particular kind of charge. That was the issue before the FTT and in this appeal.

Star and Garter Mansions is a block of 17 residential flats, with two commercial units in the basement. The appellant Mr Walsh owned the freehold until 2006 when the respondent acquired it by way of collective enfranchisement. That enfranchisement was contentious and the LVT made a decision about the terms of the leases of the commercial units which were to be granted to the appellant. The outcome of that decision was that the terms of the commercial leases were different from those of the residential leases as regards the scope of the lessee’s responsibility to pay service charges. None of the leases specifies a proportion to be charged to an individual property; all require the lessee to pay “a fair and reasonable proportion”, but the costs of which a proportion is to be paid differ between the residential and commercial leases.

At around the same time Mr Walsh took leases of three residential flats, on the same terms as the other flats, and he brought the present proceedings in the FTT only in his capacity as leaseholder of three of the flats.

As a result of the difference in service charge provisions between the residential and commercial leases the respondent has to apportion costs in different ways. In the appeal bundle is a sample apportionment from, I think, 2021. It shows that certain costs are charged by the freeholder to all the lessees by way of service charge, while others are charged only to the residential lessees. There are also company costs which are charged only to those residential lessees who are members of the respondent company, since some of them (including the appellant) are not members.

The charges that are in dispute are the respondent’s litigation costs in proceedings brought against it in the county court in 2023 by the lessee of the two commercial units, which the respondent has sought to recover as a service charge, apportioned among all the lessees, residential and commercial. The fact that the lessee of the commercial units is Mr Walsh is irrelevant both to the decision the FTT made and to the outcome of this appeal, and I refer to him in that capacity as “the commercial lessee”.

The county court proceedings are the result of a dispute arising from the different service charge provisions in the commercial leases. In his particulars of claim the commercial lessee seeks declarations about the construction of his leases, and an order that £67,355.51 be repaid to him. If he succeeds in that litigation then that sum will have to be repaid and the apportionment of the service charges will have to change for the future, both of which will have an effect on the residential lessees.

The county court claim has still not been heard. The appellant applied to the FTT for determination under section 27A as to whether the respondent’s litigation costs were payable as a service charge. The respondent says they are, on the basis of the following obligation of the lessee in the leases:

“To pay and contribute to the Lessor a sum equal to a fair and reasonable proportion of:

…

(ix)

the fees of the Lessor’s Managing Agents and Solicitors for the collection of the rents of the flats in the Building and for the general management thereof.”

The Building, at least in the residential leases which is all the appeal is concerned with, is the whole building.

The appellant argued in the FTT that that clause was not wide enough to include the respondent’s costs in the county court.

In his decision the judge (sitting alone in the FTT) explained the dispute, and referred to and quoted the authorities including Arnold v Britton [2015] UKSC 36, Sella House Limited v Mears (1989) 21 HLR 147 Kensquare Limited v Boakye [2021] EWCA Civ 1725, No. 1 West India Quay (Residential) Limited v East Tower Apartments Limited [2021] EWCA Civ 1119, 89 Holland Park (Management) Limited v Dell [2023] EWCA Civ 1460, Thanet Lodge (Mapesbury Road) RTM Company Limited v Mirchandani [2024] UKUT 205 (LC) and Triplark Limited v Howard [2025] UKUT 232 (LC). He then said:

“19.

I have to stand back and construe the term “the fees of the Lessor’s Managing Agents and Solicitors for the collection of the rents of the flats in the Building and for the general management thereof” against the facts. There is an oddity in the reference to the “collection of the rents”, since the rent reserved was merely a peppercorn and the service charges were not reserved as rent. However, the express reference to “the fees of the Lessor’s… Solicitors” clearly shows that recoverability of legal expenses through the service charge was something within the contemplation of the parties to the leases. Since there could not be legal expenses in connection with the collection of rent, the legal expenses which would have been in contemplation must have been in connection with the “general management” of the Building.

20.

If that is right, then it is necessary to consider what would have been envisioned as falling within the category of “general management”. The most obvious forms of management which might involve legal expenditure by a landlord are breaches of covenant and service charge disputes. Unlike some of the cases cited above where recoverability was refused, therefore, clause 2(2)(ix) envisages litigation costs being incurred.

22.

The County Court proceedings in the current case are in my judgment a quintessential form of service charge dispute. Accordingly, the landlord’s costs of those proceedings are recoverable under clause 2(2)(ix).”

The appellant appeals, with permission from the FTT.

For the appellant, Mr Kirk in the grounds of appeal argued that there was a gap in the judge’s reasoning, in that he went through the authorities but did not say how they led to his conclusion. The leading authority is of course Arnold v Britton, in which Lord Neiberger’s opinion gives primacy to “the ordinary and natural meaning of the clause”; far from doing that, the judge had pursued a creative construction.

Moreover, Mr Kirk suggested that the judge may have been misled by the fact that the appellant was the commercial lessee; certainly he should have exercised extreme caution not to conflate Mr Walsh’s two capacities.

