[2023] UKUT 243 (LC)

The main issue between the parties concerns the effect of section 27A(6), 1985 Act, on the role given to the Surveyor by clause 7(8)(a) of the lease. Dr Braganza maintains that the statute deprives the Surveyor of any function and that it was the job of the FTT to determine for itself, for each year in dispute, what the Specified Proportion should be. Riverside maintains that section 27A(6) has no application, and that the Surveyor is entitled to determine the Specified Proportion; the FTT’s task was then to consider the contractual question whether the Surveyor’s opinion of the reasonable apportionment was “rational” and, if it was, then to address the statutory questions posed by section 19(1), 1985 Act, namely, whether the expenditure had been reasonably incurred on services of reasonable quality.

The FTT’s task was made difficult by the way in which this issue emerged. In his submissions to the FTT, both in writing and orally at the hearing, Dr Braganza did not refer to section 27A(6). He argued instead that the surveyor’s method of apportionment “was not rational, accurate or clear”. In its decision issued on 30 November 2021 the FTT relied on Southwark LBC v Woelke [2013] UKUT 349 (LC), a decision of this Tribunal long before Aviva, which suggested that, in a similar case, the question of what was a fair and proper proportion for a leaseholder to pay was “one for the Landlord’s Surveyor, acting reasonably and not for the court”. Provided the Surveyor’s decision was reasonable the Tribunal said that “it does not matter that other reasonable decisions could have been taken.” Following that lead, at [52] of its original decision, the FTT directed itself that:

“… [W]e have to assess what is fair and proper proportion in the light of the surveyor’s reasoning. As long as the explanation is rational we cannot ordinarily substitute our own alternative rationale.”

Consistently with that direction, the FTT then considered only the Surveyor’s approach and stated (at [53]) that: “we do not need to consider if there are other reasonable methods available.” It then found that the Surveyor’s apportionment was fair. The underlying principle on which it was based was that the leaseholders of houses should not be expected to contribute towards expenditure from which only the leaseholders of flats derived any benefit. The FTT decided that this was “a long standing method of allocation … [which] balances a workable simple method with clarity and a fair apportionment” ([60]).

It was only when Dr Braganza applied to the FTT for permission to appeal that he relied on section 27A(6) and referred to this Tribunal’s decision in Aviva Ground Rents v Williams [2020] UKUT 111 (LC). He submitted that a line of authority beginning with Windermere Marina Village Ltd v Wild [2014] UKUT 163 (LC), of which the Tribunal’s decision in Aviva was then the most recent example, required that a clause purporting to provide for an apportionment by a landlord or a landlord’s surveyor be treated as one which provided for a determination, in a particular manner, of a question which could be the subject of an application to the FTT. For that reason the clause was rendered void by section 27A(6).

In Windermere Marina Village the leases of apartments on a marina complex provided for the leaseholders to pay “a fair proportion (to be determined by the Surveyor for the time being of the Lessors whose determination shall be final and binding) of the expense of all communal services”. The Lessors’ surveyor decided that leaseholders of flats, houses and house-boat moorings should contribute towards the expense of communal services in different proportions. In particular, the surveyor decided that it would be fair for the owners of apartments to pay four times as much as the owners of moorings for the provision of ground maintenance and security services. Some of the leaseholders disagreed and they asked the FTT to direct that each occupier should pay the same proportion, irrespective of the type of property they leased; the FTT agreed that an equal apportionment would be fair and substituted it for the surveyor’s apportionment. On the lessors’ appeal to this Tribunal the first issue was whether the FTT had had jurisdiction to adjust the apportionment of the service charge determined by the surveyor.

The possibility that section 27A(6) of the 1985 Act rendered void an agreement for the apportionment of service charges in accordance with a binding determination of a third party had been identified by Morgan J, but not decided, in London Borough of Brent v Shulem B Association Limited [2011] EWHC 1663 (Ch). It was considered for the first time in Windermere. The Tribunal held that the FTT’s jurisdiction under section 27A(1) to determine “the amount which is payable” as a service charge included determining the fair proportions in which expenditure was to be apportioned amongst those who were to contribute towards it. On that basis the question of apportionment was one which could be the subject of an application to the FTT, and because the lease purported to oust that jurisdiction by making the apportionment by the landlord’s surveyor final and binding, that provision was void.

Windermere was followed by the Tribunal in Gater v Wellington Real Estate Ltd [2014] UKUT 561 (LC), and both were approved by the Court of Appeal in Oliver v Sheffield City Council [2017] EWCA Civ 225. The Court of Appeal held that a provision which gave contractually determinative effect to a discretionary decision of the landlord about service charges was avoided by section 27A(6), whether or not it provided expressly for the landlord’s decision to be final and binding. 

In Aviva, the Tribunal and the Court of Appeal both adopted the same approach (although the Tribunal and the Court of Appeal disagreed in the result). The Court of Appeal followed its own decision in Oliver and decided that section 27A(6) deprived the landlord of the opportunity to vary the fixed percentage contributions payable by leaseholders and left any variation to the FTT. When the issue was finally determined by the Supreme Court it interpreted section 27A(6) differently and disagreed with the approach of the Court and tribunals below.

The FTT’s decision in this case was made before Aviva reached the Supreme Court.

Where the FTT receives an application for permission to appeal it is required by rule 53(1) of its procedural rules first to consider whether it should review its decision. Rule 55(1) provides that the FTT may only review a decision if it is satisfied that a ground of appeal is likely to be successful. The FTT’s powers when it reviews a decision are prescribed by section 9(4), Tribunals, Courts and Enforcement Act 2007. They include power to amend the reasons given for the decision, or to set it aside. Thus, if the FTT believes that an appeal against its original decision is likely to be successful, it is entitled to amend the reasons it gave for the decision. That is what the FTT did in this case.

The FTT’s amended decision, issued on 12 April 2022, came to the same conclusion as far as Dr Braganza’s liability to pay all of the charges demanded of him was concerned. But it removed part of the original reasoning and added a new explanation of the original outcome. The most important part of its original reasoning which it removed was the sentence: “we do not need to consider if there are other reasonable methods available.” It then added a discussion of Aviva (in the Court of Appeal) and noted that the Court of Appeal had said that the function of determining what was a reasonable proportion was transferred from the landlord to the FTT. It directed itself, at [59], that “we have to decide if in the reasonable opinion of the tribunal it has become necessary or equitable to increase or decrease the Specified Proportion”. Finally, as it was satisfied that it was necessary to do so, it considered the method of apportionment adopted by the Surveyor and the alternative method proposed by Dr Braganza (in which all expenses were apportioned equally) and decided that the Surveyor’s method produced “a reasonable and equitable split, taking into account the different types of properties” whereas Dr Braganza’s method did not.

The FTT therefore arrived at the same answer but for different reasons. Whereas, in its original decision, it had considered only whether the Surveyor’s method was rational, which it was satisfied it was, in its amended decision it appears to have considered for itself that the apportionment which it preferred, and which should be applied, was the same as the one adopted by the Surveyor.