Etal Court, a development in the north-east, was contructed in the 1970s. 39 leases of 999 years were granted of each apartment. A Residents’ Management Company was established to manage and maintain the property (the respondent) and each lessee became a shareholder in the company.
Under each lease, the landlord demised the floor and wall outer coverings but retained the property’s structure. A ‘sweeping up’ provision was incorporated in the leases, requiring the respondent management company:
“to do all other acts and thing for the proper management administration and maintenance of the blocks of flats as the Lessor in its sole discretion shall think fit.”
Lessees covenanted to pay for the provision of services through a service charge, the annual accounts for which were to be prepared and served by the respondent with the sums due divided equally between all 39 lessees.
Repairs were necessary to the structural parts of the property affecting one lessee’s apartment in particular. After a lengthy court process to determine responsibility for the works, the respondent company was required to carry these out, incurring both the repair costs and the costs incurred by the tenant in vacating the property for the duration of the works, together with legal costs and damages.
The respondent, having incurred such costs, recharged these to the service charge amongst all lessees other than the lessee in question. One lessee – the appellant – refused to pay this amount and the respondent therefore issued a claim in the First-tier Tribunal.
The Court needed to decide whether the respondent was right to recharge the costs incurred in litigation with a lessee, and the damages paid out to that lessee, to the service charge. At First-tier Tribunal, it was determined that the costs were reasonably incurred and could be recovered under the service charge due to the wording of the ‘sweeping up’ provision.
The appellant appealed on the basis that the respondent had lost the litigation which had arisen due to a breach of its covenant to repair.
On appeal, the Upper Tribunal looked at distinct aspects of the case including the interpretation of the lease wording, the distinction of the costs incurred and notice requirements. Citing Arnold v Britton , the Tribunal determined that it needed to establish the meaning behind the lease’s express terminology and that service charge provisions should be interpreted in the same way.
Specifically, was the expenditure incurred by the respondent recoverable through the ‘sweeping up’ provision as costs ‘for the proper management administration and maintenance’ of the apartments?
The Upper Tribunal allowed the appeal, holding that the respondent was unable to recover its costs of litigation by way of the service charge. The sums were incurred by the landlord as a consequence of its own breach and this was not sufficient to allow it to recharge to lessees.
Commenting on the case, JB Leitch’s Phil Parkinson says:
“The Fairbairn case is important for landlords and RTM companies in highlighting the need to observe and perform repair covenants. The respondent’s breach of covenant here resulted in significant costs in litigation with the first lessee, damages, costs and the repair itself, not to mention the subsequent litigation with Mrs Fairbairn. ‘Sweeping up’ provisions cannot be used in cases where a landlord or RTM has breached covenant.”