In a move that will offer clarity for landlords on the apportionment of service charges, the Supreme Court has ruled that the First Tier Tribunal (FTT) was correct in its judgment in the case of Aviva Investors Ground Rent GP Ltd v Williams.

The case concerned a number of flats in a residential and commercial development in Southsea, Hampshire, for which the leases set out a fixed percentage of the service charge payable for each flat with wording ‘or such part as the Landlord may otherwise reasonably determine’ included after each percentage. The leaseholders had argued that the landlord was not entitled to apply varied percentages and that effect of Section 27A(6) of the Landlord and Tenant Act 1985 was that the provision allowing for reapportionment should be struck down.

The First Tier Tribunal held that under s.27A(6), it was empowered to determine what was a reasonable apportionment. However, the Upper Tribunal held that the entirety of the disputed wording in the lease was void pursuant to s.27A(6). Without the void wording, the ruling stated, the lease required the tenant to pay the initial fixed percentage of the service charge and there was nothing left for the Upper Tribunal to decide.

The landlord, Aviva Investors Ground Rent Limited, appealed the decision arguing that the effect of s.27A(6) was to deprive the landlord, or another third party such as a surveyor, of its role in making the determination. Therefore, it argued, the reference to ‘landlord’ in the lease should be substituted with the First Tier Tribunal, giving jurisdiction to the FTT to consider the apportionment.

The Court of Appeal restored the decision of the FTT but also said it would be open to either the landlord or the leaseholders to apply to the FTT to have it determine what was a reasonable apportionment.

The leaseholders appealed to the Supreme Court, seeking to have the decision of the Upper Tribunal restored. However, the decision brought the case full circle, confirming the initial ruling of the FTT was correct.

In its unanimous judgment, the Supreme Court concluded that the role of the FTT in considering the reapportionment of residential service charges is limited to a review of the contractual legitimacy of the landlord’s reapportionment and the FTT is not to determine the apportionment for itself.

Law firm Penningtons Manches Cooper, which acted for Aviva Investors, said the ruling was significant for many hundreds of thousands of leases that provided for leaseholders to pay a fixed percentage and additionally allowed the landlord to vary the service charge percentages. It added that the decision gave property managers and landlords some “much-needed certainty” around varying service charge apportionment and makes it clear that the tribunal remains a review-only jurisdiction.

Ben Robinson, a partner in the firm’s property litigation team, said: “In making this decision, the Supreme Court has clarified the jurisdiction of the First Tier Tribunal in determining the apportionment of residential service charges, halting the unintended ‘mission creep’ developed through the chain of authorities which risked placing some discretionary management matters on the First Tier Tribunal.

“It is now clear that the tribunal remains a ‘review only’ jurisdiction and ensures that landlords retain an important role when it comes to determining the apportionment of service charges. Where permitted in the lease, the decision will enable landlords and property managers to make changes to the apportionment of service charges where it is in the interests of good estate management, whilst reducing the need for time consuming applications to the First Tier Tribunal.”