Can a landlord’s legal fees be recovered as a service charge?

In Fairbairn v Etal Court Maintenance Limited the Upper Tribunal concluded that the landlord of a residential property could not recover, as a service charge, legal costs or settlement sums incurred in satisfying a claim for damages awarded for a landlord’s breach of its repairing obligations.  

In November 2011 the landlord breached its repairing obligations under the lease and after admitting liability, failed to procure the rectification of the works within a reasonable time. Although the tenant commenced a claim for specific performance against the landlord, the parties eventually settled the dispute.

The landlord subsequently sought to recover £25,534.00 incurred in professional fees as a service charge. The First-tier Tribunal concluded that the amount could be recoverable through the sweeper provision contained in the lease which stated that the landlord could “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 shall think fit.”

On appeal, the Upper Tribunal stated that whilst such a clause may ordinarily be wide enough to cover legal costs or even the conduct of litigation in the management or administrstation of property, in this instance the landlord could not recover the costs sought.  The Upper Tribunal concluded that the costs were incurred as a consequence of a valid claim by the tenant against the landlord arising due to the landlord’s failure to comply with the terms of the lease.  The costs claimed had nothing to do with the management or administration of the building, but were costs incurred by the landlord protecting itself from its own previous ommissions under the lese and did not therefore fall within the terms of the sweeper clause.

The case did not consider whether the remedial work itself was recoverable, as opposed to the legal costs, but it did highlight the importance for a landlord to promptly comply with its repairing obligations under a lease; surprisingly the cost of the remedial work was not much more than the cost of the professional fees.

Landlords are also advised to proceed with caution and to carefully review the terms of their leases when relying on sweeper provisions to recover costs - especially when the costs incurred are as a result of their own acts or omission.