Apportionment of Service Charges: Michael Grant discusses the recent Upper Tribunal decision of Williams v Aviva Investors Ground Rent [2020] UKUT 111 (LC)

What was the case about?

This was an appeal to the Upper Tribunal (“the Tribunal”) concerning the scope and application of a service charge apportionment clause.

The clause in question gave a fixed percentage (based upon a calculation of the property’s relative square footage within the building), followed by the words “or such part as the landlord may otherwise reasonably determine”.

The lessor had for some years, and quite unsurprisingly, exercised its contractual discretion to deviate from the fixed percentage.

There were two issues to be determined by the Tribunal:

1. whether the landlord is able to do so (i.e. to deviate from the fixed percentage), subject to the jurisdiction of the First-tier Tribunal under section 27A of the Landlord and Tenant Act 1985 (“the Act”), or whether the words “or such part as the Landlord may otherwise reasonably determine” are rendered void by section 27A; and
2. if those words are rendered void, what the effect of that would be.

What did the Tribunal decide?

In order to answer these issues, the Tribunal considered the previous decisions of Windermere Marina Village Limited v Wild and Barton [2014] UKUT 163 (LC) and Gater and others v Wellington Real Estate Limited [2019] UKUT 561 (LC).

Accordingly, following the reasoning in Windermere and Gater, the Tribunal found that any wording which has the effect of providing for the manner in which an issue capable of determination under section 27A(1) was to be determined, namely by (for instance) a binding decision of the landlord’s surveyor, the landlord, or indeed anyone acting as the landlord’s agent, is void in accordance with S.27A(6) of the Act. 

The Tribunal therefore stated the following:

“A clause purporting to provide for a determination of apportionment by the landlord or the landlord’s agent is void. It is void whether or not it provides that the landlord’s decision is “final and binding” or similar, and whether or not the landlord agrees to submit to the jurisdiction of the Tribunal.”

As a result, the Tribunal deleted the words “or such part as the landlord may otherwise reasonably determine”.

However, the effect of removing such words in this case is quite distinct from that which was seen in both Windermere and Gater, whereby, in those cases, once the void wording was deleted there left a determination to be made by the Tribunal as to what such a fair proportion would be.

Therefore, in dealing with the second issue on appeal, the Tribunal found that as the clause provided a fixed percentage in the alternative, it did not fall to the Tribunal to determine the necessary proportion, and hence the fixed percentage as prescribed by the lease would apply.

DISCLAIMER: This bulletin is no more than a summary of the topic or topics, chosen selectively for the purposes of discussion only. It is not legal advice and should not be treated as such. It should not be relied or acted upon in any respect. Recipients should always seek legal advice if proposing to take action following this commentary.

Michael Grant is a member of the Housing and Property team at 42 Bedford Row and specialises in all aspects of residential and commercial property litigation.

Michael Grant

Call 2009

23.04.2020