Restrictive Covenants: Landlord’s contractual power to reapportion service charge costs in a long residential lease

Case name, reference and Bailii link 

Aviva Investors Ground Rent GP Ltd & Anor v Williams & Anor [2023] UKSC 6 Bailii link.

Summary 

In the case of Aviva Investors Ground Rent GP Ltd and another (Respondents) v Williams and others (Appellants) [2023] UKSC 6 the Supreme Court unanimously overturned the Court of Appeal’s decision and found that a landlord’s contractual power to reapportion service charge costs in a long residential lease was not prevented by statutory provisions contained in the Landlord and Tenant Act 1985 (“the 1985 Act”). 

The landlord must act reasonably in reapportioning the service charges.  

Facts

This case concerned leases which provided that the service charge payable under them would be a fixed percentage of the overall costs incurred by the landlord or “such part as the Landlord may reasonably determine”.

The Landlord demanded service charges which were on the basis of an apportionment that was different from the stated percentages in the leases. As a result, the tenants argued that the reapportionment was rendered void by Section 27A(6) of the 1985 Act. That section is an anti-avoidance provision which provides that any agreement made by a tenant is void insofar as it purports to provide for a determination in a particular manner or on particular evidence of any matters that can be referred to the First Tier Tribunal (Property Chamber) (“the FTT”) under sub-sections (1)-(3). Namely, whether a service charge is payable, by whom it is payable, to whom it is payable, the date on which it is payable and the manner in which it is payable.

Issues

The issue for the Supreme Court was whether residential statutory restrictions under Section 27A(6) of the 1985 Act meant that the landlord had no power to determine the service charge apportionment and if the lease was to be read as if the words "such part as the Landlord may otherwise reasonably determine" were deleted. The effect of a deletion of those words would be that the landlord could charge only the fixed percentages in the lease, even if there was a change of circumstances at the building.

First instance (where relevant)

The FTT held that the landlord’s right to apportion was not avoided under Section 27A(6) of the 1985 Act. 

By contrast, the Upper Tribunal held that the whole provision was void so that only the fixed percentages applied.  

Decision on appeal 

The Supreme Court unanimously overturned the Court of Appeal’s decision and found that a landlord’s contractual power to reapportion service charge costs in a long residential lease was not prevented by the 1985 Act. Under provision in the lease, the landlord had the right to trigger a re-allocation of the originally agreed contribution proportions and to decide what the revised apportionment should be. The landlord must act reasonably. The Supreme Court upheld the decision of the FTT that the re-apportionment had been reasonable in this case.

Comment (if where relevant – particularly if there is a point of note for general practice)

Landlords will welcome this decision which provides much needed clarity in respect of the FTT’s powers to review decisions made by them under leases but not determine them afresh. Landlords and their managing agents can therefore be more confident in varying apportionments in specified circumstances and where the leases allow them to do so. 

If there is a dispute over the reasonableness of that decision then the FTT can determine the matter in the usual way. However, landlords and managing agents can be comforted that their decisions should be upheld as long as they can demonstrate that those decisions are reasonable.

This case summary was originally published for Property Law in July 2023.