Can a Landlord amend a fixed service charge percentage?
27th January 2021
27th January 2021
NOTE - The content of this Legal Update was the subject of a subsequent appeal to the Supreme Court and, on 8 February 2023, the order of that court was handed down. Whilst the overall outcome of the case was not amended by the Supreme Court it is important to note that the basis of the finding was changed from that of the Court of Appeal set out below in this article. Please therefore refer to our article of 9 February 2023 (here) for the latest position in this matter.
The Court of Appeal have this past week handed down the decision in the important case of Aviva Investors Ground Rent GP -v- Williams and others  EWCA Civ 27 which provides helpful assistance in understanding for both landlords and leaseholders on the issue of whether, and on what basis, a landlord can unilaterally amend a service charge proportion where the lease allows.
Aviva were the freeholder of the development. Mr Williams and others were the residential leaseholders. The leases provided for fixed proportions of service charge contributions but provided that the landlord might amend that proportion. The clauses stated as follows:
“[ ]% or such part as the Landlord may otherwise reasonably determine”
The landlord exercised the power under the lease to amend the proportions payable by the leaseholders. The leaseholders disputed that amendment claiming that the power granted under the lease fell foul of s.27A(6) Landlord and Tenant Act 1985 and thus was void.
Section 27A Landlord and Tenant Act 1985
Most of you will know that s.27A LTA 1985 provides that an application to the Tribunal may be made to seek a determination on whether a service charge or other charge is payable under a residential lease (s.27A(1) and (3)).
S.27A(6) LTA 1985 provides that:
An agreement by the tenant of a dwelling (other than a post-dispute arbitration agreement) is void insofar 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) or (3)
In short, where the lease purports to provide that a decision can be made by the landlord, to the exclusion of the Tribunal, then the provision is void by s.27A(6).
The Upper Tribunal agreed with Mr Williams that s.27A(6) meant that the whole of the provision enabling the landlord to make amendments was void and thus the landlord was bound by the fixed percentages in the lease.
Aviva appealed on the basis that s.27A(6) did not, on its understanding, void the whole provision enabling the amendment of the service charge proportions, but merely it deprived the landlord from making that determination to the exclusion of the Tribunal and thus that the clause should be read to say “[ ]% or such part as the [Tribunal] may otherwise reasonably determine”
The Court of Appeal agreed with the position of Aviva and allowed the appeal holding that:
“In [our] judgment, the clear thread that runs through the previous decisions of the UT is that section 27A (6) is concerned with no more than removing the landlord's role (or that of another third party) from the decision-making process; in order not to deprive the FTT of jurisdiction under section "27A (1)”
Accordingly, “the lease should be read as if it had provided for the fixed percentage "or such part as … may otherwise reasonably determine." If further slight linguistic adjustment is needed to make grammatical sense, so be it. On that reading, there is a vacuum to be filled, and it is filled by the FTT. Accordingly, the function of making that determination is transferred from the landlord to the FTT.”
A copy of the judgment can be found here.
Why is this decision important?
The decision does two things.
Firstly, it clarifies some earlier decisions that [perhaps incorrectly] decided that the whole provision in a lease would be void rather than simply amended to empower the Tribunal to provide the final determination of a change if disputed.
Secondly, it confirms that where there is a provision in leases enabling a degree of flexibility, that provision can be relied upon, even if poorly drafted as here, to react to changes in circumstances at a development over time and which may require amendments to the charging mechanisms. This may arise, for instance, following a rooftop development or other changes to a block or estate where the other facility for amendment, provided by sections 35 or 37 Landlord and Tenant Act 1987, would not be available simply because the landlord is currently enabled to recover 100% of the charges due.
As always, it is wise to seek advice before embarking on any scheme that might seek to amend a lease, be that through a significant change, as in this case, or perhaps the creation or amendment of regulations, as the costs and hassle consequences of getting it wrong often significantly outweigh the advantage sought.
If you or your clients would like further advice on the implications of the Aviva Investors case, please get in touch with Kevin Lever at Kevin.Lever@kdllaw.com or 01435 897297.
This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above. The Legal Update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.
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