Does the Landlord and Tenant Act 1987 provide a remedy for unfair service charges?

In Morgan v Fletcher & others [2009] UKUT 186 (LC), six residential tenants (the "tenants") in a building of eight flats (the "building") applied to the Leasehold Valuation Tribunal (LVT) to vary their leases (the "leases"). The tenants claimed that the service charge provisions in the leases were "unsatisfactory" under section 35 of the Landlord and Tenant Act 1987 (LTA 1987). At the time of their application the aggregate of the service charge proportions under the leases amounted to 116% of the landlord's expenditure.

The landlord then amended the service charge provisions for the other two flats in the building, reducing the total service charge contributions for the building to 100% of the landlord's expenditure. The LVT adjusted the leases of the tenants to make the service charge contributions proportionate. The landlord appealed.

The court allowed the appeal. It held that section 35 of the LTA 1987 was not intended to deal with unfairly disproportionate service charge provisions. It was only intended to deal with surplus contributions or a shortfall and not situations where the contribution amounted to 100% of the landlord's expenditure albeit the contribution proportions were unfair.

Whilst the court had every sympathy with the tenants, it could not adjust their leases to rectify the unfair service charge since their situation fell outside that envisaged by the statute. The court was unable to interfere in the contractual freedom of the parties.

This case provides a sharp reminder to practitioners of the difficulties inherent in drafting fair service charge provisions, particularly where the individual parts demised are of disproportionate size. It is very easy for some tenants to end up feeling aggrieved by what appears to be an unfairly loaded service charge.