- When engaged in contractual or statutory interpretation, we lawyers would do well to remember that the courts (or at least the higher courts) view their role as being to “oil the wheels of commerce, rather than to throw grit into the engine”. The decision of the Court of Appeal in Williams v Aviva Investors Ground Rent GP Ltd  EWCA Civ 27, is an excellent example of the higher courts performing this role as well as being an important case on the effect of s.27A(6) of the Landlord and Tenant Act 1985 (“1985 Act”).
- Section 27A(1) of the 1985 Act confers jurisdiction on the First-tier Tribunal (“FTT”) to make various decisions as respects service charges payable by the lessees of dwellings. Section 27A(6) of the 1985 Act renders invalid any agreements that seek to exclude the jurisdiction of the FTT on questions that could be referred to it under s.27A(1). Section 27A(6) reads as follows:
“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)…”
- In Williams, the Court of Appeal had to consider what the effect of s.27A(6) was on leases which provided that the service charge payable by the lessees was either a fixed percentage or such other sum as the landlord might reasonably determine. The landlord argued that the effect of s.27A(6) was to transfer the landlord’s power to specify another amount to the FTT. The lessees argued that the effect of s.27A(6) was limited the landlord to the fixed percentage specified in the lease. The Court of Appeal agreed with the landlord.
- The case concerned leases of various flats in Southsea, Hampshire. The flats formed part of a mixed development of residential and commercial units. The development was once in common ownership but that was no longer the case.
- The leases of the flats each made provision for the lessees to pay a contribution towards the costs of insuring the building, building services and estate services. The leases provided that the lessees would pay a fixed percentage of the overall cost or “…such part as the Landlord may otherwise reasonably determine”. The fixed percentage varied from flat to flat as it was calculated by reference to the square footage of each of the flats.
- Once the residential and commercial units ceased to be in common ownership the fixed percentages no longer allowed the landlord to fully recover its costs. Accordingly, the landlord started to claim service charges in different proportions to that set out in the leases. Some years later a group of lessees sought to challenge this practice by means of an application to the FTT pursuant to s.27A(1).
- Before the FTT, the lessees contended that s.27A(6) rendered void the words that gave the landlord the power to claim a different amount to the fixed percentage. The landlord, on the other hand, contended that the effect of s.27A(6) was simply to confer a power on the FTT to review the reasonableness of the landlord’s apportionment of service charges.
- The FTT considered the decisions of the Upper Tribunal (Lands Chamber) in Gater v Wellington Real Estate Limited  UKUT 561 (LC) and Windermere Marina Village Limited v Wild  UKUT 163 (LC) and concluded that the landlord’s analysis was to be preferred.
- The lessee’s appealed to the Upper Tribunal (Lands Chamber) where the matter was determined on written representations by Judge Elizabeth Cooke. Judge Cooke reversed the FTT. She pointed out that the effect of s.27A(6) was to render void a clause purporting to grant a landlord the power to vary the proportion of service charge payable by its lessees. Accordingly, the FTT’s decision that s.27A(6) allowed the landlord to vary the amount payable but subject to review by the FTT was clearly wrong. Importantly, she also held that the effect of s.27A(6) was, effectively, to delete from the lease the words “…such part as the Landlord may otherwise reasonably determine”. Accordingly, the lessees were correct, the landlord was stuck with the fixed percentage specified in the leases. The landlord appealed to the Court of Appeal.
- Before the Court of Appeal, the landlord argued that the statutory objective of s.27A(6) was to render void any provision in a lease only to the extent that it would frustrate the operation of s.27A(1). The purpose of s.27A(1) was to transfer the determination of the reasonableness of any service charges from the landlord to the First-tier Tribunal. Accordingly, only that which was necessary to meet the statutory objective of s.27A(6) ought to be deleted, namely the words “the Landlord”. The deletion of these words would allow the FTT to step into the breach and allow the FTT to determine the amount of service charge now payable by the lessees.
- The lessees argued that the 1985 Act was effectively consumer protection legislation enacted to protect lessees and so it should be interpreted and applied in a manner that was simple for residential lessees to understand without complex advice. The “blue pencil” approach adopted by Judge Cooke – ie striking through the entirety of the words “…such part as the Landlord may otherwise reasonably determine” – fulfilled this purpose. Further, if striking through these words caused injustice it was always open to the landlord to make an application to the FTT pursuant to s.35(1) of the 1985 Act to vary the leases so as to enable satisfactory provision for the payment of charges by the lessees if it was necessary.
The Court of Appeal’s decision
- The Court of Appeal allowed the landlord’s decision. It held that the effect of s.27A(6) was simply to remove the landlord from the decision-making process under the leases and transfer the landlord’s role to the First-tier Tribunal.
- Lewison L.J. gave the sole judgment (with whom Males and Rose L.JJ. agreed). The main reasons for his decision are at  and . Here he said:
- The clear thread that ran through the previous decisions of the Upper Tribunal (Lands Chamber) is that section 27A(6) of the 1985 Act was concerned with no more than removing the landlord’s role (or that of another third party) from the decision-making process, in order not to deprive the FTT of jurisdiction under section 27A(1) of the 1985 Act. This statutory objective is satisfied if the landlord’s role was transferred to the FTT.
- The service charge provision envisages that the lessees may be liable to pay (as an alternative to the fixed percentage) a different percentage (a) which is to be identified by someone acting reasonably, and (b) that that someone is the landlord. It is only the second component that is invalidated by s.27A(6). All that is necessary for compliance with s.27A(6) is to deprive the landlord of its role in making the determination.
Implications of the decision
- The Court of Appeal’s decision is to be applauded. Many long leases (especially those drafted before the enactment of s.27A of the 1985 Act) contain provision for landlords (or the landlord’s surveyor) to determine the amount of service charge payable by lessees. If the lessees’ argument had succeeded it would have caused chaos. Many landlords would find themselves with obligations to clean, repair or maintain their buildings but without the means to fund those activities. To remedy the situation landlord would have had to apply to the FTT to amend their leases. This would have caused them to incur costs that they might not have been able to recover from the lessees. Further, whilst the applications to amend made their way through the FTT, landlords might find themselves faced with claims for breach of covenant for not, inter alia, carrying out repairs. The courts would then have had to consider the extent to which landlords would have been able to defend those claims by reason of the inability to levy service charges. Essentially, the lessees’ arguments would have thrown grit into the landlord and tenant relationship. The decision of the Court of Appeal opted for a construction of s.27A(6) that focused on the mischief that that sub-section was aimed at addressing and thereby avoided the chaos that might otherwise have been caused. The decision of the Court of Appeal will hopefully be a useful reminder of the correct approach to be adopted by the FTT and Upper Tribunal (Lands Chamber) when interpreting legislation and leases.
 Lewison LJ at §8 in Procter v Procter  EWCA Civ 167.
 Martin Rodger, DCP, at §41 in Windermere Marina Village Limited v Wild  UKUT 163 (LC)
This article was written by Faisel Sadiq.
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