News & Insights

Residential Service Charges – Landlords Can’t Have it All

Emily Neale, a Partner in our Residential Property team, discusses a tribunal decision concerning a landlord’s determination of service charge apportionments.

Summary

Earlier this year, the Upper Land Tribunal (Lands Chamber) (UT) considered service charge provisions in residential leases and the effect of allowing the landlord to decide payment. In Williams and Others v Aviva Investors Ground Rent [2020] UKUT 111 (LC), the appeal concerned the apportionment of service charges between 39 flats. Each lease specified that the tenants must pay a stated percentage or, as an alternative, a proportion of the service charge to be reasonably determined by the landlord, which the landlord was using to vary the charge. The UT decided that the provision allowing the landlord to determine the payment was void, resulting in the fixed percentage being enforced.

The Law and Decision

The Tribunal had to decide whether words in a service charge provision stating that the landlord could reasonably determine the service charge payable were valid, and the effect if it was not.

The law concerned was S.27A(1) of the Landlord and Tenant Act 1985 (LTA 1985), which allows applications to the First Tier Tribunal to determine the validity and details of service charge payments. Usually an application cannot be made when the tenant has already agreed to the service charge (S.27A(4) LTA 1985), unless such agreement is void under S.27A(6) LTA 1985.

The decision followed previous cases on this issue. In Windermere Marina Village v Wild [2014] UKUT 163 (LC), an agreement in the residential lease that the landlord’s surveyor’s decision was binding, was void under S.27A(6) and S.27A(4) LTA 1985. The First Tier Tribunal was left to determine what was a fair proportion of the service charge as this ambiguity was the only reference to payment that remained in the lease.

In Gater v Wellington Real Estate [2014] UKUT 561 (LC), the UT found that a provision in the head lease specifying that the head landlord or their surveyor could determine the proportion of the service charge was void, despite there being no reference to the landlord’s determination being final.

In the case of Williams, the UT followed the above precedents and found that the provision allowing the landlord’s discretion in service charge apportionment was void. The wording was treated as removed from the lease, leaving the fixed percentage to prevail. The landlord argued that the First Tier Tribunal should have made the determination, taking the place of the landlord in the provision, as in Windermere Marina Village v Wild. The UT disagreed as in the current case, the fixed percentage provision remained untouched as an alternative, so remained the sole provision for payment. The tribunal could not amend the fixed percentage in the lease as this had been legally agreed by the tenant (under S.27A(4) LTA 1985). Any desire to change this percentage would need to be conducted as a variation of the lease with the tenant’s agreement, as a private matter between the parties.

Practical Implications

Landlords and tenants of residential leases should be aware that clauses providing for a landlord or its surveyor to decide the proportion of service charge to pay is void, even if it does not specify that the determination is final. This is also likely to be the case when landlords reserve the right to change their percentage service charge in certain reasonable circumstances. It seems that the UT will invalidate clauses allowing a landlord’s discretion to unilaterally change the service charge percentage. In these cases, if there is alternative valid wording, this shall prevail. If the lease has no alternative, the tribunal can determine the payment.

If parties wish to change their lease with regards to valid service provisions or to provide greater clarity, this must be done as a legal variation, with the consent of both parties.

If you would like further assistance on the validity of clauses in your lease or negotiating a favourable residential lease, please contact our residential property or property litigation teams.