Holland Park (Management) Limited-v- Dell (8 December 2023)

INTRODUCTION

The judgment of the Court of Appeal in this very substantial service charge dispute is likely to have a profound effect as to how, and whether, landlords (and particularly lessee-owned freehold companies) can litigate at the lessees’ expense.   

The rather extraordinary facts of this case are set out below but the conclusion of the Court of Appeal was to uphold the judgment of the Upper Tribunal that the costs of litigation to enforce covenants against an adjoining owner were irrecoverable from the lessees, Mr and Mrs Dell, as the service charge only covered services relating to the management and maintenance of the demised building and not any adjoining building. 

THE FACTS

89 Holland Park (“the Building”) comprises 5 flats and the freehold is owned by the lessees through the management company, 89 HP. Mr and Mrs Dell’s lease was entered into in 1989 and has been extended to a term of 999 years. 

 For about 10 years, HP has been engaged in substantial and very contentious litigation with the architect, Sophie Hicks, in relation to her wish to build a new house next door. Under covenants entered into in 1968, Ms Hicks needs 89 HP’s consent to her plans before she can proceed and 89HP have strenuously and successfully refused to give consent for what would be a major redevelopment that would have considerable impact on the Building and the lessees’ enjoyment of their flats. 

By January 2021, 89 HP had billed the lessees a total of £2,763,521 in relation to litigation costs but Mr and Mrs Dell had made it clear in 2014 that they did not want to spend any more on legal proceedings. They challenged liability for the balance of £430,411 sought from them for work thereafter.  

THE DECISION

Mr and Mrs Dell succeeded. The Court of Appeal unanimously found in their favour as:-

1. The leases were drafted with a clear focus on the service charge just relating to the maintenance and management of the Building and had to be interpreted in that context. 

2. The service charge related to items of a day-to-day nature which 89 HP were obligated to provide, rather than as to providing funding for unlimited costs of discretionary major litigation. Further, the leases reserved right to the landlord to deal with any adjoining land as it saw fit. 

3. Reference to the maintenance, safety, amenity and administration of the Building were not aimed at covering costs aimed at preventing any adjoining development even though there were concerns as to the structural impact of such development and its effect on the views from the Building and other amenities. 

4. The leases make provision to recover legal costs for specific contemplated events, such as lessee default, but contain no reference to enforcing or dealing with the 1968 covenants even though they pre-dated the leases and future disputes as to the development of the undeveloped adjoining land were foreseeable. 

 

THE CONSEQUENCES AND LESSONS TO BE LEARNED

So far as 89 HP is concerned, subject to any appeal to the Supreme Court, it will have to fund the shortfall but, as a management company with no real assets, it is not clear how it can do so or, even, how it will pay Mr and Mrs Dell’s legal costs? 

For all landlords, this judgment drives home how uncertain and unclear residential leases often are and that it certainly cannot be assumed that all costs are recoverable thereunder, particularly substantial and uncertain litigation costs. 

In some cases, the articles of association of management companies can compel the lessees, as shareholders, to contribute to any costs incurred and, as with collective enfranchisement claims, participation agreements between the lessees are also a way of securing their buy-in for the full course of proceedings.

But the ultimate lesson is that litigation with neighbours is expensive, uncertain, time-consuming and almost always best avoided.