Aviva Investors Ground Rent Limited v Williams: welcomed guidance on apportionment of service charges in residential leases

Posted: 22/01/2021

On 18 January 2021 judgment was handed down in Aviva Investors Ground Rent Limited v Williams. The leading judgment of Lord Justice Lewison is a notable decision for landlords and managers. It provides reassurance that leases which contain a mechanism permitting a landlord to vary the initial ‘fixed’ service charge proportions remain operational and enforceable.

The case

The case concerns a number of flats in a residential and commercial development in Southsea, Hampshire.

The leases in question 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 Upper Tribunal decision by Judge Cooke held that the entirety of this wording was void pursuant to Section 27A(6) of the Landlord and Tenant Act 1985. Without the void wording, the lease required the tenant to pay the initial ‘fixed’ percentage of the service charge. In her decision, Judge Cooke stated that without the void wording there was nothing left for the Upper Tribunal to decide.

The landlord, Aviva Investors Ground Rent Limited, appealed the decision arguing that the effect of Section 27A(6) was simply to deprive the landlord (or another third party such as a surveyor) of its role in making the determination. In other words, the reference to “landlord” in the lease should simply be substituted with the First-tier Tribunal, giving jurisdiction to the First-tier Tribunal to consider the apportionment.

The Court of Appeal allowed the appeal.

The judgment

At paragraph 39 of his leading judgment, Lord Justice Lewison stated:

“In my judgment 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 [First-tier Tribunal]”.

Moreover, Lord Justice Lewison took the view that there was no objection in principle “to a degree of flexibility in the apportionment of a service charge, provided the decision was taken by the [First-tier Tribunal]”.

Furthermore, whilst residential leases are typically drafted to state that only the landlord can refer the question of what a different reasonable percentage should be to the Tribunal, notably the Court of Appeal held that either the landlord or the leaseholders could refer the question of a different percentage to the First-tier Tribunal.

Further detail on cases referred to and the deliberations behind the Court of Appeal decision can be found in the full judgment.

Ramifications

This is a notable decision for landlords and managing agents. It reinforces the practical need to retain a degree of flexibility in long residential leases to address material changes in circumstances and contributions over the life span of a building or development. This is particularly so where an application to vary a lease (under ss35-38 Landlord and Tenant Act 1987) will not always be available, for example where the service charge apportionments already equal 100%.

Ben Robinson and Kaileigh Moreton were instructed on behalf of the appellant.

Simon Allison and Brooke Lyne of Landmark Chambers represented the appellant at the hearing.

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