Service charges according to floorspace vs lease stipulation

[Macromia]

Macromia,

Any examples please of tribunal increasing a percentage specified in a lease ? Thank you.

First, let's be completely clear about what I have said, and particularly what I haven't suggested:

I haven't said that I think that it is likely that a tribunal would increase the percentage that is payable introspect of a lease that specifically states a fixed percentage and makes no provision for the percentage to be altered. In fact, I specifically stated (in post #16) that the fact that a tribunal can consider whether a 25% contribution isn't reasonable doesn't mean that they will agree that it isn't, and (in post #26) that I consider it unlikely that a tribunal would rule that the flat that does specify a 25% proportion should be changed.

I also did not suggest that a tribunal has any authority to change fixed percentages if the total adds up to 100%.
What tribunals DO have the authority to rule on is whether 25% of the total charges for the block is a "fair and reasonable" proportion. Although I have no intention of looking up examples, I believe that it will be possible to find examples where tribunals have ruled that an equal split between flats, regardless of the size of each flat, IS reasonable, and cases where they have found that it is not. As I said, it depends on the circumstances and how well each side argues their position.

If the basement flat decides that they are going to challenge their service charge costs, under section 27 of L&TA 1985, the tribunal will consider whether or not 25% is a "fair and reasonable" percentage for them to pay, and they have the legal authority to rule that a "fair and reasonable" percentage is less than 25%.

Any ruling that a "fair and reasonable" proportion for the basement flat is less than 25% would mean that 100% of costs would no longer be collected, unless other flats pay more than 25%. The leaseholder of the 1 be flat may also be able to argue that a "fair and reasonable" percentage for their flat is less than the percentage paid by each of the 2 bed flats, even if they have to pay more than the basement flat, and the leaseholder of the 2 bed flat that states a "fair and reasonable" proportion could argue that a "fair and reasonable" proportion for them cannot be more than the proportion that the OP's flat pays (assuming that the two flats are basically the same).

Sections 35 - 38 of L&TA 1987 give tribunals the authority to make an order altering the leases of a property if 100% of the service charge expenditure isn't being recovered, and this (hypothetically at least) includes the power to increase fixed percentages.





So...
If it is the case that the basement flat, and the 1 bed flat, could possibly get rulings that a "fir and reasonable" proportion for them is less than the proportion paid by the two larger flats, and the 2 bed flat that states "a fair and reasonable" proportion could possibly get a ruling that they don't have to pay more than the OP's flat, the circumstances would then mean that 100% of service charges would not be recoverable - and the tribunal would THEN have the authority to possibly increase the percentage the OP is required to pay and to set a fixed percentage for the other three leases if they considered that to be the most appropriate solution.

It all comes down to whether or not an equal 25% split can be justified as being "fair and reasonable" as a proportion for all of the flats - and it may well be that it CAN be justified.



If there was a separate freeholder, or if the sole freeholder owned the OP's flat, I could see it as being more likely that (if they did rule that 25% wasn't "fair and reasonable" for the basement flat), most tribunals might rule that the freeholder has to cover any shortfall, and that it is their own fault for not ensuring that all leases were on similar terms regarding service charge proportions.

[eagle2]

Surely the point here is that 3 leaseholders have agreed that the freeholder may decide what is "fair and reasonable" and the 4 joint freeholders decide what is "fair and reasonable" (at least for 3 leaseholders) each time a service charge demand is issued.

A leaseholder is now questionning what is "fair and reasonable" so the 4 joint freeholders should consider whether or not to change the system to the proposed method of allocating charges according to floor space. They do not have the authority to change the fixed percentage of 25% (that was probably part of the negotiated price of the premium paid when the lease was created) so they can only consider the remaining 3 apartments representing 75% of the charges. They may consider alternative methods at the same time. Once the 4 joint freeholders have reached their decision, that should be the end of the matter.

If a leaseholder then wishes to apply to a Tribunal, I would be amazed if the Tribunal changed the decision of the 4 joint freeholders.

[Section20z]

Exactly, I am still not aware of any tribunal ruling varying contributions stated in a lease and if a lessee queried his contributions in these circumstances I would say please point me to the specific items on the service charge that you feel are related to floor area.

[Lawcruncher]

Surely the point here is that 3 leaseholders have agreed that the freeholder may decide what is "fair and reasonable" and the 4 joint freeholders decide what is "fair and reasonable" (at least for 3 leaseholders) each time a service charge demand is issued.

