Landlord and tenant – Service charge – Apportionment – Landlord and Tenant Act 1985 – Long leases of respondents’ dwellings in marina village providing for payment of service charge to appellant landlord representing fair proportion of costs determined by landlord’s surveyor on final and binding basis – Whether leasehold valuation tribunal having jurisdiction to substitute own apportionment on application under section 27A(1) – Whether agreement for final and binding determination by surveyor void under section 27A(6) as purporting to prescribe manner of determination of issue capable of being subject of application under section 27A(1) or (3) – Appeal dismissed
The respondents were the long lessees of 26 dwellings in a marina village at Bowness, on Lake Windermere, of which the appellant was the freeholder. The village had grown in size since the first leases were granted and comprised a mix of apartments and cottages, boat moorings, a boatyard and marina centre. The respondents were required by the terms of their leases to pay to the appellant, as landlord, a service charge representing a “fair proportion” of the cost of all communal services, with such apportionment to be determined by the landlord’s surveyor “whose determination shall be final and binding”. No service charge was reserved in respect of other dwellings in the village, which were not let on long leases and were instead operated by the appellant as time-shares or holiday cottages, or in respect of the boat moorings which the appellant also operated as part of its business.
From 2007, the appellant engaged a surveyor to apportion the cost of communal services, which had increased as a result of the growth of the marina. The apportioned charges payable by the respondents were considerably higher than the appellant’s own contribution as owner of each of the moorings. The respondents regarded the apportionment as unfair, taking the view that matters such as night-time security patrols primarily benefited the moorings rather than the dwellings. In 2011, they applied to the leasehold valuation tribunal (LVT), under section 27A of the Landlord and Tenant Act 1985, for a determination of their liability to pay service charges for grounds maintenance and security in the years from 2008 to 2011.
The LVT held that the respondents were liable to contribute to services for areas of the marina developed since the grant of their leases; however, it varied the apportionment to split the cost of grounds maintenance and security equally between the dwellings and the moorings.
The appellant appealed, contending that the LVT had no jurisdiction to vary the surveyor’s apportionment. An issue arose as to whether the provision in the leases for apportionment by the landlord’s surveyor was void under section 27A(6) of 1985 Act as purporting to prescribe a particular manner of determining an issue that could be the subject of an application under section 27A(1) or (3).
Held: The appeal was dismissed.
Under the general law, parties could validly agree that some important matter arising for determination under a contract, such as the price payable or the adequacy of performance, was to be the subject of a binding determination to be made by a third party appointed by one of the parties to the contract. A common example was where the parties to a lease agreed that the amount of a service charge payable by the tenant should be certified by the landlord’s surveyor or managing agent. Although section 19 of the 1985 Act interfered with and supplemented contractual agreements relating to service charges, by limiting the costs to be taken into account in ascertaining the charge to those that were reasonably incurred, it had no effect on an agreement relating to the apportionment of service charges among different users of a service. While costs were to be taken into account only to the extent that they were reasonably incurred, such costs, if reasonably incurred, fell to be apportioned in accordance with the terms of the lease, so far as it specified a fixed proportion or percentage or an agreed formula for calculating it, and the tribunal was not permitted to ascertain what was a reasonable apportionment of the costs: Schilling v Canary Riverside Development PTD Ltd [2005] LRX/26/2005 applied. Accordingly, where the parties had agreed in their lease how service charges were to be apportioned, such as in fixed proportions or percentages, or in proportions referable to floor area or rateable value, an application under section 27A(1) in respect of that matter would be precluded by section 27A(4) of the 1985 Act, prohibiting an application in respect of matters that had been agreed or admitted.
However, the position might be different where the parties had not agreed the apportionment of liability at the commencement of their lease, but had left that question to be determined by a third party at a later date. The section 27A(4) prohibition on re-opening matters that had been agreed had to be considered in the light of section 27A(6), which rendered void any agreement by the tenant in so far as it purported to provide for the determination of any question that could be the subject of an application under section 27A(1) or (3) “in a particular manner” or “on particular evidence”. The purpose of the provision was to avoid agreements excluding the jurisdiction of the first-tier tribunal on questions that could otherwise be referred to it for determination. The issue of apportionment could be the subject of a determination under section 27A(1) and there might be applications in which that issue was the heart of the dispute.
In a statutory anti-avoidance provision such as section 27A(6), an agreement would “purport to” provide for an outcome if it had the effect of providing for that outcome: Joseph v Joseph [1967] Ch 78 applied. The meaning of a particular provision in the agreement had to be determined on normal principles of construction before deciding whether that provision, so construed, was rendered void by section 27A(6). In the instant case, the question referred to the LVT was what proportion of the expenses incurred by the appellant was to be paid by the respondents. On a proper construction of the leases, the respondents had already agreed the answer to that question to be that they would pay such proportion as was determined by the appellant’s surveyor, whose decision was to be final and binding. That agreement was void because it had the effect of providing for the manner in which an issue capable of determination under section 27A(1) was to be determined, namely by a binding decision of the appellant’s surveyor: Schilling and Levitt v London Borough of Camden [2011] UKUT 336 (LC) (in which section 27A(6) was not considered) distinguished.
It followed that the LVT had been entitled to determine the fair proportion of expenses payable by the respondents, because the contractual mechanism for identifying that fair proportion was rendered void by section 27A(6) of the1985 Act. Section 27A(6) deprived the landlord’s surveyor of his role in determining the apportionment and did not merely void the agreement so far as it provided for such determination to be final and binding. In those circumstances, it was for the LVT to decide the fair proportion of the expense of communal services payable by the respondents. The method it had adopted was not unfair and it had provided sufficient reasons for its decision.
Per curiam: The apportionment of service charges could be a complex matter in a building with a variety of modes of occupation. If the first-tier tribunal was asked to substitute its own view of a proper apportionment, because it was said that a contractual provision had been rendered void by section 27A(6) of the 1985 Act, it should bear in mind both the possibility of competing interests amongst different occupiers, and the fact that a determination under section 27A(1) bound only those who were party to it. The tribunal might therefore need to consider, at the case management stage, whether it was appropriate for notice of the proceedings to be given to any third party who might wish to make representations.
David Gilchrist (instructed by Harrison Drury & Co, of Preston) appeared for the appellant; Eleanor d’Arcy (instructed by Aaron & Partners LLP, of Chester) appeared for the respondents.
Sally Dobson, barrister
