Supreme Court Judgment: Aviva v Williams
Many readers may be aware that this week saw the Supreme Court hand down judgment in the high-profile and long running Aviva V Williams case. The outcome represents a significant legal milestone and carries significant implications for leaseholders and landlords on the apportionment of service charges. Importantly, the decision also serves to clarify that the role of the First-tier Tribunal (FTT) on the reapportionment of residential service charges, is limited to a review of legitimacy of the landlord’s reapportionment and not to determine the apportionment itself. Legal Director Phil Parkinson provides an overview of the case and its potential impacts…
Background:
As we previously reported (Aviva V Williams: Appeal Sees The Restoration Of The Determination For Service Charge Variation (2021) - JB Leitch), the case concerned a block of 69 residential flats and a commercial unit where the leases set out each tenant’s apportionment of service charges for insurance costs, building services costs and estate services costs. A set percentage was stated in the lease for each unit against these cost areas, with wording ‘or such part as the Landlord may otherwise reasonably determine’ included after each percentage. The First-tier Tribunal (FTT) had accepted the landlord’s approach and confirmed that the apportionment was reasonable. The respondent leaseholders had subsequently challenged this point at the Upper Tribunal (UT), which concluded these terms were to be deleted entirely - so that only the fixed percentages in the leases remained. Consequently, it was deemed that the FTT had no jurisdiction to determine the apportionment (as per s.27A (4) of the Landlord & Tenant Act 1985.
Further to challenge by the leaseholders, and progression to the Court of Appeal (CoA), on the 18th of January 2021, the decision made by the Upper Tribunal was overturned, which then provided landlords and managing agents with an important precedent for seeking to vary the apportionment of service charges within a residential development.
A Question of Interpretation?
A central element of the case is the how s.27A(6) of the Landlord and Tenant Act 1985 should function and be interpreted:
“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)”.
Landlord and Tenant Act 1985 (legislation.gov.uk)
What is the effect of s.27A(6)? Does this section void a term in the lease which allows the landlord to revise service charges? If the effect is that any discretion for re-apportion of the service charge is transferred to the FTT rather than the landlord, does s.27A(6) enable the tenant to invoke the Tribunals jurisdiction?
The Supreme Court:
The Court considered this section an ‘anti-avoidance provision’ and that it was not the purpose of S.27A(6) to widen the jurisdiction of the tribunal or deprive the landlord managerial decisions of contract. Its purpose is instead to prevent the parties of a lease agreeing to a different mechanism to determine a question that could have been decided by the FTT.
Therefore, a contractual provision will only be void to the extent it purports to oust the jurisdiction of the tribunal – for example, by making a landlord decision binding.
The Court disapproved of the CoA interpretation of s.27A(6) and the previous caselaw it was based on. This interpretation would mean that any discretionary management decision which affected the service charges would be transferred to the FTT and this would expand the jurisdiction of the FTT. The Court did not consider this section to have been intended to have this effect. It would also mean the landlord would not be able to safely incur costs without seeking an FTT decision first as to whether this could be charged to tenants.
The Court disagreed with the leaseholders’ approach adopted in the UT. This would have had the effect of removing altogether the ability to vary apportionment which was not the intention of this legislation – the Tribunal was still able to determine whether adjustments were reasonable as required by the leases. The Tribunal had decided that they were reasonable, therefore s.27A(6) was not engaged and re-apportionments were valid.
The Decision:
In conclusion, the Supreme Court dismissed the tenant’s appeal, restoring the FTT decision and reasoning that the apportionment was valid, with the decision noting that to allow S.27A(6) to enlarge the nature and type of questions before the FTT under S.27A(1) and (3) is wrong. It was not the purpose of S.27A(6) to deprive landlords of those managerial decision making by ordinary contractual effect – except in cases where the extent of the contractual provision is to make the landlord decision final and binding and oust the jurisdiction of the FTT.
Conclusion & Comment:
In summary, as we have reported in a number of articles and case summaries, the methodology and practical application of apportioning service charges in leases has been a continually evolving area, and such disputes have, in recent years, reached the senior judiciary with the Upper Tribunal (UT), Court of Appeal and now, the Supreme Court, all determining issues within the area. With this decision landlords and managing agents can now be more confident that reapportionment exercises will only be subject to a review by the FTT and consequently reduce the scale and parameters of future disputes. We will continue to report and comment on the impact of the decision.
