Social Housing Speed Read: A leasehold case makes it to the Supreme Court
23rd February, 2023
It is rare that we see Leasehold matters getting to the Supreme Court therefore the guidance handed down on the interpretation of Section 27A of the Landlord and Tenant Act (LTA) 1985 in this case is extremely important and something which leasehold practitioners ought to be aware of.
On 8 February 2023 the Supreme Court passed judgment in Aviva Investors Ground Rent GP Ltd and another (Respondents) v Williams and others (Appellants) [2023] UKSC 6.
The appeal considered to what extent is a term in a residential lease which allows the landlord to revise the tenant’s share of the service charges invalidated by section 27A(6) of the LTA. Section 27A provides jurisdiction for the First Tier Tribunal to determine as to when service charges are payable and, if so, how much is payable.
Case facts:
This appeal concerned long leases of residential flats in a mixed-use commercial and residential block. The respondent was the freeholder and the appellants were the leaseholders. Each lease provided that the tenant was to pay a service charge which comprised of a defined proportion of the landlord’s costs of managing the building. The charge was a fixed percentage (which varied between the different leases) ‘or such part as the landlord may otherwise reasonably determine’ (known as the “Re-apportionment Provisions”).
The dispute arose when Aviva sought to re-apportion the service charges by varying them from the percentages specified in the leases. The leases provided that the service charge could be charged on the basis of a reasonable determination by the landlord. Long leases commonly provide for this ‘fair or reasonable proportion’ provision and in the event of dispute the effect of S27(A)(6) has been held to mean that the First-Tier Tribunal (FTT) has jurisdiction to determine the proper apportionment of costs: Sheffield City Council v Oliver [2017].
The leaseholders objected and brought a claim in the FTT. They claimed that the re-apportionment was unreasonable and, in any event void on account of section 27A(6). This section provides that an agreement by a residential tenant ‘is void in so far as it purports to provide a determination (a) in a particular manner, or (b) on particular evidence, of any question which may be subject of an application’. In essence, this means that a clause in a lease which gives the landlord the right to determine issues relating to the service charges that ought to be determined by the FTT will not be effective. It is the scope of this provision that was in dispute in this case.
The FTT did not address whether the provision was void but instead it held that its role under s.27A was simply to determine whether the landlords’ re-apportionments were reasonable. The landlord’s case was successful at this level and a succession of appeals followed.
Appeals:
On appeal by the leaseholders the Upper Tribunal reversed the FTT’s decision and held that as per section 27A(6), the substitution clauses were void and that the lease had to be read as if they did not appear. Therefore, neither the landlord nor the FTT had the power to vary the percentages set out in the leases unless the leaseholders agreed.
The Court of Appeal held that the re-apportionment provision was not wholly void. Instead, the effect of s.27A(6), as explained in Sheffield CC v Oliver; was to transfer the power to vary the service charge percentages from the landlord to the FTT. It therefore allowed the appeal and restored the decision of the FTT.
The Supreme Court dismissed the leaseholders’ appeal and approved the decision of FTT that the revised apportionment was valid. The key issue for the Court was the true effect of Section 27A(6). The 1985 Act provides various controls on a landlord’s ability to determine the service charge payable by tenants and the starting point was that the lease provided the landlord with a power to re-apportion service charges as it may reasonably determine. The Court held that Section 27A(6) was not concerned with extending the jurisdiction of the FTT and therefore, a contractual provision will be void only to the extent it purports to oust the jurisdiction of the Tribunal, or requiring the Tribunal to presume or ignore certain facts. The task of the FTT was instead to carry out a review of the actions of the landlord and ask itself whether the outcome was within the landlord’s contractual power.
This question was determined in favour of the landlord by the FTT and its decision was restored. It was ultimately found that the landlord had the power to make that decision; the Tribunal was still able to review whether the adjustments were reasonable and determined that they were. Therefore section 27A(6) of the Landlord and Tenant Act 1985 was not engaged, and the re-apportionments were valid.
This case demonstrates that the correct interpretation of S27A is to operate as an important check on the landlord’s power rather than as a subversion of their managerial decision making.
If you have any questions about this important decision, or any other enquiries related to social housing, please do get in touch with John Murray or another of our expert Social Housing lawyers.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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