Landlord and tenant – Service charge – Apportionment – Section 27A of Landlord and Tenant Act 1985 – Appellant residential tenants applying to first-tier tribunal to challenge apportionment of service charge under intermediate lease held by their immediate landlord – Appellants ultimately responsible for meeting those costs through their own service charge payments – Intermediate lease providing for final and binding apportionment by surveyor of respondent freeholder – Whether that provision void under section 27A(6) as providing for determination in particular manner of issue capable of being subject of application under section 27A(1) or (3) – Whether FTT erring in approach to apportionment – Appeal allowed
The appellants were the long lessees of six flats on the third and fourth floors of a grade II listed building which had been converted in 2004 into shops, offices and flats. The appellants’ immediate landlord was a sister company of the respondent freeholder; it provided services to the third and fourth floors and held an intermediate leasehold interest in those floors under a lease originally granted by the respondent to the developer of the flats. The respondent let the shops on the ground floor to commercial tenants and the first and second floors to a firm of solicitors. The basement was not let out although the respondent permitted the solicitors’ firm to use it for document storage.
The appellants were liable under the terms of their subleases to pay a service charge to their immediate landlord representing a specified percentage of the service cost incurred in providing services to the third and fourth floors. They also had to pay, in the same fixed percentage, a “maintenance rent” representing a proportion of the service charge for which the immediate landlord was itself liable to the respondent under the intermediate lease. The appellants therefore contributed in the same proportions to the cost of services provided by their immediate landlord and by the respondent.
The service charge payable by the immediate landlord in turn represented an apportioned part of the total costs incurred by the respondent on services to the building as a whole, with the relevant proportion “to be determined by the Landlord’s Surveyor whose determination shall be final and binding”.
The appellants applied to the first-tier tribunal (FTT), under section 27A of the landlord and Tenant Act 1985, to challenge the apportionment of the service charge under the intermediate lease. Dismissing the application, the FTT held that it was for the respondent’s surveyor to determine to determine the “due and fair proportion of the Service Cost” and that, so long as the surveyor’s apportionment was reasonable, the FTT could not substitute its own view of how that task should be carried out. The appellants appealed.
Held: The appeal was allowed.
(1) The appellants had no contractual relationship with the respondent. Although the respondent incurred costs for which the tenants were ultimately responsible, it was only to their immediate landlord that they were oblige to pay a service charge. The FTT nonetheless had jurisdiction, on an application by the appellants under section 27A, to consider the service charge payable to the respondent by the appellants’ immediate landlord under the intermediate lease, which would then be passed on through the maintenance rent under the subleases of the flats. Under section 18 of the 1985 Act, a service charge was an amount payable by “the tenant of a “dwelling”, which, in accordance with the definition of “dwelling” in section 38, could include the appellants’ immediate landlord even though its tenancy included other property or comprised more than one dwelling. It was not necessary that the application be made by the “tenant of the dwelling” under whose lease the service charge was payable: Oakfern Properties Ltd v Ruddy [2006] EWCA Civ 1389; [2007] Ch 335; [2006] 3 EGLR 30 applied.
(2) When determining the issue of apportionment under the service charge provisions in the intermediate lease, it was relevant to consider section 27A(6) of the 1985 Act, which voided any agreement by the tenant of a dwelling so far as it purported to provide for a determination in a particular manner or on particular evidence of any question that could be the subject of an application under section 27A (1) or (3). Section 27A(6) was relevant to any contractual provision by which a landlord or its surveyor was given responsibility for the apportionment of service charges on a fair basis. It made no difference that there was no contractual relationship between the appellants who would ultimately pay the service charge and the respondent, whose surveyor carried out the apportionment which determined the aggregate total of their contributions. The issue of apportionment under the intermediate lease could be the subject of an application by the appellants under section 27A(1) or (3). The provision for the apportionment to be determined by the landlord’s surveyor was therefore void as providing for the determination “in a particular manner” of the main issue in the appellants’ applications.
The effect of section 27A(6) was not limiting to voiding the provision that the surveyor’s determination should be “final and binding”. The statutory anti-avoidance provision rendered void so much of the agreement as had the effect of providing for the determination in a particular manner of any question which could be referred to the appropriate tribunal under section 27A(1). A determination of proportions by the landlord’s surveyor was such a provision, regardless of whether it was said to be final and binding: Windermere Marina Village Ltd v Wild [2014] UKUT 163 (LC); [2014] EGILR 38 applied.
Where a provision for determining an apportionment was rendered void by the operation of section 27A(6) of the 1985 Act, and the parties could not agree what was fair, the fair proportion would fall to be determined by the appropriate tribunal. In carrying out an apportionment, the appropriate tribunal would have regard to the parties’ agreement, so far as it remained. The FTT had therefore erred in the limited view it took of its role in relation to apportionment and, if the parties were unable to agree on the matter, it should be remitted to the FTT for reconsideration accordingly.
The first appellant’s father, George Gater, appeared on behalf of the appellants; Charlotte Black (instructed by Browne Jacobson LLP) appeared for the respondents.
Sally Dobson, barrister
Read a transcript of Gater and others v Wellington Real Estate Ltd and another here
