In the case of Williams v Aviva Investors Ground Rent GP Ltd [2023] UKSC 6, the Supreme Court considered the effect of s.27A(6) of the Landlord and Tenant Act 1985 on service charge re-apportionment provisions in residential long leases.
In the case of Williams v Aviva Investors Ground Rent GP Ltd [2023] UKSC 6, the Supreme Court considered the effect of s.27A(6) of the Landlord and Tenant Act 1985 on service charge re-apportionment provisions in residential long leases.
Background
The appeal was brought by long leaseholder tenants of a residential block of flats. Under the terms of each residential long lease, the tenants were required to pay a service charge. The service charge was set as a fixed percentage or “such part as the landlord may otherwise reasonably determine”. When the landlord subsequently re-apportioned the service charge, applying a different apportionment to the fixed percentages set out in the leases, a dispute arose.
Statute
The tenants argued that the re-apportionment provisions were void by virtue of s.27A(6) of the Landlord and Tenant Act. This was on the basis that the provision allowed the landlord to determine something which ought to be within the jurisdiction of the First-tier Tribunal (“FTT”).
Earlier decisions
The FTT held that the re-apportionment was not void by s.27A(6), because the lease provisions did not prevent the tenants from challenging the reasonableness of the apportionments in the FTT. However, the Upper Tribunal subsequently went onto find that the provisions were void. The Court of Appeal party agreed the provisions were void, but only to the extent that the landlord was the only party able to exercise the power to re-apportion. s.27A(6) meant that either the landlord or the tenant could apply to the FTT for the service charge to be re-apportioned. Accordingly, the landlord would have to apply to the FTT for a re-apportionment and could not carry out the re-apportionment at its own discretion.
Supreme Court decision and reasoning
In contrast, the Supreme Court confirmed that the re-apportionment provision was valid (and that the landlord’s apportionment was reasonable). The Supreme Court held that s.27A gave the FTT jurisdiction to determine whether a service charge was payable (s.27 A(1)), or whether a service charge would be payable if specific costs were incurred (s.27A(3)).
However, the landlord’s decision to re-apportion the service charge was not a question to be determined by the FTT within s.27A(1) or (3), but was rather a landlord’s discretionary management decision. It therefore followed that, s.27A(6), which simply protects the jurisdiction of the FTT to make decisions already within its jurisdiction under s.27A(1) or (3), did not extend to making re-apportionments. This would be a landlord’s discretionary management decision instead.
To do otherwise would mean that, before a landlord could incur any service charge costs, it would first need to apply to the FTT for clearance of the proposed service charges. Clearly, this would be “commercially unattractive” and would be administratively burdensome for the FTT, who would be overwhelmed by the numbers of applications from landlords and tenants for re-apportionments from any fixed percentage stated in a lease.
Ultimately, the Supreme Court acknowledged that the purpose of s.27A(6) should not be to deprive a landlord’s ability to make managerial decisions, unless the re-apportionment provision would make the landlord’s decision final and binding, in a way which would seek to avoid the jurisdiction of the FTT. In this case, the relevant provision did not impede the power of the FTT to review the contractual and statutory legitimacy of the provision and so was not void.
Conclusion
This decision limits the room for service charge disputes, giving landlords and managing agents dealing with mixed-use commercial and residential properties more room for manoeuvre when carrying out service charge re-apportionments.
Key points
- A landlord’s decision to re-apportion service charge is a landlord’s discretionary management decision.
- Lease provisions allowing re-apportionment of service charge should not purport to avoid the jurisdiction of the FTT.
- Landlords should be alert to the potential for dispute when altering service charge apportionments.