Leases in the news again

In a recent newsletter we considered the importance of ensuring that the provisions of a lease are clearly drafted. Many leases are often long and complex documents and in the event of a dispute it is sometimes only a Court which can decide what the provisions of a lease are supposed to mean.

There is no direct contractual agreement between each tenant in a building. Accordingly it is not possible for one tenant to take proceedings directly against another tenant to attempt to enforce the obligations in a lease. The only mechanism to deal with this is to ensure that each lease includes an obligation for the landlord to take proceedings against a defaulting tenant if so requested. Upon receipt of such a request a landlord is likely to incur legal fees.

The method by which a landlord recovers his costs against the tenants is via the service charge. This is governed by the terms of the lease and the landlord will specify in the lease the costs which he is entitled to recover from the tenants. These sums usually have to be audited or signed off by an accountant and are often payable by the tenants twice a year.

In a recent case it was decided that the landlord's legal fees relating to taking proceedings against other tenants were not recoverable via the service charge under the terms of the lease. This was because the wording of the service charge provisions in the lease was not clear enough.

It is only possible for a landlord to recover any fees via the service charge if the wording of the lease allows it. These clauses must be properly drafted and a clause permitting the recovery of such fees from other tenants must be clear and unambiguous.

In the recent case the Upper Tribunal held that this wording was not clear enough to ensure that the landlord had the right to cover the costs he incurred in taking legal proceedings against other tenants.

Whilst the case tells us nothing new it serves as an important reminder for landlords. Leases for premises, whether residential or commercial, need to be properly drafted. This will ensure that landlords can properly recover the costs incurred in managing the development on a daily basis.

To discuss this or any other landlord and tenant issue, contact us.

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