The Supreme Court has given judgment in Aviva Investors Ground Rent GP Ltd and another v Williams and others [2023] UKSC 6, and clarified where the Tribunal can – and cannot – intervene in a landlord's 'discretionary management decisions'.
What was the issue?
This case concerned the landlord's ability under the lease to re-apportion service charges, and how this interacts with the Tribunal's power (often sought by leaseholders) to determine whether service charges are payable. Put simply – where a lease allows a landlord to re-apportion service charges (acting reasonably), can leaseholders ask the Tribunal to make that re-apportionment decision instead? Spoiler alert – no, they can't. That means earlier cases were wrongly decided.
Leaseholders of apartments in Southsea, Hampshire were required to pay a fixed portion of common costs "or such part as the landlord may otherwise reasonably determine." Therefore, the landlord had a contractual right to vary the service charge payable.
The landlord's contractual right co-existed with the power of the First-Tier Tribunal to determine whether service charges are payable. Leaseholders disagreed with the re-apportionment and argued that the Tribunal, not the landlord, had the ability to determine service charges under section 27A Landlord and Tenant Act 1985 ("the Act"), so the Tribunal should decide whether re-apportionment should be undertaken and, if so, what the result would be.
What can the tribunal do?
Pursuant to section 27A Landlord and Tenant Act 1985, both landlords and leaseholders can apply to the Tribunal for a determination as to whether a service charge is payable and, if it is, as to:
- the person by whom it is payable;
- the person to whom it is payable;
- the amount which is payable;
- the date at or by which it is payable; and
- the manner in which it is payable.
It therefore seemed as though the Tribunal had a very wide jurisdiction to deal with service charges. Section 27A(6) of the Act was an anti-avoidance provision, so that where a lease contained a contractual right for the landlord (rather than the Tribunal) to determine a discretionary question about service charges, this provision was rendered void (see the Court of Appeal in Oliver v Sheffield City Council [2017] EWCA Civ 225; [2017] 1 WLR 4473).
What did the Supreme Court decide?
Where there is a contractual provision giving a landlord discretion to determine a point about service charges, this was not void under the Act. In fact, it was right that the landlord did retain the ability to make such management decisions, as it would be inappropriate and unmanageable for the Tribunal to take on this role.
In this case therefore, the decision as to whether to re-apportion, and what the re-apportionments would be, were 'discretionary management decisions' for the landlord. The Tribunal could only determine whether the resulting service charges were payable in light of the contractual requirements (here, that the landlord must act reasonably) and well-established statutory requirements. However, the Tribunal could not stray into the landlord's management functions and undertake the apportionment exercise itself.
The leaseholders had already used section 27A of the Act to challenge whether the landlord had acted in accordance with the lease and statutory requirements, and the Tribunal had not found any deficiencies with the re-apportionment exercise.
"There is…all the difference for a landlord between facing a regime under which the [Tribunal] has freedom to make a completely different discretionary decision from that made by the landlord, and one where the jurisdiction of the [Tribunal] is limited to deciding whether the landlord acted in breach of contract or in contravention of the statutory scheme regulating residential service charges."
Lord Briggs
Three key points
1 – Every lease is likely to give the landlord discretionary management powers
These can be either express (such as here, where the term of the lease allowed the landlord discretion for service charge apportionment) or implied (for example, what works to carry out or services to perform, at what price). Contrary to previous court decisions, we now know it is valid for the landlord to retain this discretion themselves, subject to limited review by Tribunal.
2 – …these powers are for the landlord to exercise, not the Tribunal
The Tribunal has an important jurisdiction under section 27A Landlord and Tenant Act 1985, but this is limited to reviewing that the landlord has acted in accordance with lease terms and statutory requirements. A lease purporting to give a landlord discretion to determine a service charge point is not void (and earlier cases saying so must now be ignored).
3 – Landlord discretion can still fall foul of s.27A(6), Landlord and Tenant Act 1985
While a lease may give a landlord discretion to undertake 'managerial decision-making' in relation to service charges, any provision that seeks to make the landlord's decision final and binding is void, as it would oust the Tribunal's jurisdiction to review the decision's contractual and statutory legitimacy.
Landlord-leaseholder disputes are common, and this case is not going to bring an end to the frequent litigation arising from the levying of service charges. Nonetheless, this case brings welcome clarity to the role, and limitations, of the Tribunal's jurisdiction to intervene in such disputes. Both sides should carefully consider the wording of leases before gearing up for a court battle.
To discuss any of the points raised in this article, please contact real estate litigators Martin Thomas or Senay Nihat.