Service charges – Flats – Section 35 of Landlord and Tenant Act 1987 – Respondent lessees applying to vary terms of leases on ground that provision for computation of service charges unsatisfactory – Service charges aggregating to 116% of appellant landlords’ expenditure – Appellants reducing total payable to 100% by lowering proportion in respect of own flat – Whether leasehold valuation tribunal having jurisdiction under section 35 to vary service charge provisions – Whether confined to cases where aggregate exceeding or falling short of 100% – Appeal allowed
The appellants owned a building containing eight flats, with a dental surgery and laboratory at ground-floor and basement level. Each of the flats was let on a long lease in similar form, on terms that provided for the payment of service charges as a proportion of the expenditure incurred by the landlord. The respondents were the lessees of six of the eight flats; the other two were held by the appellants and N respectively. The respondents applied to the leasehold valuation tribunal (LVT) to vary the terms of their leases pursuant to section 35 of the Landlord and Tenant Act 1987. They relied on the ground in section 35(2)(f), namely that the lease failed to make satisfactory provision for the computation of service charges; section 35(4) specified that this would be the case if the total payable by all the tenants was more than 100% of the landlord’s expenditure. At the relevant time, the aggregate payable under the leases was 116%.
Thereafter, the appellants reduced the proportion of service charges payable under their own lease to 1/96th, and that of N to 3/96th, thus reducing the total to 100%. They contended that the service charge provision was now satisfactory and that the LVT had no jurisdiction to vary it where the aggregate of service charges neither exceeded nor fell short of 100%. The LVT rejected the appellants’ contentions and adjusted the proportion payable under the respondents’ leases to 1/12th or 1/10th.
The appellants appealed. They contended that section 35(4) was intended to be exhaustive as to the circumstances of any unsatisfactory provision in respect of the computation of service charges, such that the LVT had not been entitled to vary the charges where the aggregate payable was 100%. The respondents argued that section 35(2)(f) provided a remedy for obvious unfairness regarding the proportions in which the service charge was payable and that it required the use of a logical method of calculation, under which the contributions had to be reasonable.
Held: The appeal was allowed.
Although there was force in the contention that the words “satisfactory computation” connoted a satisfactory calculation as well as a satisfactory result, that only begged the question as to whether those words were subsequently qualified or merely exemplified in the circumstances then set out. Likewise, section 35(4) could be read as characterising provision as unsatisfactory “only if” the aggregate exceeded or fell short of 100%, but it would have been simpler to use those words. Accordingly, the section was ambiguous and, in order to clarify it, regard could be had to the report on which the statutory provisions were based and to ministerial statements made during the passage of those provisions through parliament: Pepper v Hart [1993] AC 593 applied.
The authors of the report and the promoters of the bill had had in mind two situations that the provisions were intended to avoid. The first was that the aggregate of service charges payable in respect of a block of flats amounted to more than 100% of expenditure, thereby giving to the lessor a surplus over the moneys expended. The second dealt with the situation where the aggregate was less than 100%, thus producing a shortfall and failing to promote the proper maintenance of the block. Each of those situations would be avoided if the service charges payable aggregated to 100%. The justification for the intervention with the contractual freedom of the parties was that such intervention was needed where the scheme was seriously defective in a way that had a direct bearing on the upkeep and fitness for habitation of the flats in the block. It might be desirable to avoid a situation in which the service charge contributions were unfairly disproportionate, but that was a mischief of a different nature, relating to fairness between tenants and not to whether the landlord made a profit or had an incentive to maintain the block. It was not the mischief that the provisions were intended to remedy. Accordingly, section 35(4) should be construed as though the word “if” read “only if”. The LVT’s determination was set aside and the proportions in which the service charges were payable remained those provided for in the lease.
Ewan Paton (instructed by LG Williams & Prichard Solicitors, of Cardiff) appeared for the appellants; the respondents appeared in person.
Sally Dobson, barrister
