Is the (third) party over for apportionment of service charge?

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Summary: A new ruling is likely to cause concern among residential landlords and managing agents. In Windermere Marina Village Ltd v Wild and others, the Upper Tribunal (Lands Chamber) decided that section 27A(6) of the Landlord and Tenant Act 1985 makes void an agreement in a lease of a dwelling that the apportionment of service charge will be determined by a third party.

You should read this note if you are a residential landlord or managing agent or are planning to invest in or redevelop residential property.

The 20-second summary


A new ruling is likely to cause concern among residential landlords and managing agents. In Windermere Marina Village Ltd v Wild and others, the Upper Tribunal (Lands Chamber) decided that section 27A(6) of the Landlord and Tenant Act 1985 makes void an agreement in a lease of a dwelling that the apportionment of service charge will be determined by a third party.

Background


Tenants held long leases of apartments in a mixed and leisure development at Windermere Marina Village. These leases had envisaged the possibility of further development at the Marina which had indeed taken place. In 2007 the landlord appointed a surveyor to report on the future apportionment of costs. This surveyor had used the RICS Code of Practice on Residential Service Charges to help him determine a fair apportionment. The tenants challenged the conclusions he reached and applied to the (then) LVT for a determination of their liability.

The LVT heard evidence from the landlord’s and the tenants’ surveyors. It preferred the evidence of the tenants’ surveyor and determined a new apportionment. The landlord then appealed to the Upper Tribunal.

The Appeal


One key ground of the landlord’s appeal was that the LVT did not have jurisdiction to make its decision at all. Additionally the landlord argued that the LVT’s reliance on the evidence and its reasoning were defective.

The Deputy President held that the provision permitting the landlord’s surveyor to determine a fair apportionment of the service charge fell foul of section 27A(6) because it provided for a determination “in a particular manner” of a question “which may be the subject of an application under section 27A(1)”.

He went on to conclude that the landlord’s surveyor is wholly deprived of his role so that the service charge provisions were to be read as if that method of determination was omitted altogether.

This inevitably meant that the LVT could determine the matter afresh based on the evidence before it. There was no room for an argument that its only role was to check the fairness of the landlord’s surveyor’s approach.

Future Case Management


The Deputy President made some useful suggestions for the future management of challenges to apportionment. In particular he suggested that the First Tier Tribunal (FTT) give notice to other parties who would want to make representations on the issue. A sensible landlord will want to ensure that all apportionment questions are heard together to avoid inconsistency. The FTT Rules provide for the designation of certain cases as “lead cases” and also for the notices referred to by the Deputy President.

Practical Issues arising


  • Should all new leases take account of this decision and no longer provide for apportionment of service charges from time to time?
  • What if the lease does not provide for a landlord to recover its costs of the FTT and Upper Tribunal (as in this case)? Can a landlord ever now recover its costs of appointing a surveyor to apportion a service charge?
  • What would the practical impact of this be on landlords and tenants of developments which are potentially ripe for growth or re-designation of uses? Should they take a pragmatic view for the moment?
  • How will the FTT approach the case management problems envisaged?
  • Will this case open the floodgates to arguments about previous apportionments?

Case: Windermere Marina Village Ltd v Wild and others [2014] UKUT 163 (LC).

For further information please contact Wendy Miller or David Battiscombe.

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