Service charges: whether apportionment is just and equitable

If a tribunal is satisfied that there is a contractual provision that permits the landlord to re-apportion service charges, the actual apportionment is a matter for the landlord acting reasonably. Yet, where there are contractual requirements that the new apportionment must also be just and equitable, those terms must also be complied with. In Hawk Investment Properties Ltd v Eames and others [2023] UKUT 168 (LC); [2023] PLSCS 129, the appellant was the freeholder of a 1970s mixed-use development in St Albans. The respondents were long leaseholders of the residential maisonettes. Under the provisions of the residential leases, the lessees were required to pay a proportion of the landlord’s costs in maintaining the building. The procedure for apportionment required the landlord’s surveyor to calculate the apportionment every year before the interim service charges were demanded. Before the abolition of domestic rates in 1990, the proportion payable by each residential lessee was calculated by dividing the rateable value of his or her maisonette by the total rateable value of all the lettable units. If this system was “changed or abrogated”, so as to render the apportionment according to the rateable value “inoperable or manifestly inequitable”, the new method of calculation had to be “just and equitable”, as conclusively determined by the landlord’s surveyor. Following the abolition of domestic rates, the service charges were apportioned by a method calculated on the basis of the 1990 rateable values. The residential lessees together paid 9.74% of the total service charges and the commercial lessees paid 90.26%. In 2021, the appellant changed the method of apportionment and applied to the First-tier Tribunal for a determination of the reasonableness and payability of the service charge. Under the new apportionment, the residential properties would pay about 34% of the whole. The FTT determined that although the rating system had been “changed or abrogated” by the demolition of the domestic rating system, the method of apportionment in the lease was neither “inoperable nor manifestly inequitable”. If it was wrong, the apportionment put forward by the landlord’s surveyor was neither just nor equitable. The Upper Tribunal (Lands Chamber) found that the abolition of the rating system did render the original method of apportionment inoperable. However, in dismissing the appeal, the UT found that the FTT was correct to find that the apportionment proposed by the landlord’s surveyor was neither just nor equitable as required by the leases. Relying on Aviva Investors Ground Rent GP Ltd v Williams [2023] UKSC 6; [2023] EGLR 18, the UT determined that the contractual provision that the determination of the landlord’s surveyor was conclusive had to be ignored. This did not render the landlord’s method of apportionment void. If, as in the present case, the remaining method of apportionment complied with the contractual requirements of the lease, in that it was just and equitable, it would be valid. For the reasons given by the FTT, the proposed new method of apportionment did not meet the contractual requirements of being fair or equitable. Elizabeth Dwomoh is a barrister at Lamb Chambers