Service charges according to floorspace vs lease stipulation

[eagle2]

If the basement flat lease said the percentage was 15% and he had been told that the seller had been paying 25% would he be bound to continue paying 25%? I think the answer to that has to be "no". The lease says he should pay a fair and reasonable proportion and that is what he has to pay.

The problem with a "fair and reasonable proportion" is that it is not clear whether it means the proportion is determined and then fixed, or if the proportion has to be assessed each time there is expenditure.

There is a duty for the purchaser to check the terms of the lease, so he should have been aware that the freeholder decides what is "fair and reasonable" and that in the past, the freeholder shared the costs equally. He had the opportunity to pull out at that stage if he did not consider the charging to be reasonable.

The freeholder is allowed to decide what is "fair and reasonable", how it arrives at that decision is up to it, in this case, it has decided to allocate the total expenditure equally but it could decide a proportion for individual items of expenditure if it so desired. If the intention was to fix the basis of charging, surely the lease would record the actual basis.

[Lawcruncher]

If the basement flat lease said the percentage was 15% and he had been told that the seller had been paying 25% would he be bound to continue paying 25%? I think the answer to that has to be "no". The lease says he should pay a fair and reasonable proportion and that is what he has to pay.

The problem with a "fair and reasonable proportion" is that it is not clear whether it means the proportion is determined and then fixed, or if the proportion has to be assessed each time there is expenditure.

[Macromia]

I certainly wouldn't consider the request to change the percentages.

I'm sure that most freeholders feel the same - that's why the law gives the FTT the power to decide in situations where the freeholder and leaseholders (or the leaseholders who share the freehold) can't agree what is "fair and reasonable"

If they want to take it to tribunal I would ask AGAIN which aspect of the service charge could reasonably be dependent on floor area ?

That would be a very reasonable question if the argument was that floor area alone should be used to determine apportionment (there may be other factors as well).
If a disagreement of this sort actually went to the FTT for a decision, the FTT would certainly want the party objecting to the freeholder's chosen method (or the method favoured by the majority in a 'share of freehold') to justify why they thought that the chosen method wasn't fair/reasonable, and why they thought an alternative method was more suitable.

None of the lessees have anything to gain by considering this complaint.

Perhaps not.
In the OP's situation it would seem that the new lessee of the basement flat does currently think that they might have something to gain though - they think that they might be able to 'win' a reduction in the service charges that they need to pay.
They may not understand how them potentially saving a small amount each year might negatively affect the management of the property, how it could negatively affect the working relationship between the freeholders, or how much unnecessary 'hassle' is involved if the freeholders won't work together.
Alternatively, they might just not care.

[Section20z]

I certainly wouldn't consider the request to change the percentages. If they want to take it to tribunal I would ask AGAIN which aspect of the service charge could reasonably be dependent on floor area ?
None of the lessees have anything to gain by considering this complaint.

[Macromia]

I think that you will find that there are other cases which support the view at #52...

Yes, there are.
But, as I have said throughout this thread, it is the specific individual circumstances, and how the parties argue their position that is important.

The OP would probably be ill advised to assume that there will be no problem and that they can carry on with the 25% split without giving any consideration to the new lessees objections (which is what other most other forum members seem to be suggesting).

I said very early on that I would expect that a tribunal may well agree that an equal four way split was reasonable, and I still think that is true. However, if the properties are very different in size, or there are other reasons why an equal split might not be reasonable, the OP needs to be prepared for the possibility that a tribunal will seriously consider the new lessee's argument - and might rule in their favour.
What a tribunal won't do, is is take it upon themselves to rule that whatever method of apportionment is being used is unreasonable without the apportionment specifically being challenged, and they will almost certainly consider it to be the person(s) challenging the apportionment who carries the burden of proof.

I was hoping that you would recall stating something very similar on previous threads and it explains why a Tribunal has never advised sgclacy to alter a system of charging equally.

Other threads are about different cases with different circumstances.
There will invariably be potentially important information that isn't revealed in any forum thread, and each thread can only be answered based in what is known. In this case, I would suggest that the OP really does need to act as if a tribunal may well rule against them, and should ensure that they properly assess the service charges and are confident that they can successfully argue that a 25% share being paid by the basement flat really can be justified as "fair and reasonable". To assume that (a) the basement flat won't take the matter to a tribunal, and/or (b) that a tribunal will definitely rule in favour of everyone paying 25%, would be foolish - even if it is likely that this would be the outcome.

