In this Legal Update, we return to the often asked question of whether a landlord, RMC or RTM company can recover legal costs from its leaseholders through the service charge.

We previously considered this issue following the Court of Appeal’s decision in Kensquare Ltd -v- Boakye  [2021] EWCA Civ 172, where the landlord was unsuccessful in recovering its litigation costs through the service charge after relying on a provision relating to fees for professional advisers instructed in connection with the management of the building. Our previous Legal Update on that case can be found here.

Almost five years later, the Upper Tribunal has considered what, at first glance, appears to be a similar problem and a similar lease provision, but has reached the opposite conclusion; the landlord’s litigation costs were recoverable through the service charge. The case is Stephen Richard Walsh v Star and Garter Mansions (Management Company) [2026] UKUT 267 (LC).  So, what was different?

Background

Star and Garter Mansions comprises 17 residential flats and two commercial units. As a result of a contested collective enfranchisement, the service charge provisions in the commercial leases differed from those in the residential leases, meaning that certain costs had to be apportioned differently between the residential and commercial leaseholders.

A dispute arose between the landlord and Mr Walsh (who had been the freeholder of the block), in his capacity as the commercial leaseholder, concerning the service charges levied against the commercial units. County Court proceedings were issued in 2023 in which Mr Walsh sought declarations as to the proper construction of the commercial leases and repayment of £67,355.51 (“the County Court litigation”). The dispute concerned, amongst other things, the manner in which costs had been apportioned and whether the landlord had recovered more than it was entitled to.

The landlord incurred legal costs in defending the County Court litigation and sought to recover those costs from the leaseholders through the service charge. Mr Walsh, this time in his capacity as leaseholder of three residential flats, applied to the First-tier Tribunal (“FTT”) for a determination as to whether those legal costs were payable under the residential leases.

What did the lease say?

The relevant covenant required the leaseholder to pay a fair and reasonable proportion of:

“the fees of the Lessor’s Managing Agents and Solicitors for the collection of the rents of the flats in the Building and for the general management thereof.”

The FTT found that this wording was sufficient to permit recovery of the landlord’s legal costs for dealing with the County Court litigation through the service charge.  

Mr Walsh appealed to the Upper Tribunal (“the UT”).

The decision of the UT

The UT dismissed the appeal and agreed that the landlord’s legal costs for the County Court litigation were recoverable through the service charge, as solicitors’ costs for “the general management [of the Building]”. It was accepted the legal costs were not incurred “for the collection of the rents of the flats in the Building”, as the service charges were not reserved as rent in the leases.

At first glance, that decision may appear difficult to reconcile with the Court of Appeal’s decision in Kensquare. The service charge provision considered in Kensquare allowed the landlord to recover:

“The cost of employing such professional advisers and agents as shall be reasonably required in connection with the management of the Building”

In 2021, the Court of Appeal had found that this provision was not sufficiently wide to include the landlord’s litigation costs (in that case, the costs for pursuing a leaseholder for service charge arrears). The Court of Appeal said the covenant was about management services and not litigation, and to find otherwise would require “bringing within the general words of a service charge clause [something] which does not clearly belong there”.

In Walsh, however, the wording was different in an important respect. The covenant expressly referred to the fees of the landlord’s “Managing Agents and Solicitors”.  

Whilst previous authorities had established that express reference to ‘legal’ or ‘solicitors’ costs is not essential for legal costs to be recoverable under a service charge provision, the UT considered that this express reference to solicitors demonstrated that legal expenditure was within the contemplation of the parties when the leases were granted.  Although the clause did not expressly state that all litigation costs were recoverable, the absence of those words were not determinative.

That does not, however, mean that any and all legal costs incurred by the landlord could simply be put through the service charge. The costs still had to be incurred for the “general management” of the building and this is where the circumstances of the litigation become important.

The County Court litigation concerned the manner in which the landlord apportioned the service charges between the residential flats and the commercial units, whether sums had been over recovered and how those charges would need be apportioned in the future. The UT considered that those proceedings went to the heart of "the management of the building".

Accordingly, the landlord’s costs of defending them fell within the relevant service charge covenant.

So, is Walsh inconsistent with Kensquare?

No. If anything, Walsh is a useful illustration of the point made by the Court of Appeal in Kensquare.  Both of these cases are highly dependent upon the both the wording of the particular covenant and the circumstances in which the costs have been incurred.  

The provisions in both cases concerned the management of the building and both contemplated the involvement of professional advisers. The outcomes were nevertheless different.

• In Kensquare, the general reference to professional advisors engaged in connection with the management of the building was not sufficient to bring litigation costs within the general service charge, when that litigation concerned the recovery of service charge arrears from a leaseholder.

• In Walsh, solicitors were expressly identified as persons whose fees could form part of the service charge and importantly the litigation itself concerned the operation of the service charge regime and the apportionment of expenditure across the building.

The important message to Landlords and Management Companies

The decision does not give landlords, RMCs or RTM companies a general right to recover litigation costs through the service charge.  Nor does it alter the outcome of the principle established in Kensquare.

Instead, it provides another useful reminder of the importance of looking carefully at the particular wording of the lease and the circumstances giving rise to the legal costs incurred.

A provision referring generally to management or professional advisers will not necessarily be sufficient to recover costs through the general service charge, but it depends on the circumstances. The relevant questions will include who the lease expressly permits the landlord to employ, what costs or fees the lease permits to recover, the purpose for which those costs were incurred and most importantly, whether the subject matter of the litigation properly falls within the management functions identified within the lease.

A few words can therefore make a considerable difference.  Before litigation costs are charged to the service charge fund, the relevant lease provisions and the nature of the proceedings should be considered carefully to establish whether those particular costs properly fall within the serve charge machinery.

Disclaimer

This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above.  The Legal Update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.