Are the costs for settling a dispute recoverable as part of a service charge?
In Fairbairn v Etal Court Maintenance Ltd  UKUT 639 (LC), the Upper Tribunal (Lands Chamber) (“the Upper Tribunal”) held that a landlord of a residential estate comprising three blocks of flats was not entitled to recover through the service charge the sums it paid to settle a dispute with a tenant or the legal costs incurred in securing the settlement.
Etal Court Maintenance Ltd (“the landlord”) had breached its repairing covenants under the lease and, after admitting liability, had failed to procure completion of the remedial works in a timely manner. The Landlord’s failure to undertake the works in a timely manner resulted in Mrs Fairbairn (“the tenant”) taking proceedings against the landlord.
In the end, the parties settled the dispute. The landlord paid an amount towards the tenant’s legal costs and agreed to pay a sum to the tenant in settlement of her claim (“the settlement sum”).
The landlord subsequently argued that it was entitled to recover the settlement sum and the costs it had incurred in dealing with the action as part of the service charge.
At first instance, the First-tier Tribunal (Property Chamber) (FTT) concluded that the settlement sum and the legal costs incurred in securing the settlement could be recovered through the service charge.
However, the upper tribunal overturned this decision and concluded that the landlord could not recover the settlement sum or the legal costs incurred in securing the settlement because the steps the Landlord had to take to settle the claim were as a result of its own breach of its obligations to repair under the lease.
This case serves as a reminder to freeholders to: (1) ensure that they undertake their repair obligations in a timely manner; and, (2) consider carefully the appropriateness of seeking to recover legal costs as part of a service charge.
If you require any assistance with a dispute involving the payment of service charge costs please contact Ben Jones in our dispute resolution team on 01872 265100 or firstname.lastname@example.org.