I believe that it was Section20Z not sgclacy who said that a tribunal has never told them that an equal split regardless of the sizes of individual flats isn't reasonable, but, regardless of who it was, I would expect a tribunal to accept any vaguely reasonable method of apportionment without question - unless the method of apportionment was specifically brought up by the applicants. Even if the method of apportionment is disputed, there will still be many cases where an equal split can easily be justified as being "fair and reasonable" (and others where, although it may be debatable, the party disputing the apportionment fails to present a good case for any change).

[eagle2]

I think that you will find that there are other cases which support the view at #52, I was hoping that you would recall stating something very similar on previous threads and it explains why a Tribunal has never advised sgclacy to alter a system of charging equally.

[Macromia]

The fact that a different decision is possible is immaterial, the task of a Tribunal is to ensure that the decision taken is one within the range of reasonable decisions. It is not the task of a Tribunal to substitute its own view.

That's not what the legal precedent says.

The 2014 Upper Tribunal case of 'Gabor & Ors versus Wellington Real Estate Ltd' concluded that, if the parties couldn't agree what was "an amount equal to a fair proportion" was, it would be up to the FtT to decide under L&TA 1985 section 27A.

This was supported by the 2021 Court of Appeal case of 'Aviva Investments versus Williams & others' which referred to the 2014 case (and others) and concluded that, if the parties couldn't reach an agreement, that case should be referred back to the FtT for the FtT to determine what proportion was "reasonably determined".

What the FtT doesn't have any authority to decide under section 27A, is that leases that state only a fixed percentage can be changed - they can only vary them if a request is made under L&TA 1987.
However, if the basement flat and the other leaseholders cannot agree what is a "fair and reasonable" proportion for the basement flat to pay, the FtT has full jurisdiction to accept what one of the sides suggests or to instead substitute their own method of apportionment.

[eagle2]

The fact that a different decision is possible is immaterial, the task of a Tribunal is to ensure that the decision taken is one within the range of reasonable decisions. It is not the task of a Tribunal to substitute its own view.

[Macromia]

- particularly if they negotiated a reduction in their purchase price

Further to my earlier comment, any sale of a lease where the buyer is able to negotiate a reduction in the sale price because the existing leaseholder has accepted terms that the terms of the lease might not obligate them to accept is the fault of the existing leaseholder.

For example, we already know that at least one of the four leases in the property this thread is about has a lease that has different terms to the others.
If it turns out that the basement flat has a lease that doesn't give them any responsibility to pay for everything that the other leases include under service charges, but the lessee who sold their lease had agreed that all costs could be split equally anyway (perhaps through ignorance), would you still argue that they should continue to pay 25% of everything because "...they knew that before buying...", or do you thing that it would be reasonable for them to insist that they only pay what their lease requires?

In a share of freehold situation, the leaseholders at any particular time can unanimously agree to split service charges however they want, regardless of what the leases say. Unless they make this arrangement official (by varying the leases, or with an official agreement through the freehold company), it becomes void the moment one of the leases changes hands and the new leaseholder can insist that the lease is followed.

In this case the new lessee is doing just that - insisting that the lease is followed and that they should only be required to pay a "fair and reasonable" percentage of service charge costs. They apparently don't agree that 25% is "fair and reasonable". A tribunal may well disagree with the new lessee, and support at equal split, but if agreement can't be reached the new lessee has the right to challenge what they are charged under Section 27A of Landlord and Tenant Act 1985.

The idea that new lessees have to accept whatever they are told is currently happening is ridiculous.
A lease can be purchased with full knowledge that the lease terms might allow the new lessee to pay less than the former leaseholder had accepted to pay towards service charges.
The four previous leaseholders in the property could have prevented any potential challenge by voluntarily varying the three leases that don't say 25% to have all four say 25% - THEN there could be no argument that the new lessee knew what he was buying.

[Macromia]

...if they know that before buying how can they be disadvantaged if the same regime continues after their purchase - particularly if they negotiated a reduction in their purchase price

At no point have I suggested that the new lessee would be "disadvantaged" if they were told that the service charges were charged as an equal 25% split before completing their purchase.
This entire thread is about a lessee trying to change things to their advantage by arguing that the "regime" in place at the time of purchase is not appropriate for the lease they purchased.

