Hawk Investments Properties Limited v Diana and Christopher Eames & Ors

Where a lease gives a landlord power to alter service-charge apportionment, Landlord and Tenant Act 1985 section 27A(6) does not remove that decision-making power. It voids only a term purporting to make the landlord’s decision conclusive or final.

The First-tier Tribunal must decide whether charges based on the altered apportionment are contractually and statutorily legitimate. An unqualified discretion is generally reviewed for rationality. But where the lease expressly requires a new method to be reasonable, fair, or just and equitable, the Tribunal must determine whether that contractual standard has been met; it may not substitute its own preferred scheme.

The appellant freeholder sought to replace the historic service-charge apportionment at a mixed residential and commercial development. The residential leases used rateable values but allowed a different method, to be conclusively determined by the landlord’s surveyor, if the rating system changed or made the original method inoperable or manifestly inequitable.

The First-tier Tribunal held that the condition for change had not been met and, alternatively, that the surveyor’s floor-area method was not just and equitable. The landlord appealed. The leaseholders conceded on appeal that abolition of domestic rating satisfied the condition precedent. The central issues were the effect of Landlord and Tenant Act 1985 section 27A(6), the applicable standard of review, and whether the proposed method complied with the lease.

1. Appeal dismissed. The Tribunal set aside the First-tier Tribunal’s finding that the condition precedent had not been satisfied. Abolition of domestic rating had made the lease’s rateable-value apportionment inoperable. A replacement method could therefore be introduced.

2. Section 27A(6) of the Landlord and Tenant Act 1985, properly construed in light of Aviva Investors Ground Rent GP Limited v Williams [2023] UKSC 6, did not void the landlord’s contractual power to determine a new apportionment. It voided only the word making the surveyor’s determination conclusive. The First-tier Tribunal retained jurisdiction to determine whether resulting charges were contractually and statutorily payable.

3. The required review depended on the lease’s terms. A wholly unqualified apportionment discretion would be subject to rationality review. This lease, however, expressly required a new method to be just and equitable. The First-tier Tribunal was therefore required to decide whether the surveyor’s method met that contractual standard. This review did not transfer the initial decision to the Tribunal or permit it to impose its own preferred apportionment.

4. The First-tier Tribunal had in substance carried out the correct review. Its reliance on historic alterations to the commercial units was irrelevant, but that error was not material. The proposed floor-area method gave no consideration to materially different use of, and benefit from, services in a mixed-use development. The substantial and immediate increase borne by residential leaseholders, coupled with the timing of the change, were also relevant to whether the method was equitable. Those matters amply supported the conclusion that the proposed method was not just and equitable.

5. Service charges demanded under the proposed apportionment would not be payable. The contingent appeal against the First-tier Tribunal’s order under section 20C also failed.

• Upper Tribunal (Lands Chamber): appeal from the First-tier Tribunal (Property Chamber) dismissed. The Tribunal substituted a finding that the contractual condition precedent for a new apportionment was met, but upheld the First-tier Tribunal’s alternative conclusion that the proposed method was not just and equitable.
• First-tier Tribunal (Property Chamber): held that the condition precedent had not been met and, alternatively, that the proposed new apportionment was not just and equitable.