In the recent case of Hawk Investments v Eames and Ors ("Hawk Investments"), the Upper Tribunal considered the February 2023 Supreme Court decision in Aviva Investors Ground Rent GP Limited v Williams ("Aviva v Williams"), in particular, to what extent a landlord's right to reapportion service charges in a lease is restricted by section 27A(6) of the Landlord and Tenant Act 1985 ("the Act").
Essentially, in Aviva v Williams, the Supreme Court determined that landlords are permitted to make discretionary management decisions affecting service charges. This is provided that the lease provisions do not attempt to make those decisions final and binding so as to deprive the leaseholders of the right to challenge the reasonableness of the service charge in the First-tier Tribunal (Property Chamber).
In Hawk Investments, Hawk is the freeholder of 1970s development in St Albans which comprises both commercial units on the ground floor and residential maisonettes above. The residential leases prescribe a method of apportioning service charge and give the landlord power to change that apportionment in certain circumstances. An application regarding reasonableness under s27A of the Act was made before the First-tier Tribunal (Property Chamber) ("FTT") and the FTT handed down its decision in favour of the leaseholders finding, amongst other things, that the method of apportionment proposed by the landlord's surveyor was not just and equitable as provided for in the lease.
The Appellant's grounds of appeal were drafted prior to the handing down of the Supreme Court decision in Aviva v Williams. The appellant then applied to add an additional limb to its grounds of appeal, being that the FFT's decision was not consistent with the Supreme Court's decision in Aviva v Williams, and the respondents did not object to its addition.
As such, the Upper Tribunal considered two grounds of appeal:
(1) The Appellant challenged the FTT's finding that the condition precedent in the lease (which states that: before there can be a new apportionment it must be the case that "the system or method of rating buildings and premises in operation at the commencement of the term" is "abrogated or changed" so as to make that method of apportionment "inoperable or manifestly inequitable") had not been satisfied. However, the Respondents then conceded that the condition precedent had been satisfied based on the abolition of domestic ratings. Judge Cooke agreed and set aside the FTT's finding on the condition precedent, meaning that the appeal now focussed on the second of the grounds of appeal.
(2) This ground deals with the second and alternative limb of the FTT's decision, which was made on the usual "in case we are wrong" basis following the decision mentioned in (1) above. In the event that its decision about the condition precedent was wrong, the FTT decided that the appellant's proposed new apportionment method was not "just and equitable" as the lease required it to be. The Appellant first argued in its grounds of appeal that the new apportionment was "just and equitable" and then, following the decision in Aviva v Williams, argued that the FTT's decision was inconsistent with Aviva v Williams because the FTT was now restricted to assessing the rationality of the landlord's decision i.e. the FTT has no jurisdiction to determine whether the new scheme was just and equitable.
Judge Cooke considered the second ground of appeal in great detail (as can be seen at paragraphs 20 – 75 of her Decision) but, although the FTT's finding about the satisfaction of the condition precedent was set aside for the reason set out above, Judge Cooke upheld the FTT's findings that the new apportionment method as proposed by the Appellant was not "just and equitable". She concluded that the FTT's decision was not restricted to assessing the rationality of the surveyor's decision, but that the FTT Judge also had jurisdiction to determine if it was "just and reasonable". The FTT did not fall into error and Hawk Investments' appeal failed.
This Upper Tribunal Decision serves as a reminder that although landlord's do have the discretion to make management decisions affecting service charges under Aviva v Williams, the FTT retains its powers to protect leaseholders where the landlord attempts to do so against the provisions of its lease.
Regular readers of our bulletin may recall that we covered the Aviva case in some detail here.