A leaseholder is now questionning what is "fair and reasonable" so the 4 joint freeholders should consider whether or not to change the system to the proposed method of allocating charges according to floor space. They do not have the authority to change the fixed percentage of 25% (that was probably part of the negotiated price of the premium paid when the lease was created) so they can only consider the remaining 3 apartments representing 75% of the charges. They may consider alternative methods at the same time. Once the 4 joint freeholders have reached their decision, that should be the end of the matter.

If a leaseholder then wishes to apply to a Tribunal, I would be amazed if the Tribunal changed the decision of the 4 joint freeholders.

The snag with your proposal is that the first thing you have to decide is what criteria you apply to decide what is fair and reasonable. When you have done that you have to consider each of the three flats in relation to the whole and that may produce a result where the proportions do not add up to 100%.

The whole thing is a total pig's ear. The more I consider it the more permutations there are to possible solutions. The only sensible way forward is for the parties to acknowledge they have a mess and thrash out a solution.

[eagle2]

I think that the intention in these "fair and reasonable" clauses is to allow some flexibility in case circumstances change eg if there is an extension to one of the apartments,

Obviously, the proportions must add up to 100%, it would not be in anyone's interest in this case to decide otherwise, It is then up to the 4 joint freeholders to decide how best to allocate the 75%.where they have some flexibility, In theory, there is no reason why they cannot change their minds from one year (or one demand) to another and a different freeholder could make a different decision.

I agree that there are several possible solutions which is why a Tribunal will be unable to say that one method is to be used rather than another, At most, all it could do would be to suggest alternative methods and ask the joint freeholders to go away and choose one of them. Instead I expect that it will accept the decision as "fair and reasonable" especially when the leaseholder is part of the decision making process.

[Macromia]

Surely the point here is that 3 leaseholders have agreed that the freeholder may decide what is "fair and reasonable"...

Have they?
Sort of, but only in that they have purchased a lease in which there is a clause stating that they have to pay a "fair and reasonable" proportion of the service charges.

A leaseholder is now questionning what is "fair and reasonable" so the 4 joint freeholders should consider whether or not to change the system to the proposed method of allocating charges according to floor space. They do not have the authority to change the fixed percentage of 25% (that was probably part of the negotiated price of the premium paid when the lease was created) so they can only consider the remaining 3 apartments representing 75% of the charges. They may consider alternative methods at the same time. Once the 4 joint freeholders have reached their decision, that should be the end of the matter.

If a leaseholder then wishes to apply to a Tribunal, I would be amazed if the Tribunal changed the decision of the 4 joint freeholders.

If the four joint freeholders unanimously agree how the service charges should be split, no tribunal has any authority to change that decision.

But, if the leaseholder of the basement flat refuses to agree to the split that the other three leaseholders want to go with, they can challenge the decision made by the other three leaseholders.
A tribunal may well accept the reasoning provided by the other three leaseholders if the matter did go to a tribunal (e.g. to maintain a equal split with all leaseholders paying 25%), but they do have to accept whatever the other three leaseholders propose, and it remains possible that they could side with the basement flat.

It is unlikely that the two/three leaseholders who would potentially end up paying more if costs weren't split equally would willingly agree to increase what they pay. On the other hand, it might be possible for the basement flat to get the one bed flat on side if they suggest that the one bed flat should also pay less than 25%.
As for the four joint freeholders not having "the authority for to change the fixed percentage of 25%", of course they do - because if all four joint freeholders agree that the fixed percentage flat should pay more than 25%, that means that the leaseholder of that flat has agreed to the change. It does require the agreement of the fixed percentage flat though, the other three leaseholders can't force the OP to either change their lease or voluntarily agree to pay more than 25%.

Exactly, I am still not aware of any tribunal ruling varying contributions stated in a lease and if a lessee queried his contributions in these circumstances I would say please point me to the specific items on the service charge that you feel are related to floor area.

Are you aware of any tribunal ruling where the same circumstances have been presented?

Unless you are party to more information than has been posted here by the OP, I would say that you cannot possibly be aware of any tribunal ruling where the same circumstances applied, because you can't know enough about the circumstances that do apply.
There are certainly examples of tribunal cases that have accepted floor area, or other ways of deciding service charge proportions other than having each flat pay an equal proportion of the total, as being reasonable.
There are also examples of tribunal cases that have found that it is reasonable for some charges to be shared only between some the leaseholders in a block.




A large part of the potential problem in the OP's case is NOT that it is likely that a tribunal would likely rule that the OP should pay more than 25%, but that they could rule that a "fair and reasonable" percentage for the basement flat is less than 25%.

