In this post, Sarah Collins, Senior Associate in the Real Estate team at CMS, previews the case of Aviva Investors Ground Rent GP Ltd and Anor v Williams and Ors, which is scheduled to be heard by the UK Supreme Court on 8 December 2022.
The respondents in this appeal (Aviva) own the freehold of a block of flats in Southsea (the “Block”). The appellants each own a flat in the Block on a long lease. By virtue of the leases, Aviva are required to maintain the structure and common parts of the Block, whilst the flat owners are required to contribute towards the cost of the same via the service charge mechanism.
Each lease sets out the proportion of the maintenance costs that the leaseholder should pay, which are expressed as a percentage or such other proportion “as the Landlord may otherwise reasonably determine”.
Section 27A(6) of the Landlord and Tenant Act 1985 (the “1985 Act”) provides:
“(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 particular
(b) on particular evidence
of any question which may be the subject of an application under subsection (1) or (3).”
The matters at subsections (1) and (3) relate to the Tribunal’s jurisdiction to determine whether a service charge is payable and its amount.
In an earlier decision of the Upper Tribunal (Windermere Marina Village Ltd v Wild  UKUT 163 (LC)), it was held that it is within the jurisdiction of the First-tier Tribunal (the “FTT”) to determine apportionments of expenditure under section 27A(1) of the 1985 Act, such that lease clauses purporting to allow a landlord or other party to determine the proportion of service charge void. This decision was afterward approved by the Court of Appeal in Oliver v Sheffield City Council  EWCA Civ 225.
Section 27A(4) of the 1985 Act prevents a party from applying to the appropriate Tribunal in circumstances where the subject matter has been agreed. Given a fixed percentage is written into the lease, it follows that the percentage has been agreed and accordingly the FTT has no jurisdiction to determine it. Aviva v Williamshowever, deals with a hybrid clause such that it expresses a percentage (which would deprive the FTT of jurisdiction), but also allows for the landlord to determine a proportion (which only the FTT has jurisdiction to decide). Aviva have been demanding service charges in proportions which differ to the fixed proportions for several years.
The question before the Supreme Court is therefore the correct interpretation of the clause containing the proportion. Is the effect of section 27A(6) of the 1985 Act to remove the variable element (resulting in the fixed percentages being the only proportions that can be applied) or is it only the part relating to the landlord’s determination that becomes void (resulting in the FTT having jurisdiction to vary the proportions in place of Aviva)?
At first instance, the FTT held that it retained a jurisdiction to determine the proportions, while the Upper Tribunal determined that the provision for landlord determination was removed in its entirety such that the fixed percentages needed to be charged.
The Decision of the Court of Appeal
The Court of Appeal agreed with the FTT. Having considered Windermere and subsequent cases, it reiterated that section 27A(6) of the 1985 Act 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)”. The statutory objective is satisfied if the landlord’s role is transferred to the FTT (as opposed to completely eliminating the clause). The Court of Appeal also expressed a view that there is no issue in principle in retaining a flexible approach to service charge proportions, providing that decisions as apportionments are taken by the FTT.
It made its decision, the Court of Appeal reiterated that the Upper Tribunal’s decision had the effect of depriving the FTT of all jurisdiction over the apportionment of service charges, which was not what section 27A(6) of the 1985 Act had intended to achieve.
When granted, most residential flat leases are for a term in excess of 99 years, some as long as 999 years. It is therefore feasible that during the term, circumstances may change where some or all parties would benefit from a reallocation of service charge proportions. With the popularity of rooftop development, for example, where additional flats are built on top of those which originally existed, it would seem fair in the circumstances that additional owners contribute to the service charges and thus reduce the contributions of existing owners. If the Supreme Court allows the leaseholders’ appeal, the flexibility to reallocate contributions will be removed from similar leases. There are only limited circumstances where proportions could otherwise be varied outside of the lease terms (for example, if the percentages do not add up to 100% an application can be made under the Landlord and Tenant Act 1987), meaning change of circumstances cannot easily be accounted for.
A degree of flexibility is a useful tool in addressing any imbalance caused by a change of circumstances. Of course, however, there are circumstances where leaseholders may not agree with a reallocation and section 27A(6) of the 1985 Act and its subsequent interpretation in Windermerecontains useful protection for those leaseholders. Aviva v Williams will confirm whether a de facto the ability to vary the service charge proportions can still be taken advantage of by landlords or leaseholders alike (subject to determination by the FTT), or whether the fixed percentages agreed, sometimes many years ago, are to be retained.
While the leaseholders in this case are arguing in favor of a fixed percentage, there will of course be situations where leaseholders are in favor of a reallocation (for example, if it results in a reduction of their charges). Either way, clarification from the Supreme Court will be welcomed.