Service Charge: No recovery for Landlord's breach
Published 15 April 2016
A recent court decision has confirmed that landlords of residential premises cannot charge their tenants through the service charge for costs that have been incurred as a result of the landlord's own breach.
In Fairbairn v Etal Court Maintenance Ltd (2015) the landlord of a residential development comprising three blocks of flats had not complied with its repairing covenants in a timely manner. The original breach had occurred in 2010. A tenant commenced proceedings against the landlord seeking an injunction and payment of damages and costs. The landlord admitted liability and the parties settled the claim with the landlord agreeing to contribute towards the tenant's legal costs, and pay a sum in settlement of the claim.
The landlord then attempted to recover through the service charge its own legal costs, the amount paid towards the tenant's legal costs and the settlement sum itself. One of the other tenants objected to this and issued proceedings.
The landlord sought to rely on a sweeper clause in the service charge provisions that enabled the landlord to recover its costs incurred in connection with "all other acts and things for the proper management administration and maintenance of the blocks of flats as the landlord in its sole discretion thinks fit."
The court concluded that a sum paid to settle a claim for damages by a tenant for a landlord's breach of covenant did not fall within the scope of this clause, because such payments had nothing to do with the management and administration of the building and had only been incurred as a result of the landlord's failure to comply with its obligations under the lease. The landlord was not therefore able to recover the sum through the service charge.
The decision is perhaps not a surprising one, but it serves as a reminder to landlords of mixed-use or residential properties that sweeper clauses will be strictly construed, and that the courts will not look kindly on attempts to charge tenants for the costs of the landlord's breach.