I agree with eagle2, in that the best way forward would be for the leaseholders to all get together and have a serious discussion regarding whether having each flat pay 25% really is a "fair and reasonable" proportion for the basement and one bed flats - bearing in mind that any reduction in their percentage has to be covered somehow, but that it is not "fair and reasonable" to stick with an unfair split (if it can't be justified) just because that would mean that 100% of costs wasn't being recovered.

Without knowing more about the building, what the service charges consist of, what the basement flat would suggest as a "fair and reasonable" split and how they would justify this, or what the other three leaseholders would argue, I would say that it is impossible to do anything more than guess how a tribunal might rule.

[eagle2]

Have they?
Sort of, but only in that they have purchased a lease in which there is a clause stating that they have to pay a "fair and reasonable" proportion of the service charges.

.

The leaseholders are regarded as having accepted the terms of the lease, how much say they had in the matter is probably very little,

[eagle2]

But, if the leaseholder of the basement flat refuses to agree to the split that the other three leaseholders want to go with, they can challenge the decision made by the other three leaseholders.
A tribunal may well accept the reasoning provided by the other three leaseholders if the matter did go to a tribunal (e.g. to maintain a equal split with all leaseholders paying 25%), but they do have to accept whatever the other three leaseholders propose, and it remains possible that they could side with the basement flat.

.

A Tribunal will only look at the way that the total costs have been apportioned and consider whether or not it is "fair and reasonable". It is bound to find that allocating charges equally is "fair and reasonable", similarly it would also find that splitting costs by floor area is also "fair and reasonable".. As Lawcruncher says there are several possibilities which are acceptable and as long as the joint freeholders choose one of them, the Tribunal will not interfere. It is up to the leaseholder of the basement flat to persuade the other joint freeholders to change the method of allocation, if he cannot, he must accept the majority decision.

[Macromia]

The leaseholders are regarded as having accepted the terms of the lease, how much say they had in the matter is probably very little,

Yes, but (as far as we know without knowing the precise wording in the basement flat lease) by accepting the terms of the lease the leaseholder of the basement flat has only accepted that they need to pay a "fair and reasonable" proportion of the service charges.
They have not accepted that any particular method of deciding the service charges is reasonable.

[Macromia]

...and as long as the joint freeholders choose one of them, the Tribunal will not interfere.

You keep saying this, but if the basement flat does not agree with the decision of the other three (who may potentially be agreeing on a split that leaves all three of them paying a percentage that is less than would be fair using other methods of determining proportions), and won't back down, someone has to make a determination and that is under the jurisdiction of the FTT.

[eagle2]

The "fair and reasonable" clauses which I have seen always give the right to the freeholder or management company to determine what is "fair and reasonable",

[eagle2]

You keep saying this, but if the basement flat does not agree with the decision of the other three (who may potentially be agreeing on a split that leaves all three of them paying a percentage that is less than would be fair using other methods of determining proportions), and won't back down, someone has to make a determination and that is under the jurisdiction of the FTT.

I am not questioning the jurisdiction of the Tribunal, I am saying that I would rather go into a Tribunal hearing in the position of the joint freeholders than in the position of the basement flat.

[Macromia]

And for those of you who really want to know of a tribunal decision that allowed fixed service charge percentages to be increased, look at the 2011 Upper Tribunal case of Mehra versus Citywest Homes Ltd.

In this case, the UT upheld a LVT decision that ruled that leases that stated fixed percentages of 5% or 10% should be varied to read "a fair and reasonable percentage (as determined by the lessor)" to match the clause in the other lease in the block.
The freeholder was asking for the fixed percentages to be varied to 5.263% or 10.526% and the LVT ruling would allow that increase.

The UT appeal was, somewhat ironically, actually by the only leaseholder who stood to have their proportion reduced - but they felt that the new proportion they would end up paying was still too high.

So there is precedent for rulings that allow fixed percentages to be increased.
In a similar ruling the OP's lease might be varied to match the terms in the other three - although that would still probably leave the four leaseholders in the OP's block arguing about how much each of them should pay.

[Macromia]

I am not questioning the jurisdiction of the Tribunal, I am saying that I would rather go into a Tribunal hearing in the position of the joint freeholders than in the position of the basement flat.

But the basement flat IS one of the joint freeholders, so what you are doing is pointing out that 'share of freehold' arrangements don't work when a majority 'gang up' against the remainder, and suggesting that tribunals aren't fit for purpose because they'll side with the majority and won't consider what is actually "fair and reasonable".

[eagle2]

There is no reason to assume that the joint freeholders are ganging up against the newcomer, they are applying the same system on a consistent basis with previous years and which has apparently been accepted by previous leaseholders, The majority decision should normally prevail and a Tribunal will consider what is "fair and reasonable".