Disputes about the apportionment of residential leasehold service charges are often fraught. One leaseholder might think their current percentage is unfair but adjusting the share they pay will usually result in someone else paying more. As such, these disputes often pit leaseholder against leaseholder; neighbour against neighbour.
In a recent judgment handed down by the Supreme Court the court has narrowed the scope and circumstances in which these disputes will arise. The decision will impact upon hundreds of thousands of leaseholders and landlords across the country.
The case of Aviva v Williams [2023] UKSC 6 concerned a residential block of flats called “Vista” located in Southsea, Hampshire. The Vista leases provided that the service charge payable by leaseholders was a fixed percentage or “such part as the landlord may otherwise reasonably determine”. The landlord had (for as long as anyone could remember) charged leaseholders on the basis of percentages that were different to the fixed apportionment in the leases. This may have been because the wider development, which contained several blocks, was originally in single ownership but parts of it had been sold to different freeholders. If the fixed percentages had been applied by the landlord, then there would have been a significant shortfall in terms of recovery.
In the First Tier Tribunal (“FTT”) some of the leaseholders argued that the lease provision allowing the landlord to apply different percentages was void under s.27A(6) of the Landlord and Tenant Act 1985, which provides as follows:
An agreement by the tenant of a dwelling (other than a post-dispute arbitration agreement) is void in so far as it purports to provide for a determination—
(a) in a particular manner, or
(b) on particular evidence,
of any question which may be the subject of an application under subsection (1) or (3).
Subsection (1) and (3) are the parts of the 1985 Act that provide that the Tribunal can determine whether service charges by leaseholders of long leases of dwellings are payable or would be payable.
The leaseholders relied upon a line of cases beginning with Windermere v Wild [2014] UKUT 163 (and approved by the Court of Appeal in Oliver v Sheffield City Council [2017] EWCA Civ 225), in which the courts had said that apportionment provisions allowing the landlord (or the landlord’s surveyor) to calculate the apportionment were caught by s.27A(6) and therefore void. The leaseholders said that all the words in the lease allowing for reapportionment by the landlord ought to be struck through for all purposes, leaving only the fixed apportionments.
Before the FTT the leaseholders were unsuccessful - it did not consider that s.27A(6) resulted in the apportionment provision being deleted and went on to approve the reapportionment that had been carried out by the landlord.
The leaseholders then successfully appealed to the Upper Tribunal where it was held that the reapportionment provision was to be struck through entirely such that the landlord was stuck with the fixed percentages in the leases only.
In the landlord’s appeal to the Court of Appeal, the court concluded that the effect of s.27A(6) was that the landlord’s role in being able to reapportion the percentages under the lease was to be replaced by that of the FTT and any affected party could apply for reapportionment to be carried out. This had the effect of turning a unilateral right, i.e. the landlord’s right to reapportion, into a multilateral right where any leaseholder or affected party could apply to reapportion the service charges at any time.
The leaseholders appealed again to the Supreme Court maintaining their argument that the reapportionment provision ought to be deleted for all purposes.
In response, the landlord argued, for the first time (it not having been open to them to do so before), that the cases on the operation of s.27A(6) were wrongly decided because that provision was simply an anti-avoidance provision; it was not intended to confer jurisdiction on the tribunal to interfere with provisions on apportionment (or any other management decisions of the landlord). The landlord argued that the role of the FTT was simply to review whether the landlord had applied the contractual machinery relating to apportionment and determine whether a service charge was payable as a result.
In a unanimous judgment given by Lord Briggs the Supreme Court accepted the landlord’s argument. The role of the FTT in considering the reapportionment of residential service charges is limited to a review of the contractual legitimacy of the landlord’s reapportionment and the FTT is not to determine the apportionment for itself. Section 27A(6) is an anti-avoidance provision that simply preserves the FTT’s existing jurisdiction to determine whether a service charge demand is contractually or statutorily legitimate but it does not confer jurisdiction on the FTT to determine the apportionment or make other management decisions that are for the landlord to make. The previous line of cases, including Windermere and Oliver were wrongly decided on this point. If taken to its logical extreme the old line of reasoning would have resulted in the FTT having jurisdiction to determine a whole manner of management decisions that would indirectly impact on the service charge payable by leaseholders. These decisions were properly the responsibility of the landlord and not the FTT. Allowing the FTT to become the primary decision maker for a whole range of management decision would be unworkable.
The result of the court’s decision in this case was that the apportionment provisions in the leases were unaffected by s.27A(6) and the landlord was entitled to apply the varied apportionments. In approving the apportionment applied by the landlord, the FTT had got it right at the very beginning.
So, what does this case mean?
This decision marks an important shift back to the position that existed prior to Windermere. Landlords and managing agents can now be more confident that reapportionment exercises carried out by them in accordance with the contractual machinery in a lease will only be subject to a review by the FTT. As long as the landlord carries out the reapportionment rationally and in accordance with the lease, then the risk of a shortfall arising is now much more limited.
But this decision is also good for leaseholders. It significantly narrows the scope for disputes about apportionment going forward. Leaseholders will not be held hostage to one neighbour in their block opting for a new reapportionment exercise to be carried out by the tribunal (possibly every year), which would be a costly exercise likely to cause hostilities between neighbours. The outcome also has the benefit of clarity in that provisions in leases relating to apportionment will mean exactly what they say unless there is something expressly ousting the FTT’s jurisdiction. For example, a provision that says that the service charges are “conclusive” or “final and binding” can be properly ignored, but the FTT’s role when it asked to consider the apportionment of those service charges is simply one of review.
The Supreme Court has provided a conclusive decision restoring the law to principled position and providing clarity for landlords and leaseholders alike.
Brooke Lyne is a specialist property barrister at Landmark Chambers. Brooke appeared for the successful landlord in this case (being led by her colleague Simon Allison).
