A recent case has demonstrated just how important it is to understand how a lease operates with regard to legal costs and the risks associated with running those costs back through the service charge at the conclusion of a matter.
LMP Law’s Matthew Wayman takes a look at the decision in Fairbairn v Etal Court Maintenance Limited and gives guidance on this important issue.
We have recently seen instances where a landlord has sought to extract service charge monies from an account for the same purpose.
In Fairbairn, having agreed to pay a lessee £2,500 damages and over £13,000 in costs at the conclusion of a disrepair claim, these costs were run back through the service charge regime.
As you would expect, we always recommend a thorough review of the lease is undertaken to shape decisions such as this. This is the starting point. It is not uncommon to find a “sweeper clause” allowing the landlord to achieve its intended aim like in the Fairbairn case. Remember we are not relying on a section 146 forfeiture clause here; the costs were accrued further to the landlord’s breach.
The wording has to be clear and each case will be decided on its facts. The landlord needs to factor in the risk of a legal challenge and be prepared for any resultant fight.
The wording in the lease under consideration in Fairbairn was as follows:-
“To do all other acts and things for the proper management administration and maintenance of the blocks of flats as the Lessor in its sole discretion thinks fit.”
Would you allow the landlord to do as it sought based on the above clause?
The Tribunal held that the clause did not allow the costs to be run back through the service charge account, the clause was interpreted to concern itself with the building. More success for the leaseholder then given this restrictive interpretation. The matters coming across our desks have received cautious advice given the lack of a comprehensive sweeper clause in the applicable leases.
The Fairbairn case backs this advice up. Budget for a fight if the clause you are relying on is vague and consider alternative forms of funding at the outset and the potential for putting into place insurance policies to cover those costs.