Parties to leases commonly agree to allow the landlord’s surveyor or managing agent to certify service charge totals. In some cases, the parties agree that they should select the most appropriate method of apportionment too. Windermere Marina Village Ltd v Wild [2014] UKUT 163 (LC) concerned the effect of service charge provisions that required the tenant of a dwelling on a waterside development to pay a fair proportion of the landlord’s expenditure on communal services. The proportion was to be determined by the landlord’s surveyor, whose decision was to be final and binding on the tenant.
The tenant took issue with the way in which the costs of security and maintenance had been apportioned between different users. The method used was in line with the guidance contained in the RICS Code of Practice on Residential Service Charges (which suggests several different ways of apportioning costs fairly). Did the Leasehold Valuation Tribunal have the jurisdiction to substitute its own apportionment in place of the surveyor’s?
The answer to the question turned on the effect of section 27A(6) of the Housing Act 1985, which provides that agreements by the tenants of dwellings (other than post-dispute arbitration agreements) are void in so far as they purport to oust the tribunal’s jurisdiction to decide the amount, date and manner in which, and by whom and to whom, service charges are payable.
Neither party was able to point to any previous authority dealing with this particular point of law. The landlord argued that section 27A(6) was enacted to outlaw agreements making certified service charge accounts conclusive as to the amount payable – and did not prevent parties from agreeing that a third party could determine how service charges should be apportioned between tenants. However, the tribunal decided that section 27A(6) was wider than this. It empowers the tribunal to determine how much a tenant should pay – and, in order to do this, the tribunal must also be able to consider the proportions in which service charge costs are split between tenants.
Section 27A(4) ensures that section 27A(6) does not apply in respect of matters that have already been agreed by tenants. Consequently, it does not apply where parties have agreed to apportion service charge expenditure in accordance with a fixed proportion or percentage, or by reference to an agreed formula (for example, on the basis of floor area or rateable value).
However, the section does apply to leases that leave the method of apportionment to a third party, or that identify more than one method of apportionment, but allow a third party to select the method used, either generally or in relation to particular categories of expenditure (as is often the case in local authority leases). Therefore, the tribunal was entitled to substitute its own apportionment because the contractual mechanism empowering the landlord’s surveyor to select the method used, and stating that the surveyor’s decision was final, was void.
Landlords will be surprised and dismayed by the decision, which could affect the service charge arrangements for a significant number of properties around the country.
Allyson Colby is a property law consultant