Gater & Ors v Wellington Real Estates Ltd & Anor

Factual and Procedural Background

The appeal concerns service charges payable by residential tenants under long leases of six flats located on the third and fourth floors of Telegraph House, a Grade II listed building in The City. The building, formerly offices, was converted into residential flats and commercial units in 2004. The freehold interest is owned by Company A, which granted a long lease (the "White Lease") of the third and fourth floors to an intermediate landlord, Company B. Company B subsequently sub-leased the individual flats to the appellants (residential tenants).

The dispute arose over the reasonableness and apportionment of the service charges payable by the residential tenants for the year ending 31 March 2013 and estimated charges for the following year. The First-tier Tribunal (Property Chamber) initially determined that the apportionment method used by Company A’s surveyor was reasonable and binding. The appellants challenged this decision, contending that the apportionment was unfair, particularly regarding the treatment of the basement and certain common areas. The appeal to the Upper Tribunal considers the scope of the First-tier Tribunal’s jurisdiction and the validity of the contractual provisions governing apportionment of service charges.

Legal Issues Presented

1. Whether the First-tier Tribunal had jurisdiction under section 27A of the Landlord and Tenant Act 1985 to determine the apportionment of service charges payable by the residential tenants to Company A, the freeholder, via Company B, the intermediate landlord.
2. Whether contractual provisions granting Company A’s surveyor the final and binding determination of the apportionment of service charges are void under section 27A(6) of the Landlord and Tenant Act 1985.
3. The proper scope of the First-tier Tribunal’s role in assessing the fairness of the apportionment method versus determining what the fair apportionment should be.
4. The fairness and reasonableness of the apportionment of service charges, particularly concerning the exclusion of the basement and treatment of certain common areas.

Arguments of the Parties

Appellants' Arguments

• The current basis of allocating annual service charges is unfair and should be adjusted to include the whole of the basement in the apportionment, which would reduce their aggregate contributions.
• The service charges for the individual flats have increased substantially, leading to concerns about the fairness of the allocation.
• The First-tier Tribunal overlooked prolonged and inconclusive negotiations regarding additional contributions from solicitor tenants for basement use.
• There are inconsistencies in the treatment of common parts such as toilets, laundry rooms, and corridors that should be addressed in a fair apportionment.

Respondents' Arguments

• The First-tier Tribunal’s decision approving the apportionment by Company A’s surveyor was correct and reasonable.
• The basement is unlettable and only limited services are provided to it; therefore, excluding it from the apportionment is fair.
• The toilets used exclusively by solicitor tenants are properly excluded from the residential tenants’ apportionment and charged solely to solicitors.
• The small laundry areas are included appropriately within the demise under the White Lease.
• The consolidated service charge arrangements, although informal, are a practical modification of the contractual scheme with no disadvantage to the residential tenants.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ashworth Frazer v Gloucester City Council [2001] UKHL 59	Standard for reviewing reasonableness of contractual decisions by one party, e.g., unreasonable refusals of consent.	Applied to affirm that a challenge to a decision by the landlord or surveyor must show no reasonable person could have reached the same decision.
Joseph v Joseph [1967] Ch 78	Interpretation of "purports to" in statutory anti-avoidance provisions.	Used to interpret section 27A(6) to mean that agreements excluding tribunal jurisdiction are void if they have the effect of doing so.
Levitt v London Borough of Camden [2011] UKUT 336 (LC)	Limits on tribunal’s power to substitute apportionment methods agreed by lease.	Confirmed that tribunals cannot impose their own view of reasonable apportionment if parties agreed a method.
London Borough of Brent v Shulem B Association Limited [2011] EWHC 1663 (Ch)	Consideration of the role of landlord’s surveyor in apportionment and tribunal jurisdiction.	Referenced regarding the potential invalidity of binding surveyor determinations under section 27A(6).
Pimms v Tallow Chandlers [1964] 2 QB 547	Common law principles on reasonableness and consent in lease agreements.	Applied to support the standard of review for decisions reserved to one party.
Ruddy v Oakfern Properties Ltd [2007] Ch 335	Definition of "tenant of a dwelling" and tribunal jurisdiction to consider service charge disputes involving intermediate landlords.	Held that residential tenants can challenge service charges payable by intermediate landlords to freeholders under section 27A.
Schilling v Canary Riverside Development PTD Limited (2005) LRX/26/2005 (unreported)	Apportionment of service charges by fixed percentages and limits on tribunal substitution.	Confirmed that tribunals cannot alter agreed apportionment formulas unless statutory exceptions apply.
Warrior Quay Management Ltd v Joachim (2008) LT LRX/42/2006 (unreported)	Similar to Schilling on apportionment and tribunal powers.	Referenced as consistent authority on limits of tribunal jurisdiction.
Windermere Marina Village Ltd v Wild [2014] UKUT 163 (LC)	Section 27A(6) renders void any lease provision that determines service charge apportionment "in a particular manner" excluding tribunal jurisdiction.	Held that binding surveyor determinations of apportionment are void; tribunal must itself determine fair apportionment.

