Landlord and tenant – Service charges – Surveyor – Appellant’s lease providing for annual apportionment of cost of services by respondent landlord’s surveyor – Appellant seeking determination whether service charges already paid properly due – Appellant appealing – Whether surveyor’s role void – Whether surveyor’s apportionment irrational – Appeal dismissed
The appellant owned a flat in a development in Hulme, Manchester, known as St Georges II, comprising a mixture of flats and houses, all of which were let on long leases that required the leaseholder to pay a service charge. The appellant purchased his lease in April 2018, and up to April 2021 he paid all the service charges claimed by the respondent landlord, which totalled £4,725.
The appellant’s lease was in the standard form used for all 50 flats on the development. The leaseholder covenanted to pay a service charge calculated in accordance with clause 7 of the lease. The “service charge” was defined as a sum of money equal to “the specified proportion of the service provision” (clause 7(1)(d)).
The landlord’s surveyor was given power to amend the specified proportion. By clause 7(8)(a) of the lease, “If in the reasonable opinion of the surveyor it shall at any time become necessary or equitable to do so he may increase or decrease the specified proportion.”
In February 2021, the appellant applied to the First-tier Tribunal, under section 27A(1) of the Landlord and Tenant Act 1985, asking it to determine whether the service charges he had paid had been properly due under his lease. The FTT confirmed that all of the charges claimed by the respondent had been due.
The appellant was dissatisfied with that decision and appealed to the Upper Tribunal. The main issue concerned the effect of section 27A(6) of the 1985 Act, on the role given to the surveyor by clause 7(8)(a) of the lease. The appeal was determined on the basis of the parties’ written representations.
Held: The appeal was dismissed.
(1) An application under section 27A(1) of the 1985 Act was necessarily about the payability of an actual (already demanded) service charge. Under section 27A(3) it was about the payability of a prospective service charge (before the costs were incurred). Questions arising under such an application were, presumably, questions of contractual entitlement and statutory regulation.
Although section 27A(6) rendered void any attempt to deprive the FTT of its jurisdiction to determine the questions identified in sub-sections (1) and (3), it did not have the effect of expanding that jurisdiction beyond questions of contractual entitlement and statutory regulation. It did not make the FTT the primary decision-maker for the discretionary management decisions which would usually have to be made before a service charge could be collected, including what work should be done, by whom and in what proportions different leaseholders should be charged for it. The jurisdiction of the FTT under section 27A(1) to decide whether a service charge demand was payable extended to the contractual and/or statutory legitimacy of those discretionary management decisions.
Leaving aside section 27A(6), it was not a part of the FTT’s task to make those discretionary decisions itself, let alone for the first time. It would be too late, on an application under section 27A(1), and there would be no warrant either contractually in the lease or in the statutory regulatory regime under the 1985 Act for it to do so. If the landlord’s discretionary decision in question was unaffected by the statutory regime and fell within the landlord’s contractual powers under the lease, then there might at the most be a jurisdiction to review it for rationality: Aviva Ground Rents v Williams [2020] UKSC 6; [2023] EGLR 18 applied.
(2) The right of appeal was against the FTT’s decision, not against its reasons. The decision was that the service charges demanded by the respondent were payable in full. The FTT was satisfied both that the surveyor’s decision was fair and rational, and that the method of apportionment adopted by the surveyor was the one which it would adopt if it was left to make the decision for itself. In those circumstances there was no reason for the Upper Tribunal to interfere with the FTT’s determination that the service charges were payable by the appellant in full.
Following the decision of the Supreme Court in Aviva, the FTT’s only task when a leaseholder challenged a discretionary apportionment made by a landlord or its surveyor would be to consider whether the apportionment was “rational”, in the sense that it was made in good faith and not arbitrarily or capriciously, and was arrived at taking into consideration all relevant matters and disregarding irrelevant matters. Unless for one of those reasons the decision was not one which any reasonable landlord could make, the FTT had to apply it, and might not substitute an alternative apportionment of its own.
(3) In the present case, whatever rights might have been granted to the leaseholders of houses, in practice it was inevitable that they would make much less use of the common parts of the blocks of flats than the leaseholders of flats. It was also the case that the landlord was obliged to repair and maintain the structure and exterior of the blocks of flats, whereas the householders were liable to repair and maintain the structure of their own properties. There was nothing arbitrary or capricious in taking those considerations into account in determining an apportionment.
The lease required the leaseholder to pay the service charge, which was to be the specified proportion of the service provision. By completing the lease in the form they did, the parties agreed that the specified proportion was to be a sum of money rather than a proportion. They also agreed that the surveyor was to have the discretion to vary that sum of money, thereby leaving it to that person to determine how that amount was to be ascertained. Although the way in which the lease fitted together left something to be desired, the FTT was right to decide that the apportionment was in accordance with the terms of the lease. There was nothing irrational in the determination.
(4) It was incontrovertible that a method of apportionment which took account of the benefits which, in practice, different leaseholders enjoyed as a result of the landlord’s expenditure was a reasonable method. It was an approach which was often adopted by reasonable landlords and tenants. It had never been suggested that the surveyor was motivated by some improper purpose or took account of some irrelevant consideration. The FTT was therefore right to adopt the surveyor’s apportionments when determining the amount payable by the appellant.
Eileen O’Grady, barrister
Click here to read a transcript of Braganza v Riverside Group Ltd