Apex Court puts light on legislations governing leasehold service charges – a possible view or effect from tenants
Critical analysis over Aviva Investors Ground Rent GP Ltd and another (Respondents) v Williams and others (Appellants)
BACKGROUND :-
The Supreme Court (“the Court”) made the legal implications clear on the validity of Section 27A of the Landlords and Tenants Act, 1985 (“the Act”) stating how far Section 27A of the Act goes into restraining freedom to contract. The dispute in this case relates to long residential leases in a block in Southsea Hampshire, of which as per the lease, the leaseholders were required to pay a specific service charge to the landlord for the maintenance of the building and estate. The landlords (Aviva Investors Ground Rent GP Ltd and another) tried to move away from the percentages which were outlined in the leases thus leading to the same being challenged by the leaseholders (Appellants) on the basis that any re-apportionments made by the landlords would be unreasonable and void under section 27A(6) of the Act.
POINTS OF CONSIDERATION :-
Firstly, the Court had to consider the effect of Section 27A(6) of the Act, as the Act controls the landlord’s ability to determine the service charge which is payable by the leaseholder tenants.
Secondly, Section 27A of the Act allows for disputes which relates to service charges in residential leases to be resolved by application to the First-tier Tribunal (FTT). Notably, the FTT can decide whether any service charge demanded by the landlord is payable. However, the FTT does not decide the amount which is payable. The Court considered whether the right to amend the service charge payable should be left to the landlord or with the FTT.
Several arguments/viewpoints were contradicting with the validity of Section 27A. The First-Tier Tribunal rejected the leaseholder’s complaints as holding the provision of the leases technically, giving the landlords the ability to vary the service charge payable by each tenant which was not void.
The Upper Tribunal however held that the reappointment provision was void on account of Section 27A. This concerned on no options for apportionment and the leaseholder’s had to pay only the percentage of the costs originally fixed in their leases.
On the landlords appeal the Court of Appeal held that the reapportionment provision in the leases was not wholly void, and either party was entitled to apply to the tribunal for a reapportionment.
The Court agreed that the landlords were entitled to adjust the leaseholder’s service charges and this did not remove the jurisdiction of the FTT. As such, Section 27A(6) of the Act is considered to be an anti-avoidance provision which means that the FTT is still able decide whether any amendments made by the landlord was reasonable, in accordance with the tenant’s leases. Notably, it is not the purpose of Section 27A(6) of the Act to enlarge the jurisdiction of the FTT, or to deprive the landlords or their managing agents of their right to adjust the service charge.
However, critics have their own concerns over the said case in Aviva Investors Ground Rent GP Ltd and another (Respondents) v Williams and others (Appellants). It further initiates that the landlords can retain crucial control over discretionary management decisions in respect of residential service charges in the property.
CONCLUSION :-
A concern over leaseholders raise wherein they would be told that where the landlord has the power in a lease to reapportion service charges (acting reasonably), a tribunal cannot substitute its own views on whether reapportionment should happen, or what the apportionment levels should be. This decision does not allow landlords to re-apportion charges in any way they like. However, it allows such re-apportionments to be carried out with flexibility, in accordance with the lease.
HOW KTS LEGAL CAN HELP :-
If you are a landlord wishing to bring an arbitral claim under the Act or a Tenant facing such claims, our specialist property litigation team can provide expert advice and assistance in dealing with such complex claims. We provide services for both Commercial Landlords & Leaseholders in England and Wales.
We can be reached by email at info@ktslegal.com; and by telephone at +44 (0) 208 367 0505
