Morgan and another v Fletcher and others LRX/81/2008 is an important decision of the Upper Tribunal (Lands Chamber) (aka the Lands Tribunal) on the scope of s.35, Landlord and Tenant Act 1987.
As you’ll remember, Part 4, Landlord and Tenant Act 1987 confers power on an LVT to vary a residential lease in circumstances where the “lease fails to make satisfactory provision” (s.35(2)) with respect to inter alia, the computation of a service charge payable under the lease (s.35(2)(f)). For these purposes, a lease fails to make satisfactory provision if it provides for a total service charge recovery of more or less than 100% of the amount that the landlord expends (s.35(4)).
In the present case, six of the eight lessees of residential flats brought an application under s.35, seeking a variation of the service charge percentages in their leases. They had two concerns:
(a) the total proportion of the service charges payable under the eight leases came to 116 per cent;
(b) the proportions paid by the leaseholders seemed to arbitrary, in that larger flats did not pay a larger service charge.
After the application was issued, the leaseholders of the other two flats (one of whom was also the freeholder) varied their leases so as to reduce their service charges, and therefore reduce the total amount recoverable to 100%.
Those two leaseholders then argued that the application should be dismissed, since the reduction in their service charges meant that the leases now made satisfactory provision for the computation of the service charges i.e. they now totalled 100%.
The LVT rejected this argument, relying on the fact that, notwithstanding that the service charges now totalled 100%, the apportionment was manifestly unfair. One of the two leaseholders held the largest flat but paid a significantly lower (by a factor of 16 in some cases) service charge than the other leaseholders.
The two leaseholders appealed to the Lands Tribunal. They contended that the only circumstances in which an LVT could vary a lease so as to amend the service charge percentages payable was where the total recovery exceeded 100%.
Judge Jarman QC found that s.35 was ambiguous and, hence, that he was entitled to have regard to the Hansard debates that surrounded s.35 and the subsequent amendments, applying Pepper v Hart [1993] A.C. 593, HL. Having so considered the debates (and the Nugee report 1985), the Judge held that s.35(4) had to be read as limiting s.35(2)(f) i.e. the only circumstances in which an LVT may vary the service charges payable under a lease are where the recovery exceeds or is less than 100%. If the percentage payable is 100% then the LVT is not empowered to vary the lease.
The Judge did express “some sympathy” for the respondents, but allowed the appeal. Although not cited, the Judge might have found some support for this approach in the earlier Lands Tribunal case of Southend-on-Sea DC v Skiggs [2006] 2 EGLR 87, where the Lands Tribunal also limited the power of the LVT to go behind an otherwise valid contract.
I’m not wholly persuaded that this is right. Why can an LVT not examine questions of apportionment? It can plainly give rise to “unsatisfactory provision” for the computation of service charges if an unfair apportionment is adopted. Suppose (to borrow an example from the case) that a freeholder converts a house into two flats, each of which pays 50% of the service charges. He reserves the roof space and air space to himself and then builds a third flat at the property. Can he leave that flat with a nill service charge liability? The answer would appear to be “yes” – and, the existing two leaseholders cannot ask an LVT to remedy this situation. Is that really right?
One final point. This was – yet another – appeal where only one party had the benefit of legal representation. The Upper Tribunal (Lands Chamber) is now a court of record and its decisions have precedential value. It is wholly unacceptable that a body making such decisions should continue to hear so many appeals where only one party is represented. In the absence of a robust and well-funded legal aid system, surely there is a case for the Bar Pro Bono Unit / Law Works to promote their services to via the Lands Chamber. I’m only asking for them to include a leaflet amongst the paperwork which is sent to parties. There are plenty of people – including, I suspect, at least two of your NL team – who would be quite prepared to consider doing Lands Chamber cases on a pro bono basis if the Unit / Law Works would just ask…