Central to the appellant’s case is that solicitors’ fees in connection with general management does not mean litigation; solicitors could be involved in looking at contracts, for example, or in negotiations about insurance. In West India Quay the Tribunal (the Deputy President, Martin Rodger LC) looked at an obligation to contribute to “the reasonable and proper fees … to procure the proper management of the Residential Premises” and concluded that those words were directed towards management, not litigation. In the present case the FTT had not referred to the important words of Sir Terence Etherton in Phillips v Francis [2014] EWCA Civ 1395 at paragraph 74:

“it is reasonable to expect that, if the parties to a lease intend that the lessor shall be entitled to receive payment from the tenant in addition to the rent, that obligation and its extent will be clearly spelled out”.

At the hearing Mr Kirk focused on the survey of the authorities in the Tribunal’s recent decision in Tripark Limited v Howard. The Tribunal there quoted the words of Taylor LJ in Sella House at page 156:

What the landlord can recover, said Mr Kirk, is limited to fees relating to “the general management of the Building”. “Management” means the meeting of the lessor’s obligations such as repairing, insuring, and decorating. There is no provision for “ancillary costs”, as there was in Triplark, which might have enabled a more elastic reading of the clause. Clear and unambiguous provision, said Mr Kirk, is not made in this clause for litigation of this kind against a third party, or indeed for litigation at all.

Mr Webb too started from Arnold v Britton, which he observed takes priority to all the other authorities, fact-specific as they are. He pointed out that the Tribunal’s quotation, in Triplark, of Taylor LJ’s words in Sella House was followed by a proviso:

“15.

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.”

The Tribunal in Triplark went on to refer to Geyfords Limited v O’Sullivan [2015] UKUT 93 (LC) where the Deputy President observed that the term “management” may encompass litigation, although he concluded that in that case it did not; and to Assethold Limited v Watts [2012] UKUT 537 (LC) where the landlord’s obligation to do everything it considered necessary or desirable for the proper “maintenance, safety amenity and administration of the Development” enabled it to recover the costs of litigation against a neighbour whose actions threatened the structure of the building.

Mr Webb pointed out that in the majority of the cases about litigation costs the wording in question does not mention solicitors, lawyers, or litigation. He contrasted the present case where there is reference to solicitors, and the clause is focussed on contentious work by the reference to the recovery of rents. The service charge is not reserved as rent, but the point is that litigation is within the contemplation of the clause; he contrasted 89 Holland Park where there was no reference to anything contentious in the relevant clause.

Mr Webb took me through some of the detail of the county court litigation, which I have set out as far as necessary in my account of the background above. He observed that the question before the FTT was whether these particular litigation costs were within the scope of the obligation to pay for the landlord’s solicitors’ costs “for the general management” of the Building, and said that the county court litigation struck at heart of the way the building is managed. It is a challenge to the respondent’s apportionment of costs and will affect every leaseholder in the building.

In my account of the judge’s decision and of the parties’ arguments I have mentioned the authorities rather obliquely without going into the relevant facts of each. I do not think it is necessary to do so, for two reasons. First, the principal authority is Arnold v Britton and other authorities have to be read in the context of what the Supreme Court said in that case. I am not going to set out the well-known passage of Lord Neuberger’s opinion, but I agree with the parties that the starting point is the natural and ordinary meaning of the words, with context and the parties’ background knowledge to supplement that in case of ambiguity. Second, in the majority of the lease provisions discussed in the authorities there is no mention of legal costs at all. That made it difficult to argue that they encompassed litigation and yet even so, some did (Assethold v Watts being perhaps the most conspicuous example). So the clause with which the FTT was concerned is already in a rather different class from those in Sella House or West India Quay.

I repeat what I said in Triplark: the fact that lawyers and legal fees are not mentioned in a service charge provision does not mean that legal costs cannot be within its scope. In the present case solicitors are mentioned and so is litigation albeit only to recover rents; the fact that other forms of litigation are not expressly mentioned does not mean that they are out of scope. The requirement for “clear and unambiguous words” should not be taken too far.

The other matter that is expressly mentioned in the clause is the general management of the Building. The lessee must pay towards “the fees of the Lessor’s … Solicitors … for the general management [of the Building]”. I agree with Mr Kirk that solicitors might be involved in the negotiation of contracts of insurance, but generally they are not involved in the general management of buildings except when there is litigation. In the present case the commercial lessee has brought proceedings which, as Mr Webb said, strike at the heart of the management of the building. They are about how the respondent apportions the service charge, whether it has recovered too much, and what it might have to pay back to the commercial lessee. I have no difficulty in seeing the respondent’s costs in that litigation as legal costs incurred in the general management of the building.

Accordingly the judge in the FTT was right. I see no flaw or gap in his reasoning. There is certainly no sense in which he can be said to have been led astray by the appellant’s identity as the commercial lessee. He demonstrated his awareness of the authorities, and he correctly construed the clause.

Accordingly, the FTT was correct and the appeal fails.