Landlord and tenant – Service charge – Apportionment – Appellants holding lease of flat on terms providing for payment of “fair and proper proportion” of service charge for estate – Respondent apportioning service charge equally between all units on estate – First-tier tribunal deciding that service charge to be apportioned according to floor area of units but refusing to backdate that contribution – Whether FTT erring in reaching decision by reference to administrative difficulties and risk of insolvency for respondent – Appeal allowed
The appellants were the leaseholders of a one-bedroom flat on an estate in London E3 under a lease that provided for the payment of a service charge to the respondent management company. The sum payable under the lease was to be a “fair and proper proportion” of the service charge for the estate as a whole. There were 33 units on the estate and the appellants’ flat was one of the smallest. All the lessees on the estate had a share in the respondent and its directors were also lessees.
The respondent determined that the fair and proper proportion of the service charge payable by the appellants was 1/33rd, with the total charge being divided equally between the number of units on the estate. The appellants considered that approach unfair and applied to the first-tier tribunal (FTT), under section 27A of the Landlord and Tenant Act 1985, for a determination of the service charge properly payable. They contended that the service charge should be apportioned by reference to the floor area of each unit.
In a decision issued in October 2015, the FTT decided that that the appellants’ proposed method of apportionment should be adopted for the 2015/2016 service charge year and for future years, but refused to recalculate the appellants’ service charge contribution for 2012/2013 and 2014/2015. In reaching that decision, it considered that the appellants had not brought their application promptly and that backdating the new apportionment method would create an administrative nightmare for the respondent and might also lead to other lessees arguing for their own contributions to be recalculated. The FTT took into account that the respondent was owned and run by the lessees and concluded that it would not assist any of the lessees, including the appellants, if a decision were reached in relation to apportionment that had the effect of forcing the respondent into insolvency.
The appellants appealed. They contended that the FTT had not been entitled to reach a decision by reference to the risk of the respondent’s insolvency without giving the appellants an opportunity to deal with that point and, moreover, that it had no evidence on which to find that backdating the appellants’ new contribution would be an “administrative nightmare”.
Held: The appeal was allowed.
The FTT should not have attached any weight to the possibility of the respondent’s insolvency without evidence and without giving the appellants’ an opportunity to deal with the suggestion. There was no evidence before the FTT that entitled it to conclude that there was a risk of insolvency or that backdating the appellants’ contributions would create an administrative nightmare for the respondent.
Moreover, and in any event, it was difficult to see how the interpretation of the words “fair and proper proportion of the service charge” could depend on the date when the appellants’ application was made. Nor, in light of the FTT’s decision that an apportionment based on floor area was fair and reasonable, could an apportionment in equal shares for the years before 2015 be considered “fair and proper”.
While it was possible that there might be other claims, and that the respondent might not be able to recover any shortfall from lessees who had underpaid under the service charge provisions in their lease, that was a consequence of the respondent adopting a formula that did not reflect the terms of the lease. It was difficult to see why that should be laid at the door of the appellants.
Harriet Holmes (instructed by the Bar Pro Bono Unit) appeared for the appellants; the respondent did not appear and was not represented.
Sally Dobson, barrister
Click here to read a transcript of Avgarski and another v Alphabet Square Management Co Ltd