There are numerous other potential scenarios where a new lessee could also argue that what the leaseholders had agreed prior to their purchase needs to change because they feel that the agreement isn't an appropriate interpretation of what is written in the lease.
Sometimes this may disadvantage the existing leaseholders, sometimes it may even benefit the new lessee at the expense of the other lessees.

All this means is that freeholders (whether the freehold is owned by leaseholders or not) need to always be sure that how they are managing a block, and how they are splitting service charges, is in accordance with the terms of the lease and that they are able to justify what the way that they are managing the property if there are any challenges.

Realistically, tribunals DO usually side with the freeholder (or the majority of those with 'shared ownership') in situations where a lease clause may be interpreted in a variety of different ways, especially if they are seeking to continue to do things the same way that they have done for a considerable length of time.
The freeholders seeking to maintain the 'status quo' in this case will need to be able to provide reasonable justification for an equal 25% split though, and be able to provide reasonable arguments as to why they shouldn't adopt whatever split the new leaseholder is suggesting (this may be difficult if, as an extreme example, the basement flat is half the size of the one bed flat, and a third of the size of the two bed flats, and half of the usual annual service charges are for costs in communal areas that the basement flat has no access to because they have their own entrance.

[sgclacy]

From what we have been told, the new lessees lease doesn't state what percentage they are required to pay, it says that they have to pay a "fair and reasonable" proportion.

It is completely reasonable for them to expect to pay exactly what the lease requires them to pay - and to challenge the reasonableness of the current method used to apportion service charges if they don't think that is "fair and reasonable" (even if they were told that the flats currently split all costs equally before they even put an offer in).

The lessee would have seen from the LPE1 the percentage charged when various expenses were gathered in during the last three years - if they know that before buying how can they be disadvantaged if the same regime continues after their purchase - particularly if they negotiated a reduction in their purchase price

[Macromia]

So the new lessee who wishes to challenge the proportion would have seen BEFORE he purchased the flat what percentage he was to pay...

From what we have been told, the new lessees lease doesn't state what percentage they are required to pay, it says that they have to pay a "fair and reasonable" proportion.

It is completely reasonable for them to expect to pay exactly what the lease requires them to pay - and to challenge the reasonableness of the current method used to apportion service charges if they don't think that is "fair and reasonable" (even if they were told that the flats currently split all costs equally before they even put an offer in).

[sgclacy]

So the new lessee who wishes to challenge the proportion would have seen BEFORE he purchased the flat what percentage he was to pay - the unfairness of the bargain was patently clear BEFORE he purchased and may we’ll have been reflected in the price paid for the flat. So notwithstanding all of that believes that the court should come to his rescue and increase the service charge in other flats to accommodate his request - he will probably argue it was all written in legal speak and was forced to pay it because that was his/hers only option -

[Macromia]

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".

If three out of four leaseholders, where all four share the freehold, stand together in opposition against the fourth, that is by definition the three 'ganging up' against the fourth. The fact that the same system may have been in use previously, and may even have been willingly accepted by previous leaseholders doesn't change that.

I agree that we cannot assume that they are doing this for any particular reason, and it may be that all three genuinely believe that it is the fairest way to split the service charges (it is certainly the simplest way to do this). However, we also cannot assume that it DOES mean that 25% is a "fair and reasonable" proportion for the basement flat - we haven't been provided with anywhere near enough information about the property and the service charges involved to know that.

Although it is fair to say that "the majority decision" should prevail for many types of decisions, the circumstances here make this an example of a disagreement where it would be quite possible for the majority decision to not be "fair and reasonable".

As I have said all along, it is quite possible that a tribunal would rule that a equal four way split is "fair and reasonable", but the fact that it is three against one should play no part in their decision when it may be that the three who want to stick with the 25% share of costs may be benefitting at the expense of the fourth.

It would be better if the four leaseholders could come to an amicable agreement without going to a tribunal but, if they cannot, the tribunal should consider the proposals that each side makes regarding how costs should be split on merit without giving any extra weight to one side because it has more support from the leaseholders (that is only a reasonable consideration if the people in the majority don't all, or mostly, stand to benefit from the position they support at the expense of people in the smaller group).

[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".