A degree of flexibility in the apportionment of service charges is possible, as Elizabeth Dwomoh discovers.
Key points
- Section 27A(6) of the Landlord and Tenant Act 1985 is concerned only with preventing the ousting of the jurisdiction of the FTT in determining matters under section 27A(1)
- Invalidating a contractual agreement pursuant to a statutory provision should only be carried out to the extent required to safeguard the objectives of the Act
The First-tier Tribunal retains a wide jurisdiction under section 27A(1) of the Landlord and Tenant Act 1985 to determine whether a service charge is payable.
Under section 27A(4)(a) an application cannot be made to the FTT when a matter falling under section 27A(1) has been agreed by the tenant. This section must be read together with the anti-avoidance provisions under section 27A(6), which render void any contractual provision that seeks to oust the jurisdiction of the FTT in determining matters that fall within section 27A(1).
In Aviva Investors Ground Rent GP Ltd and another v Williams and others [2021] EWCA Civ 27; [2021] PLSCS 13, the Court of Appeal was asked to consider whether the contractual mechanism for the apportionment of service charges between the landlord and tenant offended section 27A(6).
The provision
Vista, Fratton Way, Southsea, Hampshire was a mixed residential and commercial use development. Philip Williams and 38 other individuals were the long leaseholders of flats in the development.
The service charge provision under each lease was substantially in the same form. The lessees were required to pay for the following three items through the service charge: insurance costs, building services costs and estate costs. The amount of service charge payable by each lessee for those items was determined by way of a fixed percentage “or such part as the landlord may reasonably determine”.
Over the years the lessees’ landlord had been demanding service charges in different proportions to those stated in the leases. The lessees objected. They argued that section 27A(6) voided the words “or such part as the landlord may reasonably determine” as those words ousted the jurisdiction of the FTT. The deletion of those words meant that, unless the parties agreed to a variation, the landlord was restricted to the fixed percentages.
Void or not?
Relying on Windermere Marina Village Ltd v Wild and Barton [2014] UKUT 163 (LC); [2014] PLSCS 165 and Gater and others v Wellington Real Estate Ltd [2019] UKUT 561 (LC); [2015] PLSCS 12, the FTT disagreed with the lessees’ analysis.
Windermere and Gater concerned the apportionment of service charges where section 27A(6) applied. The FTT observed that the common thread from both cases was that the jurisdiction of the FTT to determine a reasonable apportionment was not ousted by wording purporting to provide that the matter was one for the landlord or the landlord’s agent. In the present case, the landlord was not seeking to oust the jurisdiction of the FTT when determining whether any variations made to the percentages specified in the service charge provision were reasonable or not.
The Upper Tribunal (Lands Chamber) disagreed with the FTT’s interpretation. The UT considered that Windermere and Gater provided that a clause was void if it purported to provide for a determination of apportionment by the landlord or the landlord’s agent. It was void whether or not it provided that the landlord’s decision was “final and binding” or similar, and whether or not the landlord agreed to submit to the jurisdiction of the FTT. In the present case, the UT found that section 27A(6) operated so as to render the words “or such part as the landlord may otherwise reasonably determine” void.
The UT found that the deletion of the impugned words did not create a void in the service charge provision. The fixed percentages outlined in the clause remained intact and the landlord was bound by them.
Flexibility
The landlord subsequently appealed to the Court of Appeal. It argued that the language of section 27A(6) required a balanced approach to be taken to the question of invalidation. The agreement only needed to be neutralised to the extent required to safeguard the objectives of the Act. Such a course of action would ensure that the remainder of the agreement was not emasculated and left unworkable. The Court of Appeal approved this approach.
Relying on Windermere, Gater, Oliver v Sheffield City Council [2017] EWCA Civ 225; [2017] PLSCS 83 and Fairman v Cinnamon (Plantation Wharf) Ltd [2018] UKUT 421 (LC), the Court of Appeal noted that section 27A(6) was only concerned with preventing any attempt by a landlord or third party to oust the jurisdiction of the FTT in determining matters that fell within its remit under section 27A(1). Where the statutory role was transferred to the FTT, the statutory objective was satisfied.
In the present case, the Court of Appeal found that the lease should be read as if it provided for the fixed percentage “or such part as… may otherwise reasonably determine”. The vacuum created could be filled, and was filled, by adding the words “the FTT”. The function of making the necessary determination was transferred from the landlord to the FTT.
This decision will be welcomed by landlords. The Court of Appeal’s approach provides a degree of flexibility in the apportionment of service charges where the jurisdiction of the FTT is not ousted.
Elizabeth Dwomoh is a barrister at Lamb Chambers
