In this blog we look at the Supreme Court’s recent unanimous decision in Aviva v Williams, handed down on 8 February 2023. This case was of considerable importance for landlords and managing agents of residential leasehold properties, as the appeal concerned the validity of a service charge re-apportionment provision, which can be found in countless residential leases.
What is service charge re-apportionment?
Apportionment is the method of sharing service charge costs between leaseholders within a leasehold property and must be compliant with the terms of the lease. It can be worked out based upon the floor space of each property, or features of each property, such as whether a property has a balcony for example. Reapportionment is when a service charge amount is amended, usually due to change to the properties within a block. Any changes made will be subject to reasonableness
Aviva v Williams case
The provision in the lease allowed the landlord to revise the proportion of service charge to be paid by the leaseholders, provided the revision was reasonable. The leaseholders argued that the reapportionment made by the landlord was unreasonable and, furthermore, that the effect of s.27A(6) of the Landlord Tenant Act 1985 was that the provision was void.
S.27A(6) of the Act provides that an agreement is void in so far as it purports to provide for a service charge determination in a particular manner or on particular evidence of any question which falls under s.27A(1).
The Supreme Court upheld the validity of the provision, finding that the landlord’s apportionment in this case was reasonable. In doing so, the Supreme Court overturned the decisions of the Upper Tribunal and Court of Appeal. the Supreme Court restored the decision and reasoning of the First Tier Tribunal, which found that the provision was not voided by s27A(6) as the leaseholders could challenge the reasonableness of any re-apportionment in the FTT.
Lord Briggs, giving judgement on behalf of the Court, stated that the decision of the Upper Tribunal provided for a “commercially unattractive result” and that the decision of the Court of Appeal would have led to “the most bizarre and surely unintended results”. The Court recognised that landlords of long residential leases may want to include service charge reapportionment provisions which allow them to reasonably revise the initial allocation for each leaseholder to reflect changes which may occur during the term.
The Supreme Court’s judgement is welcomed as a commercially sensible decision which reinforces the principle of freedom to contract and aligns with the purpose and natural reading of s.27(A). The decision has clarified the narrow ambit for dispute over re-apportionment and so landlords and managing agents can now be confident when incurring service charge costs that they will be able to re-apportion service charge in accordance with agreed lease provisions, subject to reasonableness and a review by the FTT if either the landlord/ management company or the leaseholders require it.
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