The right to re-apportion service charges – an important ruling for landlords and tenants
AVIVA INVESTORS GROUND RENT GP LTD AND ANOTHER (RESPONDENTS) – V – WILLIAMS AND OTHERS (APPELLANTS)
In a decision which will be of importance to residential landlords and tenants, the Supreme Court has ruled to preserve the contractual right within a lease, where provided, for the landlord to re-apportion service charges..
The Background
On 8 February 2023 the Supreme Court handed down judgment in the case of Aviva Investors Ground Rent Gp Ltd and another v Williams and others.
The case had been the subject of litigation over a number of years through various courts, from the First Tier Tribunal finally up to the Supreme Court.
The judgment given by the Supreme Court addressed the following issues:
- To what extent is a term in a residential lease which allows the landlord to revise the tenant’s share of the service charges invalidated by section 27A(6) of the Landlord and Tenant Act 1985?
- If the effect is that any discretion to re-apportion the service charge is transferred from the landlord to the First-tier Tribunal does section 27A(6) enable the tenant as well as the landlord to invoke the Tribunal’s jurisdiction?
The dispute concerned the apportionment of service charges payable by leaseholders of 38 individual flats in a building located in Southsea, Hampshire. The leaseholders were obliged to pay service charges towards the cost to the landlord (Aviva Investors Ground Rent Gp Ltd) of maintaining the building and wider estate. Within their long leases, there was a clause which provided for the payment of service charges by residential leaseholders as either a fixed percentage of the costs or “such part as the landlord may otherwise reasonably determine”.
The landlord had for many years been demanding service charge payments in proportions different to (and above) the fixed percentages provided in the leases, under the provision for re-apportionment of service charges. The leaseholders issued proceedings against the landlord seeking to challenge that practice.
Section 27A(6) of the Landlord and Tenant Act 1985 gives the First-Tier Tribunal (Property Chamber) (the FTT) jurisdiction to make decisions about service charge payments, including whether they are payable and if so, in what amounts. The leaseholders had argued that the effect of section 27A(6) was to render void the apportionment provision in the leases.
As stated above, the case had been litigated over a number of years, finally culminating in an appeal by the leaseholders to the Supreme Court. Previously, the FTT had held that the relevant provision in the leases was not void and that the re-apportionments were reasonable. Subsequently, the Upper Tribunal (Lands Chamber) ruled that the re-apportionment provision was void pursuant to s 27A(6). The landlord had appealed and the Court of Appeal allowed the appeal, ruling that the re-apportionment provision was not wholly void and that the effect of s 27A(6) was to transfer the discretion to vary the service charge proportions from the landlord to the FTT. The leaseholders appealed to the Supreme Court.
The central question in the appeal was whether section 27A(6) renders void a contractual provision in a lease which provides for a leaseholder to pay a fixed proportion of service charges or such other proportion as the landlord may determine. The leaseholders had, in relation to this, maintained that the apportionments by the landlord were unreasonable.
The Supreme Court unanimously dismissed the appeal, finding that the revised apportionments of service charges by the landlord were valid.
The court held that section 27A(6) was plainly an anti-avoidance provision, designed to preserve the jurisdiction of the FTT in determining whether service charges were reasonable in amount. It was not the effect of section 27A(6) to deprive a landlord of its managerial decision making. In other words, it did not operate to prevent the landlord from exercising a contractual right to revise and re-apportion service charges, merely to maintain the jurisdiction of the FTT in determining the reasonableness of the amounts in question. The Court found that a lease provision would however be void if it aimed to oust or limit the jurisdiction of the FTT in determining the reasonableness of a service charge, for instance a provision making the landlord’s decision binding.
The Court found that section 27A(6) was not intended to remove the ability to vary service charge apportionments. In this regard it rejected the leaseholders’ approach, finding that the effect of this would be to remove altogether the power to vary service charges. This would have the effect of having apportionment fixed for many decades over the full term of a lease, even where the apportionment might overwise be varied, for instance by the increase of additional contributing flats in a building. That would be a commercially unattractive result clearly not intended by the parties.
The result will be welcome to landlords as it confirms the contractual right where contained within a lease to re-apportion service charges and the ability of the landlord to make managerial decisions in this regard. It is also an important reminder of the jurisdiction and ability of the FTT to assess the reasonableness and amount of service charges. This will no doubt be of consequence to many residential landlords and tenants throughout the country.
This article is not intended and should not be relied upon for legal advice, Should you wish to discuss your matter, please contact Joe Reeves of our Litigation Department on 0207 481 6383 or joe.reeves@wellerslawgroup.com.