The Upper Tribunal Lands Chamber has reiterated that a provision in a residential lease providing for determination of service charges by the landlord’s surveyor will be void. The Tribunal states this will also apply to provisions for determination by a third-party in an intermediate lease.

In 2004 Wellington Real Estate Limited (“the Freeholder”) granted a lease of the third and fourth floors of Telegraph House in Sheffield to a developer, Mr White (“the White Lease”), who subsequently granted Sub-Leases to the Residential Tenants. The rest of Telegraph House was demised under commercial Leases. Mr White later assigned the White Lease to a company which went into liquidation. The liquidator then transferred the White Lease to LCP Commercial Limited, a group company of the Freeholder.

The Service Charge obligation in the White Lease was to pay a proportion of the costs incurred by the Freeholder in providing the services, that proportion to be determined by the Freeholder’s surveyor or the Freeholder. The Residential Tenants were obliged, under their Sub-Leases, to pay a service charge, which was defined as a fixed percentage of the costs incurred by their intermediate landlord in providing services to the third and fourth floors.

As the Freeholder and LCP Commercial Limited were group companies, a joint summary of expenditure was produced, although divided into separate schedules for each area of the building. The Residential Tenants sought to challenge the apportionment exercise undertaken by the Freeholder’s surveyor and took their complaint to the First Tier Tribunal (“FTT”). The FTT considered that it was not their task to decide the apportionment of service charges due but saw their role as considering whether the apportionment settled on by the Freeholder’s surveyor was fair. Ultimately, the FTT decided that each of the apportionment decisions made by the surveyor had been reasonable. The Residential Tenants appealed to the Upper Tribunal Lands Chamber (“UTLC”).

The UTLC held that the appeal should be allowed and the decision set aside and remitted to the FTT for re-determination. The UTLC applied the principles established in Windermere Marina Village Ltd v (1) Ian Wild (2) Gillian Lesley Barton [2014] UKUT 0163 (LC), that section 27A(6) of the Landlord and Tenant Act 1985 makes void any provision in a lease of a dwelling that the apportionment of service charge will be determined “in a particular manner”, such as by the landlord’s surveyor. The UTLC decided that section 27A(6) equally applies where there is an intermediate landlord between the residential owner/occupiers and the ultimate freeholder. Where the intermediate lease allows the freeholder’s surveyor to determine the apportionment of service charge within the building, that provision will also be void even though the freeholder has no direct contractual relationship with the residential end user tenants.

It can be concluded from this decision that landlords must beware of any provisions in existing leases that provide for a third party/surveyor to determine the apportionment of service charges. Moving forward, parties will need to agree a service charge apportionment, failing which the tenants may apply to the tribunal to determine the services charges due.

For further information regarding this topic, please contact the Edwin Coe Property Litigation team.

Joanna Osborne – Edwin Coe – joanna.osborne@edwincoe.com
Shams Rahman – Edwin Coe – shams.rahman@edwincoe.com
Lucy Hollis – Edwin Coe – lucy.hollis@edwincoe.com
Aisha Khan – Edwin Coe – aisha.khan@edwincoe.com

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