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Residential Service Charge Apportionment Determination – Power of a Tribunal to Determine

Principles have been set down by the Upper Tribunal for cases which involve residential sub-leases and the apportionment of service charge attributable to each tenant.

Under Section 27a (6) of the Landlord and Tenant Act 1985, any agreement in the lease of a dwelling, that the apportionment of service charge will be determined by a third party, whose decision shall be final and binding, is rendered void.

In the most recent case to be decided (Gater and others v Wellington Real Estate Ltd and LCP Commercial Ltd[2014] UKUT0561(LC), here residential sub-tenants were obliged to pay service charge, being a fixed proportion of the sum payable by their immediate landlord to the freeholder. Their immediate landlord’s lease obliged it to pay the freeholder, such fair amount as the freeholder’s surveyor determined.

The sub-tenants wished to seek determination of the amount of service charge which was allocated to the immediate landlord. The case went to appeal and on appeal the Upper Tribunal held that a provision providing for the determination of proportions by the freeholder’s surveyor was void, whether it was expressed to be final and binding or not.

This case shows that landlords granting residential leases, who want certainty, should specify the exact proportion for which each tenant will be liable. If the lease provides for a third party to determine a service charge, then it ought to be borne in mind that the provisions are void (whether or not expressed to be final and binding). It would also appear from this decision that this includes leases where the landlord makes the determination. In disputed cases, tenants or even sub-tenants may apply to the First Tier Tribunal to determine how the service charge should be allocated.

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