[2023] UKUT 168 (LC)

The twelve respondents to the appeal are the lessees of the maisonettes at Heritage Close. On the ground floor there are retail and restaurant units, eleven at present – fewer than there used to be because some units have been amalgamated. There is a basement car park, which the residential and commercial lessees can pay to use.

The residential leases each make provision for the lessee to pay a proportion of the landlord’s costs in maintaining the building. Paragraph 1 of the Fourth Schedule reads as follows:

“(1)

To pay to the Landlord from time to time in manner hereafter provided the proportion properly attributable to the Demised Unit (meaning thereby that proportion which the rateable value of the Demised Unit bears to the aggregate Rateable Value of the Demised Unit and the other Lettable Units in the Centre) of the total outgoings and expenditure (the aggregate amount of which … is … referred to as “the Service Cost”) incurred …. by the Landlord in … providing the services amenities and facilities specified in the Third Schedule … the amount of the Service Cost and the proportion thereof aforesaid to be determined and notified in writing in manner hereinafter provided by the Landlord’s Surveyor PROVIDED NEVERTHELESS :- … (Footnote: ¹)

(b)

That if the system or method of rating buildings and premises in operation at the commencement of the term hereby granted shall hereafter be changed or abrogated so as to render the apportionment of and contribution to the Service Cost according to rateable value inoperable or manifestly inequitable then such apportionment and the proportion of the Service Cost to be attributed to and paid in respect of the Demised Unit shall be calculated by some other just and equitable method to be conclusively determined by the Landlord’s Surveyor”

So the proportion payable by each residential lessee is calculated by dividing the rateable value of his or her maisonette by the total rateable value of all the lettable units, residential and commercial. Such provisions in residential leases were not uncommon before the abolition of domestic rates in 1990. The procedure required by the residential leases at Heritage Close is that the landlord’s surveyor is to calculate the apportionment every year before interim service charges are demanded in January for the coming year (the service charge year running from 1 January to 31 December).

After the abolition of domestic rates the service charges were apportioned by a method devised at some point in 1990 or 1991; the landlord calculated that, on the basis of the 1990 rateable values, the residential lessees together were to pay 9.74% of the total service charge, with the commercial lessees paying the balance of 90.26%. That method of apportionment has been used ever since. However, towards the end of 2021 the appellant told the lessees that a new method of apportionment had been determined by its surveyor, and in December 2021 the appellant applied to the FTT for a determination of the payability of the forthcoming interim charges for 2022/23. The FTT was asked to exercise its jurisdiction in section 27A of the Landlord and Tenant Act 1985 to determine the reasonableness and payability of service charges, which provides (so far as relevant):

“(1)

An application may be made to [the FTT] for a determination whether a service charge is payable and, if it is, as to— …

(c)

the amount which is payable,

…

(3)

An application may also be made to [ [the FTT] for a determination whether, if costs were incurred for services, repairs, maintenance, improvements, insurance or management of any specified description, a service charge would be payable for the costs and, if it would, as to—…

(c)

the amount which would be payable,

…

(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).”

In the present case the application was made under subsection (3)(c), since the only issue was whether a service charge imposed on the basis of the proposed new apportionment would be payable. Such a challenge often alleges that the amount charged was not reasonable, in light of section 19 of the 1985 Act which provides that service charges based on costs not yet incurred are payable only in so far as they are reasonable. But the respondent lessees in this case did not challenge the reasonableness of the amount charged and so section 19(2) of the 1985 Act was not engaged. The issue in the FTT was the validity of the new apportionment in light of section 27A(6). The FTT heard expert evidence from the landlord’s surveyor, Mr Forrester, who had made the determination permitted by paragraph 1(b) of Schedule 4 of the Leases.

The FTT decided, first, that although the rating system in operation when the lease was granted had been “changed or abrogated” by the abolition of domestic rating in 1990, the method of apportionment set out in the lease was neither inoperable nor manifestly inequitable.

The FTT also decided, in case it was wrong about that first question, that the new method of apportionment put forward by the Landlord’s surveyor was not just and equitable.

Accordingly the method of apportionment operated since 1990 was to continue and the service charges would be payable in the proportions thus determined. The appellant landlord appeals that decision with permission from the Tribunal.