A landlord’s subjective determination of the ‘fair proportion’ of its total costs payable by the tenant by way of service charge could not be challenged by the tenant.
A landlord’s subjective determination of the ‘fair proportion’ of its total costs payable by the tenant by way of service charge could not be challenged by the tenant.
The first defendant (M) was the tenant of part of the Criterion Building in Piccadilly Circus under a lease granted for 25 years from March 1993 (extended by two supplemental leases until 31 December 2019).
The lease required the tenant to pay a ‘due proportion’ of the total cost to the landlord of providing its services to the building. It then went on to define a ‘due proportion’ as:
“a fair proportion to be determined from time to time by the Landlord or the Landlord's Surveyors taking into account the use made of and the benefit received from the services and expenses and each of them …”.
The landlord (C) claimed arrears of service charge from M of over £2.2m covering the period from 2014 to 2019. Although there was a dispute about the sums demanded by C towards a reserve/sinking fund, M also claimed that C’s service charge apportionment between the tenants of the building had unfairly favoured the Criterion Theatre at M’s expense (M had been charged 54.42% of the cost of certain services and claimed that a fairer proportion should have been in the region of 46.74%).
Could the court interfere with the service charge proportions determined by C?
Where there were several tenants amongst whom the service charge must be divided and it made no financial difference to the landlord how it was done, the ‘fair proportion’ payable by a tenant was not an objective standard (as M had argued). A landlord could be trusted because it had no axe to grind.
C could make a subjective decision on how to divide the service charge between the tenants, provided this decision was rational (and, in this case, M had not disputed the rationality of C’s decision). It was not the court’s role to determine the service charge proportions payable by the tenants.
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