Aviva Investors Ground Rent GP Ltd v Philip Williams and Other Leaseholders of 38 Flats in Vista, Fratton way
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Males,Lady Justice Rose |
| Judgment Date | 18 January 2021 |
| Neutral Citation | [2021] EWCA Civ 27,[2020] UKUT 111 (LC) |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: C3/2020/1004 |
| Date | 18 January 2021 |
[2021] EWCA Civ 27
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (LAND CHAMBER)
Judge Elizabeth Cooke
[2020] UKUT 0111 (LC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Lewison
Lord Justice Males
and
Lady Justice Rose
Case No: C3/2020/1004
Simon Allison & Brooke Lyne (instructed by Penningtons Manches Cooper LLP) for the Appellants
James Sandham & Robert Brown (instructed on a direct access basis by Philip Williams) for the Respondents
Hearing date: 17 th December 2020
Approved Judgment
The issue on this appeal is the extent to which a provision dealing with service charges in a residential lease is invalidated by section 27A (6) of the Landlord and Tenant Act 1985. At the end of the short hearing we announced that the appeal would be allowed. These are my reasons for coming to that conclusion.
The appeal concerns a number of flats in Southsea. They form part of a mixed residential and commercial development. The development was once in common ownership, but that is no longer the case. It is that which gives rise to the current problem. The service charge contained in each of the relevant leases consists of three components; insurance costs, building services costs, and estate costs. The amount payable by the lessee (in the example lease, which is for flat 64) is stated as follows:”
“• your share of the insurance costs is 0.7135% or such part as the Landlord may otherwise reasonably determine;
• your share of building services costs is 0.7135% or such part as the Landlord may otherwise reasonably determine; and
• your share of estate services costs is 0.5427% or such part as the Landlord may otherwise reasonably determine.”
The question is whether the landlord is restricted to the specified percentage in respect of each category of cost; or whether the ability to specify a different percentage is transferred from the landlord to the First Tier Tribunal (“the FTT”). In her decision in the Upper Tribunal (“the UT”) Judge Cooke, reversing the decision of the FTT, held that the first of these alternatives was correct. The landlord was restricted to the fixed percentage. Her decision is at [2020] UKUT 111 (LC), [2020] L & TR 20.
The jurisdiction of the FTT (or, in Wales, the LVT) arises under section 27A of The Landlord and Tenant Act 1985 (“the 1985 Act”). It provides, so far as relevant:
“(1) An application may be made to the appropriate tribunal for a determination whether a service charge is payable and, if it is, as to—
(a) the person by whom it is payable,
(b) the person to whom it is payable,
(c) the amount which is payable,
(d) the date at or by which it is payable, and
(e) the manner in which it is payable….
(4) No application under subsection ( 1) or (3) may be made in respect of a matter which—
(a) has been agreed or admitted by the tenant,
(b) has been, or is to be, referred to arbitration pursuant to a post-dispute arbitration agreement to which the tenant is a party,
(c) has been the subject of determination by a court, or
(d) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement….
(6) 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) …”
The UT held at [20] that the effect of section 27A (6) was that the words “or such part as the Landlord may otherwise reasonably determine” were void. They were deleted. They no longer appeared in the lease. The consequence of that was that the landlord was restricted to the fixed percentages of costs.
Mr Sandham argued that the purpose of the legislation was to protect lessees of residential flats. Section 27A (6) in particular was designed to prevent landlords from manipulating service charges. The legislation should be interpreted and applied in a way that was simple for a residential lessee to understand without the need for complex legal advice. The “blue pencil” test that Judge Cooke applied fulfilled these criteria. The tribunal must strike out that part of the clause that offends section 27A (6) and then interpret what remains. It was invariably the landlord's lawyers who drafted the details of service charge provisions; and it was their responsibility to ensure that they were lawful and enforceable. If they did not, that was their risk.
Mr Sandham accepted that the effect of section 27A if he were right would be that the FTT has no jurisdiction to consider an application to vary the proportions set in the lease. This is because section 27A(4) provides that no application may be made to the FTT in respect of a matter that has been agreed by the tenant and, on his case, the tenants would have agreed to the fixed percentage. However he submitted, with force, that if the effect of section 27A (6) was as the UT held it to be, the landlord was not without a remedy. Although Judge Cooke canvassed the possibility of a consensual variation of the lease, there was a statutory route to the same result. Under section 35 (1) of the Landlord and Tenant Act 1987 a party to a long lease of a flat may apply to the FTT for the lease to be varied. The grounds upon which such an application may be made include a failure by the lease to make “satisfactory provision” for the computation of a service charge payable under the lease: section 35 (2) (f). A lease fails to make satisfactory provision for the computation of service charge if:
“(a) it provides for any such charge to be a proportion of expenditure incurred, or to be incurred, by or on behalf of the landlord or a superior landlord; and
(b) other tenants of the landlord are also liable under their leases to pay by way of service charges proportions of any such expenditure; and
(c) the aggregate of the amounts that would, in any particular case, be payable by reference to the proportions referred to in paragraphs (a) and (b) would either exceed or be less than the whole of any such expenditure.”
If, therefore, the fixed percentages under the lease did not enable the landlord to recover all of its expenditure, an application could be made to the FTT to alter those percentages. I do not consider that the availability of this process assists the tenants' case. The effect of pursuing it would be that the FTT could and would determine the appropriate percentages of costs recoverable from each tenant. That of itself shows that there is nothing objectionable in the FTT determining service charge apportionments (as is, indeed, already inherent in its wide jurisdiction under section 27A (1) of the 1985 Act). But pursuing that route would require a separate application to the FTT with the consequence of greater expense for the parties. If a simpler route to the same destination is available through a more limited notional deletion from the lease, that seems to me to be the preferable result. Further, a variation under section 35 of the 1987 Act is only available when the aggregate of the service charges payable by tenants does not add up to a hundred percent of the landlord's expenditure, but that is not the only situation in which the apportionment of service charges may be unfair or unreasonable.
The UT has considered the effect of section 27A (6) on a number of occasions.
In Windermere Marina Village Ltd v Wild [2014] UKUT 163 (LC), [2014] L & TR 30 the lease provided for the tenant to pay a fair apportionment of the cost of services, such apportionment “to be determined by the surveyor for the time being of the Lessor whose determination shall be final and binding”. The Deputy President (Martin Rodger QC) pointed out that the jurisdiction of the FTT under section 27A (1) could include questions of apportionment of expenditure. He went on to say at [40] that section 27A (6):
“… renders void any agreement by the tenant in so far as it “purports” to provide for the determination of any question which could be the subject of an application under subss.( 1) or (3) “in a particular manner” or “on particular evidence”. The purpose of the provision is clearly to avoid agreements excluding the jurisdiction of the first-tier tribunal on questions which could otherwise be referred to it for determination.”
Having referred to the decision of this court in Joseph v Joseph [1967] Ch 78, he went on to say at [41] that section 27A (6) required “the same broad approach”. He concluded at [42]:
“The question referred to the [FTT] in this case was what proportion of the expenses incurred by the appellant was to be paid by the respondents. By para.(2) of the Schedule to their leases the respondents had already agreed that the answer to that question was that they were to pay such proportion as was determined by the appellant's surveyor, whose decision was to be final and binding. In my judgment that agreement was void because it had the effect of providing for the manner in which an issue capable of determination under s.27A(1) was to be determined, namely by a binding decision of the appellant's surveyor.”
At [48] he said:
“Section 27A(6) deprives the landlord's surveyor of his role in determining the apportionment. Paragraph (2) is to be read as if the method of...
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