The tenants of 39 flats each held a residential long lease in a mixed residential and commercial development owned by the landlord. Each lease provided for the apportionment of each component of the service charge payable by specifying a fixed percentage “or such part as the landlord may otherwise reasonably determine”. The tenants applied under section 27A(1) of the Landlord and Tenant Act 1985 to the First-tier Tribunal for a determination of the apportionment of service charge payable. Section 27A(6) of the 1985 Act provided that an agreement by the tenant was void in so far as it purported to provide for a determination “in a particular manner” of a question that could be the subject of a determination under section 27A(1). The First-tier Tribunal held that section 27A(6) did not render void the words “or such part as the landlord may otherwise reasonably determine”. The Upper Tribunal allowed the tenants’ appeal, holding that the effect of section 27A(6) was that the words “or such part as the landlord may otherwise reasonably determine” were void and fell to be deleted, with the consequence that the landlord was restricted to the fixed percentage.
On the landlord’s appeal—
Held, appeal allowed. Section 27A(6) of the Landlord and Tenant Act 1985 was concerned with no more than removing the landlord’s role (or that of another third party) from the decision-making process, in order not to deprive the First-tier Tribunal of jurisdiction under section 27A(1). The statutory objective was satisfied if the landlord’s role was transferred to the First-tier Tribunal. To reach a broader conclusion than that would leave the contract emasculated and, in practical terms, unworkable. There was no objection in principle to a degree of flexibility in the apportionment of a service charge, provided that the decision was taken by the First-tier Tribunal. Further, it was open to either the landlord or the tenant to refer the question of a different reasonable percentage to the First-tier Tribunal if it could not be agreed. In the present case only the “particular manner” in which the percentage was determined, namely by the landlord, was invalidated by section 27A(6). Since all that was necessary for compliance with section 27A(6) was to deprive the landlord of its role in making the determination, the judge had notionally excised more from the lease than was necessary to achieve the statutory purpose of section 27A(6), her decision having the effect of depriving the First-tier Tribunal of all jurisdiction over the apportionment of service charges, which is not what section 27A(6) was intended to achieve. Accordingly, the lease was to be read so that the function of determining the apportionment was transferred from the landlord to the First-tier Tribunal (paras 34–40, 41, 42).
Simon Allison and Brooke Lyne (instructed by Penningtons Manches Cooper LLP) for the landlord.
James Sandham and Robert Brown (instructed directly) for the lead tenant.