Please Sir, Can I Have Some More?
Oliver Case overturned by Supreme Court in Aviva Investors Ground rent GP Ltd and another v Williams and others [2023] UKSC 6…
Given the rarity of Supreme Court decisions that radically alter the legal position in relation to property law, it was tantalising to read the decision in Williams v Aviva which deftly disposes of four report decisions (in addition to the earlier Williams v Aviva decisions), beginning with Windermere Marina Village v Wild [2014] UKUT 163 (LC) and ending with Oliver v Sheffield City Council [2017] EWCA Civ 225.
These cases all concerned a provision that, previously, had not received a great deal of attention: s.27A(6) of the Landlord and Tenant Act 1985 (“the 1985 Act”). It is useful to revisit the background of the cases before discussing the decision in Williams itself.
The jurisdiction of the First-tier Tribunal (Property Chamber) (“FTT”) has expanded over the years. By s.27A of the 1985 Act (which was inserted by the Commonhold and Leasehold Reform Act 2002), the FTT can determine whether a service charge is payable (and if so, the amount that it is payable, the manner in which it s payable and so on). It can make a determination in respect of costs which have already been incurred, and costs which are to be incurred: s.27A(1) and (3), respectively.
Section 27A(6) provides as follows:
“(6) An agreement by the tenant of a dwelling (other than a post-dispute arbitration agreement) is void in so far as it purports to provide for a determination—
(a) in a particular manner, or
(b) on particular evidence,
of any question which may be the subject of an application under subsection (1) or (3).”
The primary purpose of s.27A(6) was to prevent landlords from contracting out of the FTT’s functions; for example, by including expert determination clauses in leases that provide for the determination of disputes by the landlord’s surveyor, whose decisions are final and binding.
Windemere gave S.27A(6) a broader meaning - service charge proportion which was expressed to be “fair and reasonable”, with the landlord or their surveyor determining the meaning of “fair and reasonable” in a manner that was “final and binding”, was void and unenforceable by virtue of s.27A(6) of the 1985 Act. Only the FTT could decide what a “fair and reasonable” proportion was.
Next came Gater v Wellington Real Estate [2014] UKUT 561 (LC) which affirmed Windermere and confirmed that the FTT should disregard the landlord’s decision-making process entirely and make its own mind up.
Windermere was upheld by the Court of Appeal, in Oliver v Sheffield City Council [2017] EWCA Civ 225, although it was not the predominant issue in Oliver and it was not given a great deal of attention. Lord Justice Briggs (as he was then) held that where the mechanism for determining the method of apportionment was clear, it would not fall foul of s.27A(6), but where it was a matter for the landlord’s discretion, such a provision would be void and unenforceable as a consequence of that provision.
We move forward to the first reported decision to apply Windermere to a clause which provided the landlord with the ability to alter the fixed service charge percentages in a lease: Fairman and others v Cinnamon (Plantation Wharf) Limited [2018] UKUT 0421(LC). The clause in question read as follows:
“If in the opinion of the Lessor it should at any time become necessary or reasonable to do so by reason of any new buildings being constructed and brought within the Estate whether or not on land now forming part of the Estate or by reason of any of the premises in the Building or the Estate being added to ceasing to exist or to be habitable or being compulsorily acquired or requisitioned or ceasing to form part of the Estate or for any other reason the Lessor or its surveyor shall re-calculate the Service Charge percentage proportions either as appropriate to the remaining Units within the Building (but in the same ratio as the existing proportions) or to the Building in relation to the Estate (as the case may be)…”.
The Upper Tribunal held that such a provision should be interpreted as though any reference to a surveyor or landlord having the power to vary service charge proportions should be replaced with the FTT. This suggested that the effect of S.27A(6) is not to strike down a whole provision, but merely to deprive the Landlord or their agent/surveyor from determining or recalculating apportionments, affording such ability solely to the FTT.
The Upper Tribunal’s decision in Williams came next which reaches a slightly different conclusion. As a brief background, in the case of Williams the service charges were apportioned as fixed percentages “or such part as the Landlord may otherwise reasonably determine”. The Landlord had reapportioned service charges by varying the set percentages. This decision was challenged in the FTT by a number of leaseholders who averred that the Landlord was not able to exercise the clause by virtue of S27A(6). The FTT held that the reapportionments were reasonable, the Leaseholders appealed. The Upper Tribunal held that the provision in question was completely void and unenforceable – overturning the first instance decision of the FTT.
Thus followed Aviva’s appeal to the Court of Appeal, who overturned the decision of the Upper Tribunal, holding that the lease provision for re-apportionment is void only to the extent that it was the Landlord exercising it. Either party would be permitted to apply to the FTT to have service charge apportionments determined.
The Leaseholders appealed… role in the Supreme Court decision. Aviva, in this appeal, argued that Windermere, Gater and Oliver were all wrong – having not been able to argue that in the Court of Appeal or the Upper Tribunal, because the Upper Tribunal is bound by the Court of Appeal and the Court of Appeal is generally bound by its own decisions, unless they are obviously wrong.
Lord Briggs agreed - it is commendable that he was prepared to openly accept that he made a mistake in Oliver (in the Court of Appeal) and reversed his own judgment “with embarrassment and contrition”. Lord Briggs averred that it cannot have been the intention of Parliament that the FTT should be expected to determine service charge proportions in a large number of cases where there might otherwise have been no dispute about those proportions.
“I have come to the conclusion that to allow subsection (6) to enlarge in that way the nature and type of “questions” before the FtT under section 27A(1) and (3) is to put the anti-avoidance cart before the jurisdictional horse. In my judgment it was not the purpose or effect of section 27A(6) to deprive that form of managerial decision making by landlords of its ordinary contractual effect, save only to the extent that the contractual provision seeks to make the decision of the landlord or other specified person final and binding, so as to oust the ordinary jurisdiction of the FtT to review its contractual and statutory legitimacy. I therefore consider, for the reasons given above, that the Oliver case, and the two decisions that the Court of Appeal followed in that case were, to that extent, wrongly decided.”
In Aviva, the landlord had two rights:
- to trigger the reapportionment of the service charge and
- to decide what the new percentage or proportion should be.
Both decisions contractually required the landlord to act reasonably, the FTT held, on both counts, that the Landlord succeeded on this front. As that finding of reasonableness had not been challenged (and, being a finding of fact, which the FTT is in the best position to make) that decision stood.
What does this mean?
It means that if you are the landlord, RMC, RTM company or property manager of a block with leases which specify a “fair and reasonable” proportion, of which contain a power on the part of the landlord (or RMC, or RTM company) to reapportion service charges, you can breath a sigh of relief. You (or your client) can do what the lease says you (or your client) can do, subject only to the FTT’s jurisdiction to determine whether you are (or your client is) exercising that power in a manner that is contractually valid.
We can forget about the last 8 years (or so) of decisions on s.27A(6) of the 1985 Act, and revert to the legal position pre-Windermere. The landlord (or RMC or RTM Co.) can exercise any right it may have to determine what a “fair and reasonable” proportion is, or to reapportion service charges, without worrying about its service charge demands being rendered invalid. However, its decision may still be the subject of a challenge before the FTT, if any leaseholder considers that they have not properly applied the terms of the lease; for example, because the decision to reapportion was not “fair”, “reasonable”, “just” or “equitable” (whatever the wording happens to be) or because the new proportions themselves are not “fair and reasonable”. This decision is not cart-blanche for Landlords to re-apportion charges to suit their own agenda, but it does “re-afford” a degree of freedom to make reasonable managerial decisions to aid the good and proper management of a block.