Sweeper clauses and service charges: a note of caution

If you are relying on a sweeper clause in your lease to allocate costs of estate management into the service charge fund, you must be sure that the costs you are putting through are covered by the wording in the lease.

Brady Solicitors highlight the appeal case of Dell v 89 Holland Park Management Ltd, where the Upper Tribunal overturned a decision to allow third-party litigation costs to be put through the sweeper clause.

By way of background, 89 Holland Park is a development of five flats adjacent to a piece of land owned by Ms Hicks. Ms Hicks was seeking to develop the land both above and below ground, but the covenants on the land required her to seek permission from the owner of 89 Holland Park before applying for planning permission.

For almost a decade, the Holland Park freeholder had been in dispute with Ms Hicks over her development plans, incurring millions of pounds in costs. The freeholder then sought to put these costs through the service charge sweeper clause.

The leaseholders asked the FTT to determine the payability and reasonableness of their share of the costs, which came to more than £430,000 each.

The freeholder argued that the costs were payable under a sweeper clause in the lease that said costs could be recovered from the leaseholders in these circumstances:

  1. To employ all such surveyors builders architects engineers tradesmen solicitors accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the Building
  2. All such works installations acts matters and things as in the reasonable discretion of the Lessor may be considered necessary or advisable for the proper maintenance safety amenity and administration of the Building

The freeholder’s opposition to Ms Hicks proposals included concerns for both safety and amenity,  which led the FTT to find that the costs were payable under the terms of the clauses above.

The leaseholders appealed to the Upper Tribunal, where the decision was overturned and the costs were determined to be not payable by the leaseholders.

The judge at the UT gave four primary reasons for overturning the FTT’s decision:

  1. The general wording of the clause used by the freeholder in their defence did not include instructing solicitors and expert witnesses in third-party litigation.
  2. The focus of the sweeper clause was on managing and maintaining the building and not on actions to be taken against neighbours or in relation to neighbouring land.
  3. Although the lease set out other areas of litigation that would be payable by the leaseholders, there was no mention of third-party litigation or responding to planning applications. This was despite the site being a much-litigated piece of land.
  4. It is implausible to expect leaseholders to fund litigation costs of this level.

Long residential leases often include a sweeper (or sweeping up) clause that allows the freeholder to recover costs that it couldn’t predict when the lease was originally granted. The case of Dell v Holland Park is a good reminder that a sweeper clause does not equate to a slush fund, and that the clause should not be interpreted to bring in costs that don’t belong there.

Before seeking to recover costs through a sweeper clause, freeholders, RMCs, and their managing agents should ensure they have clarity on what is and isn’t recoverable from leaseholders.

 For a fast and expert pair of eyes on the sweeper clause in your long residential lease, contact the property management experts at Brady Solicitors.

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