Is a Third Party Service Charge Apportionment Binding on Leaseholders?

The Upper Tribunal (Lands Chamber) recently had to consider this question in relation to a property nestled on the shores of Lake Windermere.

The main question that the Upper Tribunal needed to answer was whether an agreement in a residential lease that the service charge apportionment was to be determined by a third party with that decision being final and binding, was void.

The decision, which rested upon the interpretation of section 27A(6) of the Landlord and Tenant Act 1985, has important implications for residential landlords and property managers.

The Facts of Windermere Marina Village Ltd v Wild [2014]

This case concerned a development of a marina comprised of various flats, boathouse apartments, holiday cottages, houses, offices, a boatyard and other facilities. Wild and others were tenants of boathouse apartments within the development that were occupied under leases that provided them to contribute a fair proportion of the cost of services, with the apportionment:

“to be determined by the Surveyor for the time being of the Lessors whose decision shall be final and binding”.

This clause was unusual in that it did not set out the specific apportionment; the reason being that the developer expected to add further properties to the marina development over time.

Until 2007 the amounts collected under the service charge were minimal but the growth of the marina meant that the costs had increased. That year Windermere Village Ltd appointed a surveyor to determine how these should be apportioned between itself and the long leaseholders of the boathouse apartments. When this was completed the tenants objected to the apportionment, in particular the element attributed to security and ground maintenance costs.

In September 2011, the tenants made an application to the Leasehold Valuation Tribunal (LVT) under section 27A of the Landlord and Tenant Act 1985, to determine their liability to pay service charges for the period 2008 to 2011. The LVT decided that the tenants were liable for the security and ground maintenance costs but not for the cost of the surveyors report; it also supported an alternative apportionment to the one set out by the landlord’s surveyor.

The landlord appealed to the Upper Tribunal.

Questions for the Upper Tribunal

The Upper Tribunal had to decide whether the LVT had jurisdiction to adjust the surveyor’s apportionment and therefore whether the decision of the surveyor appointed by the landlord was in fact ‘final and binding’. If it was not then the Upper Tribunal had to decide what the correct apportionment should be.

The Upper Tribunal concluded that where a lease contains a fixed agreement between landlord and tenant about the apportionment, e.g. a specific percentage, then under 27A(4)(a) of the Landlord and Tenant Act 1985, the tenant could not challenge it because the apportionment would be ‘agreed or admitted’ by the tenant. In this case the proportion was yet to be determined and the lease merely specified the ‘particular manner’ in which it should be apportioned which made that mechanism void under section 27A(6) of the Landlord and Tenant Act 1985 despite it being labelled ‘final and binding’.

Comment

This case is significant because apportionment has been little disputed up to this point. Leases that have not determined specific apportionments up front but have left them to be determined by a third party may well find them subject to challenge in future.

For specialist advice contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.