Service charge

Cost recovery via service fee “sweep” clauses: Owners beware!

Pawan Pandit is a Senior Associate Solicitor in the Housing Management and Litigation team at Walker Morris. Pawan specializes in advising landlords, management companies, management agents and tenants, particularly with regard to service charges and other residential leasehold property management issues. In this article, Pawan explains the latest authority on the interpretation of “sweep” clauses in service charge provisions of residential leases and offers practical guidance.

Why is Dell v 89 Holland Park (Management) interesting?

This case [1] is important because it shows that the scope of sweep clauses, in fee-for-service provisions in leases, may be narrower than you think.

What practical advice derives from this?

Many leases contain “sweep”, “sweep” or “catch-all” clauses. These are intended to bring within the scope of the rental charges clause charges which are not specified, but which the landlord may wish to recover from time to time. As with any contractual provision, whether these clauses are truly “catch-all” depends on the drafting.

Residential landlords and managing agents should not automatically assume that all service expense items can be passed back to tenants using the general wording of a sweep clause. In fact, landlords and agents should exercise great caution when an expense item is not specifically covered by the service fee provisions of a lease.

Dell v 89 Holland Park is the latest in a series of cases dealing with the correct approach to the interpretation of fee-for-service clauses. This highlights the courts’ reluctance to depart from the natural and ordinary meaning of wording, or to imply or impose terms. While the case fails to establish any general principle that service charge provisions should be interpreted narrowly, landlords are unlikely to welcome its narrow interpretation of the general wording, and the fact that it s This is an example of a general clause that fails to “catch all”. ‘.

Landlords should try to ensure that service charge provisions are widely reflected in new or renegotiated leases, to avoid similar difficulties arising in the future.

What happened in the case?

This case concerned 89 Holland Park, Kensington, London. The landlord owned full ownership of the building. The next door neighbor wanted to build a property underground, accessible via a glass cube above ground level. The outspoken owner of 89 Holland Park had been involved in a dispute with the neighbor in connection with this development project and had incurred substantial costs. The landowner wanted to recover these costs from the owners of the apartments in the building, via the rental charge clauses of their leases.

The freehold owner attempted to invoke the following clauses in the charge clauses of the leases:

To employ all surveyors, builders, architects, engineers, tradesmen, accountants or other professionals who may be necessary or desirable for the proper maintenance, safety and administration of the building.

Without prejudice to the foregoing, to do or cause to be done all such works, installations, acts and things which, in the reasonable discretion of the Lessor, may be considered necessary or desirable for the good maintenance, safety, equipment and administration of the Building.

What did the Upper Tribunal decide?

The Upper Tribunal said the general terms of the clauses did not cover the instruction of legal professionals and expert witnesses in litigation against a third party, or in an objection to a third party’s planning request. . The clauses concerned the management and maintenance of the building.

The Upper Tribunal added that an obligation drafted in general terms is subject to interpretation. The court must decide which specific obligations fall under such a clause. He repeated the principle, derived from Arnold v Britton [2]that the court should not include in general terms something which does not clearly belong there.

The Upper Tribunal said that if the original parties had wanted to include an obligation for the owners of the apartments to pay charges such as those at issue in the case, they would have expressly provided for this.