A lease may set the percentage contribution which each leaseholder in a block or property is liable to pay in relation to work, maintenance or other services which the landlord performs under the lease. Alternatively, it may allow the landlord to determine what a fair and reasonable contribution should be. Sometimes it may do both – setting a fixed contribution but with an ability to depart from it if it is reasonable to do so.
In a residential context, Section 27A of the Landlord and Tenant Act 1985 gives the First Tier Tribunal/Leasehold Valuation Tribunal a jurisdiction to determine whether a service charge is payable, and/or the amount which is payable in circumstances where the leaseholder has not agreed the contribution. In other words, the tribunal will not be able to review a contribution fixed by the lease, but if the lease provides for a “fair and reasonable” contribution, the tribunal can ultimately determine what “fair and reasonable” means. Section 27A(6) of the 1985 Act provides an anti-avoidance mechanism rendering any clause (or part of a clause) which attempts to prevent the Tribunal from having the ultimate jurisdiction to determine variable service charge apportionments void. So a clause which attempts to suggest that the landlord’s determination is final, will be invalid.
The recent Judgment of the Court of Appeal in Aviva Investors Ground Rent GP Ltd & Anor v Williams & Ors [2021] EWCA Civ 27 looks at the implications of having a lease which includes provision both for a fixed percentage contribution and a discretion for the landlord to determine an alternative contribution if it is reasonable to do so.
In Williams, the clauses which were the subject of the case, stipulated that a tenant’s “…share of the [service charge] is [a fixed percentage] or such part as the Landlord may otherwise reasonably determine” and the service charge was made up of insurance costs, building services costs and estate costs, each having a different fixed percentage. The issue before the Court was whether the landlord was restricted only to recovering the fixed percentages as stipulated in the leases, with the second part of the clause effectively being struck through (as the Upper Tribunal had held) or whether the decision to reasonably determine a different contribution percentage was transferred from the Landlord to the FTT / LVT by the operation of section 27A(6).
The Court of Appeal held that the landlord could depart from the fixed percentage, but if it did so, and the leaseholder disputed the resulting apportionment the FTT / LVT will step into the shoes of the landlord for the purposes of determination of what is reasonable. Either the landlord or the tenant can apply for a determination.
The decision is important because it is a reminder that any discretion is not ultimately for the landlord to exercise. If there is any doubt about whether a proposed apportionment will be agreed by leaseholders, a landlord may be well advised to make its own application for a determination to avoid a shortfall in recovery.
