Landlords of a block of 38 flats in Southsea, Hampshire, are entitled to vary service charges levied on leaseholders, five Supreme Court justices ruled today in a clarification of part of the Landlord and Tenant Act 1985. The dismissal of the tenants' appeal was the fourth ruling in a dispute which began when leaseholders objected to the reapportioning of the charges above those stated on their leases. 

Ruling in Aviva Investors Ground Rent v Williams and others, Lord Briggs said that the appeal raised the question of how far s27A of the Landlord and Tenant Act 1985 goes in restraining freedom to contract. The section, introduced in 2002, was an attempt to constrain the ability of landlords to bar tenants from taking legal action over changes to their service charges. 

The First-tier Tribunal rejected the leaseholders’ complaints, holding that the provision of the leases giving the landlords the ability to vary the proportion of the service charge payable by each tenant was not void. It also determined that the reapportionments between insurance, building and other charges were reasonable.

The Upper Tribunal however held that the reapportionment provision was void on account of s27A. There was therefore no ability to vary the apportionment and so the leaseholders 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: either party was entitled to apply to the tribunal for a reapportionment.  

In its ruling, Supreme Court dismissed the leaseholders’ appeal. Briggs found that the First Tier Tribunal had been correct in finding that s27A gave the landlord the right to trigger a re-allocation of contributions and to decide what the revised apportionment should be. The Court of Appeal's interpretation would have the effect that every discretionary management decision which would affect the amount of a tenant’s service charge would be transferred to the First-tier Tribunal, which was not the intention of the legislation, he said. Lord Reed, Lord Kitchin, Lord Sales and Lord Richards agreed. 

The judgment concludes with a tribute to the tenants' legal team, which acted pro bono. 'Even though unsuccessful, the fairness and quality of their skilled contribution was greatly appreciated,' Briggs noted.  

Sector experts said the ruling would have wide implications. Senay Nihat, principal associate at international firm Gowling WLG noted that the decision departs from earlier caselaw. 'The court has confirmed that landlords retain crucial control over discretionary management decisions in respect of residential service charges. Leaseholders will no doubt be disappointed to be told that, where a landlord has 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.'

 

Philip Rainey KC, James Sandham and Robert Brown, instructed by Northover Litigation, appeared for the tenants; Simon Allison and Brooke Lyne, instructed by Penningtons Manches Cooper for the landlords. Justin Bates and Rupert Cohen, instructed by Property Management Legal Services, represented the intervener