Windermere Marina Village v Wild [2014] UKUT 163 (LC) is an important decision about the vexed question of apportionment that arises in many residential service charge disputes.
Many residential leases for flats divide up the total service charge bill between flat owners in some fixed proportion. For example in a block of four flats, each flat might bear a quarter of the service charge bill but where the flats are different, for example where some are larger than the others, a different percentage might be written into each lease based on some criterion that seemed reasonable at the time, floor area being one popular benchmark.
If those percentages do not add up to 100%, it is possible for the leaseholders to apply under part IV of the Landlord and Tenant Act 1987 to have their leases varied, but it was held by the Lands Tribunal in Schilling v Canary Riverside Development Pte Ltd LRX/26/2005 that the leaseholders could not challenge fixed percentages as being unreasonable under section 19 of the Landlord and Tenant Act 1985.
Another option – found in many leases – is to avoid setting a fixed percentage in the lease, but to leave the determination of that percentage to someone else. That was the situation in Windermere Marina Village where the leaseholder was required by the lease
To pay a fair proportion (to be determined by the Surveyor for the time being of the Lessors whose determination shall be final and binding)
The landlord’s surveyor had determined a fair proportion. The tenants challenged it and the LVT, having heard evidence from the landlord’s surveyor and a surveyor expert acting for the tenants, determined a different proportion as being fair and reasonable.
The landlord appealed to the Upper Tribunal on a number of grounds, most significantly: (i) that the LVT did not have jurisdiction to make the decision at all (relying on Schilling) and (ii) that even if it did, it should have deferred to the opinion of the landlord’s surveyor and not substituted its own decision.
The Upper Tribunal upheld the LVT’s decision, using some very ingenious reasoning. Section 27A(6) of the Landlord and Tenant Act 1985 makes an agreement (other than a post-dispute arbitration agreement) between landlord and tenant void in so far as it provides for determination “in a particular manner or on particular evidence” of any question which “may be the subject of an application under [section 27A(1)]..”.
Now it is entirely possible that an LVT deciding the amount of a service charge payable – as it may do under section 27A(1)(c) – might need to decide on the apportionment of those service charges: for example, if the provisions on apportionment were ambiguous, or there was a dispute about calculation of floor area.
This means, so the Upper Tribunal reasoned, that apportionment is a question that can be the subject of an application under s27A(1) and is therefore caught by the anti-contracting out provisions of section 27A(6). This in turn meant that the provision of the lease under which the surveyor determined the apportionment was void. What was a “fair proportion” of the service charges was within the jurisdiction of the LVT.
Unsurprisingly, having found that the surveyor provision was void, the Upper Tribunal had no difficulty in deciding that the LVT were free to make their own decision on the “fair proportion” and did not have to treat the landlord surveyor’s decision any differently from any other expert evidence they had received.
Provisions like the one in Windermere Marina Village are very common. Hence, the Upper Tribunal’s decision is significant as it allows many leaseholders the opportunity to challenge “fair proportion” and similar decisions made under provisions like this one.
What is not clear is the status of other decisions of the Upper Tribunal and Lands Tribunal which appear to have taken a different approach. In Barney v Eastern Green Ltd [2013] UKUT 331 (LC) and Shersby v Grenehurst Park Residents Co LtdLRX/142/2007, the Upper Tribunal seems to have restricted the LVT’s role in a determination (this time by the landlord) of a fair proportion to something close to a rationality review. See our comments on Barney v Eastern Green Ltd and Shersby v Grenehurst neither of which were cited in Windermere Marina Village.
Nevertheless, I think that this decision is intended to overrule earlier decisions to the contrary. It is clear from paragraph 27 that it applies to determinations by the landlord (as in Barney v Eastern Green and Shersby) as much as by third parties. It is also clear that the Upper Tribunal felt it was departing from earlier decisions because this was the first time that the effect of section 27A(6) had been considered in the context of fair proportion determinations.
Notwithstanding the other decisions, i always thought this to be the case.in the rare cases of contracting out, the position would be for the tenant to waive the rights having been made aware of them and told to take advice. Even then there is a risk……
Who’d be a landlord? This decision is not much of a surprise given that the landlord picks up the bill for the service charge deficit. But what about where the FTT’s unilateral reapportionment means applicant leaseholders get a reduction but other leaseholders’ percentages are increased?
Presumably, if outside 18 months from those costs being incurred, the landlord cannot reissue fresh demands, and so the landlord picks up the bill, effectively subsidising the other leaseholders.
I don’t think that would be a problem. Provided the landlord has informed them of the costs being incurred, s18 is complied with. If a balancing payment is later needed that should not be barred by s18.
Note that a sensible landlord will try to get all the different apportionments before the same FTT. S27A allows the landlord to ask for a determination of those questions and the FTT should hear them all together. It will help avoid inconsistencies.
Francis, I don’t think you mean s.18 (definition of variable service charge). I am afraid I think Sam is right. Imagine that the s/c has been apportioned based on (say) floor space for the last 6 years. The FTT finds that to be an unreasonable methodology and substitutes an equal split. The result of that is that some people have overpaid and some underpaid for the last 6 years. The “relevant costs” were incurred when the underlying demands were made of the landlord (OM v Burr) and were, in turn, demanded of the tenants at the relevant time. But we now know that those demands were both inaccurate as to quantum (and possibly even contractually invalid). The costs in years 1-4 cannot now be re-demanded as they’d fall foul of s.20B.
Of course, no-one appears to have argued this in the UT, so no-doubt that’s another appeal waiting to happen.
I see the flood gates opening. It’ll start with some panel in the Eastern Region panel, say, deciding, “Oh, Mr Goggins is right – living on the ground floor means he shouldn’t pay for the lift – that’s fair”, or, “Mrs Kumar lives on the 1st floor of the 10 storey block. What would be fair is if she pays 1/5th of what the leaseholders at the top pay for their lift. After all she only rides it 1/5th as far…”