Supreme Court clarifies law on leasehold service charges

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.

The case concerned a number of flats in a residential and commercial development in Southsea, Hampshire, for which the leases set out a fixed percentage of the service charge payable for each flat with wording ‘or such part as the Landlord may otherwise reasonably determine’ included after each percentage. The leaseholders had argued that the landlord was not entitled to apply varied percentages and that effect of Section 27A(6) of the Landlord and Tenant Act 1985 was that the provision allowing for reapportionment should be struck down.

The First Tier Tribunal held that under s.27A(6), it was empowered to determine what was a reasonable apportionment.  However, the Upper Tribunal held that the entirety of the disputed wording in the lease was void pursuant to s.27A(6).  Without the void wording, the ruling stated, the lease required the tenant to pay the initial fixed percentage of the service charge and there was nothing left for the Upper Tribunal to decide.

This went through various appeals ending in the Supreme Court.  In its unanimous judgment, the Supreme Court concluded that the role of the FTT in considering the reapportionment of residential service charges is limited to a review of the contractual legitimacy of the landlord’s reapportionment and the FTT is not to determine the apportionment for itself.

Law firm Penningtons Manches Cooper, which acted for Aviva Investors, said the ruling was significant for many hundreds of thousands of leases that provided for leaseholders to pay a fixed percentage and additionally allowed the landlord to vary the service charge percentages. It added that the decision gave property managers and landlords some “much-needed certainty” around varying service charge apportionment and makes it clear that the tribunal remains a review-only jurisdiction.

Ben Robinson, a partner in the firm’s property litigation team, said: “In making this decision, the Supreme Court has clarified the jurisdiction of the First Tier Tribunal in determining the apportionment of residential service charges, halting the unintended ‘mission creep’ developed through the chain of authorities which risked placing some discretionary management matters on the First Tier Tribunal.

“It is now clear that the tribunal remains a ‘review only’ jurisdiction and ensures that landlords retain an important role when it comes to determining the apportionment of service charges. Where permitted in the lease, the decision will enable landlords and property managers to make changes to the apportionment of service charges where it is in the interests of good estate management, whilst reducing the need for time consuming applications to the First Tier Tribunal.”









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