Service charges: re-apportionment and jurisdiction of the FTT under section 27A(6) – revisited

A contractual provision relating to service charges will be void only to the extent it purports to oust the jurisdiction of the First-tier Tribunal. This is the effect of the anti-avoidance provision of section 27A(6) of the Landlord and Tenant Act 1985. In Aviva Investors Ground Rent GP Ltd and another v Williams and others [2023] UKSC 6; [2023] PLSCS 29, the Supreme Court has swept away the traditional orthodoxy established by Windermere Marina Villages Ltd v Wild and Barton [2014] UKUT 163 (LC); [2014] PLSCS 165, Fairman v Cinnamon (Plantation Wharf) Ltd [2018] UKUT 421 (LC) and Oliver v Sheffield City Council [2017] EWCA Civ 225; [2017] PLSCS 83 that a provision in a lease that gives contractual effect to a discretionary decision made by the landlord in relation to service charges, whether or not the landlord’s decision was expressly stated to be final and binding, was void by virtue of section 27A(6). The appellant lessees were owners of residential flats in a mixed-use development in Southsea. The service charge provisions of their leases provided for payment of three components: insurance costs, building services costs and estate costs. Payment was calculated by way of a fixed percentage “or such part as the landlord may reasonably determine”. The respondent landlords sought to re-apportion the service charges paid by varying the percentages set out in the leases. The lessees objected, arguing, among other things, that any such re-apportionment was voided by section 27A(6). The courts below all arrived at different decisions. The FTT found that the landlords’ contractual power to re-apportion was not voided by section 27A(6) because the lessees could challenge the reasonableness of any reapportionment before the FTT. The Upper Tribunal (Lands Chamber), reversed this decision on appeal. It found that the entirety of the contractual provision relating to reapportionment was void. The fixed percentages could not be changed unless the parties agreed otherwise. The Court of Appeal found that the effect of section 27(A)(6) was to transfer the discretion to vary the service charge proportions from the landlord to the FTT. The re-apportionment provision was not wholly void and the appeal was allowed. The Supreme Court focused on the true effect of section 27A(6). It recognised it was an anti-avoidance provision designed to preserve the jurisdiction of the FTT. It was not, however, intended to enlarge its jurisdiction or deprive landlords of the contractual effect of their discretionary managerial decisions. A contractual provision would only be void to the extent that it purported to oust the jurisdiction of the FTT by making the landlord or another third party’s decision final and binding. Elizabeth Dwomoh is a barrister at Lamb Chambers