Supreme Court judgment in leasehold apportionment test case

Today (8 February 2023), the Supreme Court handed down its judgment in a test case for leasehold apportionment.

This morning the Supreme Court handed down its decision today in Aviva Investors Ground Rent GP Ltd v Williams, which has significance for leaseholders and landlords across the country – and will be of interest to conveyancing professionals dealing with leasehold properties.

The appeal concerned the interpretation of provisions for calculating the service charges payable under the terms of residential leases and, in particular, how s.27A(6) of the Landlord and Tenant Act 1985 should operate and affect how those provisions should be read.

In this case – as in many hundreds of thousands of leases – the leases provided for leaseholders to pay a fixed percentage but, additionally, allowed the landlord to vary the service charge percentages. The leaseholders had argued that the landlord was not entitled to apply varied percentages and that effect of s.27A(6) was that the provision allowing for reapportionment was to be struck down.

In a unanimous judgment the Supreme Court concluded that the role of the First Tier Tribunal (FTT) in considering the reapportionment of residential service charges is limited to a review of the contractual legitimacy of the landlord’s reapportionment and the FTT is not to determine the apportionment for itself.

This case has come full circle with the Supreme Court confirming the initial decision of the FTT was correct, closing the “pandora’s box” that had been opened as a result of the judgement by the Court of Appeal.

The decision gives property managers / landlords some much needed certainty around varying service charge apportionment and makes it clear that the Tribunal remains a review only jurisdiction.

Ben Robinson, a partner in our property litigation team who successfully defended the appeal on behalf of Aviva Investors available to talk through the key points of the judgment and its wider implications.

Ben says:

“In making this decision, the Supreme Court has clarified the jurisdiction of the First Tier Tribunal in determining the apportionment of residential service charges, halting the unintended ‘mission creep’ developed through the chain of authorities which risked placing some discretionary management matters on the First Tier Tribunal.

“It is now clear that the Tribunal remains a ‘review only’ jurisdiction and ensures that landlord’s retain an important role when it comes to determining the apportionment of service charges.

“Where permitted in the lease, the decision will enable landlords and property managers to make changes to the apportionment of service charges where it is in the interests of good estate management, whilst reducing the need for time consuming applications to the First Tier Tribunal.”

Kindly shared by Penningtons Manches Cooper LLP

Main article photo courtesy of Pixabay