Upper Tribunal ruling on recovering legal costs through the service charge

Landlords often fight legal battles for what they perceive to be the benefit of their tenants – but can the legal and professional costs of pursuing such proceedings be recovered as service charges? As an Upper Tribunal (UT) ruling made plain, the answer to that question may depend on the sheer scale of the costs involved.

The freeholder of a detached Victorian villa, comprising five flats held on long leases, waged an epic legal campaign in opposition to a proposed development on adjoining land of a subterranean mansion surmounted by an above-ground glass cube. After several eye-wateringly expensive rounds of litigation, the freeholder was to a large extent successful in that the proposal was scaled down.

The freeholder incurred overall legal and professional costs of around £2 million. It sought to recover more than £430,000 of that total from the leaseholders of one of the flats by way of service charges. They disputed the bills but were ruled liable to meet them after the First-tier Tribunal (FTT) found that they were both reasonable and properly payable under the terms of their lease.

Ruling on their challenge to that outcome, the Upper Tribunal (UT) noted that the freeholder, a management company, was owned by the tenants of the flats. They were united in their opposition to the development and the proceedings were legitimately motivated by concerns about amenity and the structural integrity and safety of the building if the development proceeded.