Landlord Powers to Resolve Service Charge Matters Under the Lease

“The levying of service charges by landlords under leases of residential property in respect of their expenditure upon repairs and the provision of other services has for long been controversial.”

Sets the scene quite nicely really; that was the opening sentence of Lord Briggs’ judgment in Aviva Investors Ground Rent GP Ltd & Anr v Williams & Ors, a judgment which went on to clarify the extent to which a landlord was (not) constrained in making decisions relating to service charges.

Background

Under the Commonhold & Leasehold Reform Act 2002, s.27A was introduced to the Landlord & Tenant Act 1985 and set out powers for the Tribunal to assess the payability of service charges, including:

• by whom they are to be paid;
• to whom they are to be paid;
• the amount for payment;
• the date for payment; and
• the manner of payment. 

These determinations can be retrospective (subsection 1) or prospective (subsection 3).

Many readers will be familiar with landlord determination provisions in a lease; they will often reference the ‘landlord’ or ‘landlord’s surveyor’s’ decision on matters of dispute being binding or final. Section 27A(6) sets out that provisions which seek to oust the jurisdiction of the Tribunal, so far as that provision may otherwise have been the subject to a determination under s.27A, will be void – and accordingly will bite on such provisions. 

The present case arose following a landlord’s decision to reapportion the per centum service charge contributions, deviating from the amounts specified under the lease.

This case was considered at three different instances (First-tier, Upper Tribunal and Court of Appeal) before reaching the Supreme Court, with each decision varying slightly, although all accepting they were bound by the decision in Oliver v Sheffield City Council (in which Lord Briggs (then LJ Briggs in the Court of Appeal) also gave the leading judgment). 

Oliver was not on all fours with Aviva, however, the principle laid down there was that s.27A would render void any lease provision, surrounding service charge payability, wherever it would otherwise be of “contractually determinative effect”.

“…in the present case only five years have elapsed since the Oliver decision and, as will appear, the present case may fairly be regarded as having tested the principle there laid down to destruction.”

Aviva at 7

Application of 27A

In Aviva, the Court distinguished between the questions which fell within the scope of 27A(1) and 27A(3), and activities which were defined as ‘discretionary management decisions’. 

The reason for this distinction was to consider whether 27A(6) had the effect of extending the jurisdiction of the Tribunal (further than that granted under subsections 1 and 3, and thereby encompassing the ‘discretionary management decisions’) or whether its purpose was solely to protect the jurisdiction granted under those subsections.

This is important as it lays the foundations for how to interpret (and therefore apply) the statute. 

In this instance the Supreme Court found that the purpose of 27A(6) was to protect the jurisdiction of the Tribunal, not to extend it.

Application of the protection

Lawyers like certainty in contractual provisions.  If a clause has been drafted, but is varied by statute or common law in its enforceability, people will want to know how it should then be read. 

To this end, Lord Briggs considered whether the provision should be reconstructed, or ‘blue-pencilled’ to remove the offensive elements.  Both options could open up different interpretations and outcomes (as demonstrated in this case) and, as Lord Briggs highlights, could radically alter the original bargain between the parties.

So, which is to be done? 

“…neither…The offending part of it is just ignored, and the application is allowed to proceed to the FtT in the usual way.”

Aviva at 28

Well, that makes life more straightforward!

In Aviva the landlord had activated and acted on their contractual right to reapportion, and that was found to be correct. 

“…whether there should be a re-apportionment and if so in which fractions, was not a ‘question’ for the FtT within the meaning of s.27A(6).  The question…was whether the re-apportionment was reasonable, and that question the FtT was able to, and did, answer…”

Aviva at 33

The former question being a ‘discretionary management decision’, and the latter being a question falling within the express jurisdiction of the Tribunal.

What will happen next?

Landlords will have received more certainty as to their position and what decisions they can take where the lease provides contractual options, but they will need to remain mindful of the challenges which could nonetheless be raised when exercising their powers.

Although Tenant’s are not prejudiced by this decision, as it does not reduce the Tribunal’s jurisdiction, it does mean that they will need to be more aware of the contractual mechanisms contained in their leases – particularly if they had a recent purchase and they were advised on the basis of Oliver being good law at the time.

It should be remembered that s.27A is still framed within the backdrop of s.19 (challenges to reasonableness), s.20 (consultation requirements) s.21 (delivery up of information), and the contractual legitimacy of any demand under a particular lease.

For me, I will continue to observe the park through our windows (which currently feature a veritable jungle of sunflowers waiting to bloom), whilst I drink my tea, and muse on which will be the next established caselaw principle to be: tested to destruction.

For initial advice or to arrange a meeting with one of our Dispute Resolution team, please email [email protected] or contact 020 7631 4141 and ask to speak to the Litigation team.

The above is accurate as at 10 August 2023. The information above may be subject to change.

The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.