Service charges: Can a landlord unilaterally vary stated apportionments of service charges? (Williams & Others v Aviva Investors Ground Rent – 2020)]

Where a landlord demands service charges from leaseholders in apportionments that differ from those stated in the leases, are such sums payable by the leaseholders?

The background

Williams & Others v Aviva Investors Ground Rent [2020] concerned a block of 69 residential flats and a commercial unit in Hampshire. The claim was brought by 39 leaseholders. Each flat was let to a leaseholder by leases in the same form, and 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, with wording ‘or such part as the Landlord may otherwise reasonably determine’ included after each percentage. The landlord for a number of years made service charge demands in different proportions to those stated in the leases. On appeal from the First-tier Tribunal, the Upper Tribunal was asked to consider whether the landlord was able to do so with reference to s.27A of the Landlord and Tenant Act 1985, which grants jurisdiction to the FTT to determine the payability of service charges, and an earlier decision in Windermere Marina Village Limited v Wild and Barton [2014].

The decision

The Upper Tribunal allowed the leaseholders’ appeal, finding that the landlord was only able to recover sums in the stated apportionments in the leases. If the landlord wished to make any different demands to those percentages, it must make an agreed variation to the leases.

The words ‘or such part as the Landlord may otherwise reasonably determine’ were rendered void, as the FTT had no jurisdiction under s.27A of the 1985 Act to amend stated service charge apportionment percentages. The Windermere decision differed, because in that case tenants were required to pay a ‘fair proportion’ and the FTT therefore still needed to make a determination as to what that proportion was. In the present case, the leases contained a fixed percentage and there was nothing further for the FTT to decide.

Advice and action

This is a notable decision for landlords. Many leases contain service charge provisions which state a fixed percentage but caveat this with the ability for the landlord to vary the apportionment at its discretion.

The Williams judgment makes a clear case that the FTT can only determine the payability of a service charge sum where a determination still needs to be made as to what those service charges are to be. Where a fixed percentage is stated, there is no further decision required and a landlord cannot unilaterally decide to vary it.

CASE UPDATE: PLEASE REFER TO OUR ARTICLE ON THE COURT OF APPEAL JUDGMENT IN JANUARY 2021, FOUND HERE.