Landlord and tenant – Service charges – Apportionment – Respondent lessees in block of flats appealing against decision of First-tier Tribunal concerning reasonableness and payability of service charges – Upper Tribunal allowing appeal – Appellant landlord appealing – Whether service charge provisions in leases limited to specific percentages – Whether wording in leases rendered void by section 27A(6) of Landlord and Tenant Act 1985 – Appeal allowed
The respondents were the lessees of 39 flats in Vista, Fratton Way, Southsea, Hampshire. The property was a mixed-use block with a commercial unit on the ground floor and 69 residential units. Each lease set out the tenant’s share of three types of service charge including insurance costs, building services costs and estate services costs and provided for each tenant to pay an identified percentage “or such part as the landlord may otherwise reasonably determine”.
For some years, the appellant landlord had been demanding service charges in different proportions from those stated in the lease. An issue arose whether the appellant was able to do so, subject to the jurisdiction of the First-tier Tribunal (FTT) under section 27A of the Landlord and Tenant Act 1985 Act; or whether the words “or such part as the landlord may otherwise reasonably determine” were rendered void by section 27A(6), which provided that an agreement was void insofar as it purported to provide for a determination in a particular manner or on particular evidence of any question which might be the subject of an application under section 27A(1). The FTT found that its jurisdiction was not ousted by wording purporting to provide that the matter was for the landlord.
The Upper Tribunal set aside the decision of the FTT and substituted its own decision that the words “or such part as the landlord may otherwise reasonably determine” in the leases were void. The appellant could recover only the apportionments stated in the lease and could only change that apportionment by varying the leases with the respondents’ agreement: [2020] UKUT 111 (LC); [2020] PLSCS 68. The appellant appealed.
Held: The appeal was allowed.
(1) The issue on this appeal was the extent to which a provision dealing with service charges in a residential lease was invalidated by section 27A(6) of the 1985 Act. The clear thread that ran through the previous decisions of the Upper Tribunal was that section 27A(6) was concerned with no more than removing the landlord’s role (or that of another third party) from the decision-making process, in order not to deprive the FTT of jurisdiction under section 27A(1). The statutory objective was satisfied if the landlord’s role was transferred to the FTT. To reach a broader conclusion than that would leave the contract emasculated and, in practical terms, unworkable. Nor was there any objection in principle to a degree of flexibility in the apportionment of a service charge, provided that the decision was taken by the FTT. What the court was concerned with was not the form of drafting but the substance of the impugned provision. It was a question of the effect and enforceability of agreed provisions, not their language or form: Windermere Marina Village Ltd v Wild [2014] UKUT 163 (LC); [2014] 3 EGLR 12; [2014] EGILR 38 and Fairman v Cinnamon (Plantation Wharf) Ltd [2018] UKUT 421 (LC); [2014] L&TR 30 applied. Oliver v Sheffield City Council [2017] EWCA Civ 225; [2017] PLSCS 83; [2017] 1 WLR 4473 followed. Gater v Wellington Real Estate Ltd [2014] UKUT 561 (LC); [2015] PLSCS 12; [2015] L & TR 19 and Roberts v Countryside Residential Ltd [2017] UKUT 386 (LC) considered.
(2) In the present case, the service charge provision envisaged that the lessee might be liable to pay (as an alternative to the fixed percentage) a different percentage which was to be identified by someone acting reasonably; and that that someone was the landlord. Only the second component was invalidated by section 27A(6). The particular manner in which the percentage was determined was by the landlord. All that was necessary for compliance with section 27A(6) was to deprive the landlord of its role in making the determination.
The effect of that conclusion was that what the lease envisaged as being a unilateral right of the landlord (ie, at least to propose a different percentage) would be converted into a bilateral right in which the lessee could also propose a change. It was open to either the landlord or the lessee to refer the question of a different reasonable percentage to the FTT if it could not be agreed.
(3) The Upper Tribunal had notionally excised more from the lease than was necessary to achieve the statutory purpose of section 27A(6). The effect of her decision was in fact to deprive the FTT of all jurisdiction over the apportionment of service charges, which was not what section 27A(6) was intended to achieve. The lease was to be read as if it had provided for the fixed percentage “or such part as… may otherwise reasonably determine”. If further slight linguistic adjustment was needed to make grammatical sense, so be it. On that reading, there was a vacuum to be filled, and it was filled by the FTT. All that was necessary to comply with section 27A(6) was to deprive the landlord of its role in making the determination that a new percentage had to apply. Either the landlord or any lessee could refer the question of a different percentage to the tribunal if it could not be agreed.
(4) The respondents had contended that, if the effect of section 27A(6) was as the Upper Tribunal determined, the appellant could apply to the FTT under section 35(1) of the Landlord and Tenant Act 1987 for the leases to be varied on grounds including a failure by the lease to make “satisfactory provision” for the computation of a service charge payable under the lease: section 35(2)(f). The FTT would then determine the appropriate percentage of costs recoverable from each tenant. That of itself showed that there was nothing objectionable in the FTT determining service charge apportionments (as was inherent in its wide jurisdiction under section 27A(1) of the 1985 Act). But pursuing that route would require a separate application to the FTT resulting in greater expense for the parties. If a simpler route to the same destination was available, it was to be preferred.
Simon Allison and Brooke Lyne (instructed by Penningtons Manches Cooper LLP) appeared for the appellants; James Sandham and Robert Brown (instructed by Direct Access) appeared for the respondents.
Eileen O’Grady, barrister
