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Many leases provide for residential service charge determinations to be made by landlords and their surveyors and for these decisions to be final and binding; two recent cases have highlighted just how powerful section 27A(6) of the Landlord and Tenant Act 1985 (“s27A(6)”) can be as a statutory tool for challenging such provisions.
S27A(6) provides that:
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 a particular manner, or
(b) on particular evidence,
of any question which may be the subject of an application under subsection (1) or (3).
Subsection (1) gives the relevant tribunal jurisdiction to determine the quantum of a service charge and the questions by whom, to whom, when and in what manner it is to be paid; subsection (3) gives a similar jurisdiction in respect of costs not yet incurred.
In Windermere, the Deputy President held that the service charge provision in the lease, whereby the tenant covenanted to pay a fair proportion of the cost of services “to be determined by the surveyor for the time being of the Lessor whose determination shall be final and binding” amounted to an agreement which was rendered void by s27A(6).
Accordingly, the apportionment made by the surveyor was void, and the relevant tribunal would be obliged to consider the matter afresh.
It is important to note, however, that the decision does not assist a tenant who has agreed a fixed apportionment of service charges such as a percentage, or by way of an agreed formula such as by reference to floor area, bed spaces or rateable value. It is concerned only with cases where the parties have not agreed the apportionment of liability at the commencement of their lease, but have left the question of apportionment to be determined, including by a third party, at a later date.
The decision is also likely to be relevant to leases under which more than one method of apportioning charges is identified, but where the choice of which method is to be adopted, either generally or in relation to particular categories of expenditure, is left to the landlord or to a third party.
In Gater, the Deputy President returned to the issue of the effect of section 27A(6), and – following Ruddy v Oakfern Properties Ltd  Ch 335 – determined that where an intermediate lease purported to allow the freeholder’s surveyor to determine the apportionment of service charges payable by the intermediate lessee, which charges were ultimately recoverable by that intermediate landlord by way of fixed percentage service charges payable by the residential sub-lessees, that provision – following Windermere – would be void as against those sub-lessees, even though they had no direct contractual relationship with the freeholder.
Accordingly, the matter was remitted to the relevant tribunal for it to determine the due and fair proportion of the service charges payable under the intermediate lease in accordance with that part of the service charge provision which had survived the intervention of s27A(6) viz. “taking into account the relevant floor areas within the Building or other reasonable factors”.
Many leases will be caught by the s27A(6) anti-avoidance provisions simply because they were drafted in order to enable developments – particularly mixed residential and commercial ones – to grow and change over time, and thus for the relevant service charge apportionments to be adapted accordingly. Complications will certainly arise where residential tenants dispute such apportionments but the commercial tenants remain bound by them.
Surveyors experienced in determining service charge apportionments will, no doubt, still be involved in the process: as experts, assisting tribunals tasked with making determinations when apportionments are disputed.
And yet, many applications for determinations are driven by a deep sense of grievance on the part of tenants, who feel – rightly or wrongly – that they are expected to pay substantial sums of money to landlords who do not respect them, starve them of information, fail to communicate and generally treat them as being a nuisance.
Perhaps if the landlords’ determinations were to be more open and better communicated, agreements would more easily be reached on a basis of apportionment with which all could be content.
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