Court's Reasoning and Analysis

The Court began by examining the leasehold structure and the contractual provisions governing service charges, notably the White Lease and the sub-leases of the individual flats. The White Lease granted Company A the right to determine the tenant's share of the service charge through its surveyor, whose decision was described as final and binding. The residential tenants, however, had no direct contractual relationship with Company A but rather with Company B, the intermediate landlord.

The Court confirmed, relying on Ruddy v Oakfern Properties Ltd, that the residential tenants could invoke the jurisdiction of the First-tier Tribunal under section 27A of the Landlord and Tenant Act 1985 to challenge the reasonableness of service charges payable by the intermediate landlord to the freeholder.

The Court then considered the statutory anti-avoidance provision in section 27A(6), which renders void any agreement that purports to determine service charge disputes "in a particular manner" excluding tribunal jurisdiction. Applying the recent decision in Windermere Marina Village Ltd v Wild, the Court held that the clauses in the White Lease giving the landlord’s surveyor final and binding authority to apportion service charges were void under section 27A(6).

This meant that the First-tier Tribunal was incorrect to limit its role to reviewing whether the landlord’s surveyor’s apportionment was reasonable. Instead, the Tribunal must itself determine what constitutes a fair apportionment if the parties cannot agree. The Court emphasized that this is a different exercise from merely endorsing the landlord’s surveyor’s decision.

The Court acknowledged the First-tier Tribunal’s detailed factual findings, including the treatment of the basement, toilets, and small store room, and recognized the Tribunal’s experience with the building. However, it identified errors in the Tribunal’s approach, notably its misunderstanding of its jurisdiction and its failure to consider certain relevant factors such as the basement’s use of the lift and the inconsistent treatment of common parts.

The Court expressed hope that the parties could reach an agreement on apportionment based on the detailed information now available, but ordered that if no agreement is reached, the matter should be remitted to the First-tier Tribunal for a fresh determination consistent with the correct legal principles.

Holding and Implications

APPEAL ALLOWED; the decision of the First-tier Tribunal is set aside and remitted for re-determination.

The Court held that the contractual provisions in the White Lease granting Company A’s surveyor a final and binding role in apportioning service charges are void under section 27A(6) of the Landlord and Tenant Act 1985. Consequently, the First-tier Tribunal must itself determine the fair apportionment of service charges if the parties cannot agree.

This decision clarifies the scope of tribunal jurisdiction in service charge disputes involving apportionment clauses and emphasizes the statutory protection against agreements that exclude tribunal determination. The immediate effect is that the residential tenants’ challenge to the apportionment method must be reconsidered on the correct legal basis. No new precedent beyond the application of existing statutory provisions and recent case law is established.