Aviva Investors Ground Rent GP LTd & Anor v Williams & Ors

The court considered the effect of section 27A(6) of the Landlord and Tenant Act 1985 on lease provisions that state fixed service charge percentages with an alternative provision that the landlord may determine a different percentage “reasonably”. The Court of Appeal held that section 27A(6) removes the landlord's role in making that determination but does not excise the contractual mechanism entirely. The lease must be read as if the alternative had said that the percentage could be varied "or such part as may otherwise reasonably be determined" and that any gap is to be filled by the First-tier Tribunal under section 27A(1).

Accordingly, only the landlord's power to determine the percentage is void; the tribunal retains jurisdiction to determine a different reasonable apportionment if the parties cannot agree. The appeal was allowed and the Upper Tribunal's deletion of the alternative wording was reversed.

Background and parties. The appellants were Aviva Investors Ground Rent GP Ltd and an associated company; the respondents were leaseholders of 38 flats in a mixed residential and commercial development in Southsea. Each relevant lease set fixed percentages for categories of service charges with an alternative that the lessee pay a different percentage "or such part as the Landlord may otherwise reasonably determine".

Procedural history. The First-tier Tribunal had taken a view permitting tribunal determination; the Upper Tribunal (Judge Cooke) reversed, holding that the landlord's alternative words were void and should be excised so that the tenant remained strictly bound by the fixed percentages. The case came to the Court of Appeal on the landlords' appeal from the Upper Tribunal ([2020] UKUT 0111 (LC)).

Nature of the issue and relief sought. The appeal concerned statutory interpretation of section 27A of the Landlord and Tenant Act 1985, in particular subsection (6), and whether the First-tier Tribunal retains jurisdiction to determine apportionments where a lease gives a fixed percentage but contains an alternative unilateral landlord power to vary that percentage. The appellants sought reinstatement of the FTT's approach and reversal of the UT's excision.

Issues framed by the court.

• Whether section 27A(6) requires that the words conferring a landlord's unilateral power to determine a different percentage be deleted entirely, leaving the fixed percentage immutable;
• Alternatively, whether the effect is only to remove the landlord (or a third party) from making the determination and to transfer that decision-making role to the First-tier Tribunal so as to preserve the substance and workability of the lease;
• Whether any alternative remedies (for example under section 35 of the Landlord and Tenant Act 1987) affect the interpretation.

Court's reasoning and subsidiary findings. The court reviewed prior Upper Tribunal and appellate authority (including Windermere, Gater, Oliver and Fairman). It concluded that the statutory purpose of s.27A(6) is to oust a contractual mechanism which would determine matters "in a particular manner" and thereby remove tribunal jurisdiction, not to emasculate the lease by excising all remedial flexibility. Only the component that makes the landlord (or a named third party) the final contractual decision-maker is void. The appropriate and proportionate remedy is to read the lease as if the alternative had been expressed so as to permit the tribunal, not the landlord, to determine a different reasonable percentage. The court noted that a statutory variation procedure under the 1987 Act exists but that it was neither necessary nor decisive for the interpretation of s.27A(6).

Disposition. The Court of Appeal allowed the appeal, held that the FTT retains jurisdiction to determine reasonable apportionments where the landlord's determinative role has been voided by s.27A(6), and restored the First-tier Tribunal's decision.

The appeal is allowed. The court held that section 27A(6) of the Landlord and Tenant Act 1985 voids the landlord's contractual role in determining service charge apportionments but does not require excision of the entire alternative mechanism; the lease should be read as if the determination could be made "otherwise reasonably" and that function is filled by the First-tier Tribunal under section 27A(1). The Upper Tribunal had excised too much and was reversed.

Appeal from the Upper Tribunal (Land Chamber) (Judge Elizabeth Cooke) [2020] UKUT 0111 (LC), which had reversed the First-tier Tribunal. The Court of Appeal restored the First-tier Tribunal's approach and allowed the appeal.