In certain circumstances, landlords have the ability under section 35(2) of the Landlord and Tenant Act 1987 to apply to the First-tier Tribunal (Property Chamber) to seek a determination allowing for a variation of lease provisions. The tribunal has discretion as to whether to implement the variation or not.
In the recent case of Tower Hamlets Community Housing Ltd v Leaseholders of Painter House [2024] UKUT 37 (LC), the Upper Tribunal (Lands Chamber) considered the landlord’s application to vary service charge proportions in relation to their residential leases. The landlord had already applied to the First-tier Tribunal (Property Chamber) to vary leases on the basis that there was not satisfactory provision for recovery of expenditure and that the service charge proportions did not total 100% of expenditure but had been unsuccessful.
The landlord’s building contained 24 long residential leases in a mixed use building comprising both residential and commercial units. In 22 of the residential leases, the expenditure was 1/38 but two other residential flats required payment of a ‘fair proportion’. The landlord sought a variation that provided for all leaseholders to be responsible for either a 1/24 or a reasonable proportion. One would assume that seemed reasonable and logical so as to provide consistency throughout the leases. However…
The application failed and so the landlord appealed to the Upper Tribunal on various grounds.
Paragraph 5 of the judgment of Judge Cooke states:
“Section 38(1) provides that if any of the grounds in section 35(2) is established then the FTT may make an order varying the lease. In other words, the grounds in section 35(2) are gateways, and if the applicant passes through one of them then the FTT has a discretion to vary the lease. It may make the amendment requested by the applicant or such other variation as it thinks fit (s. 38(4))”
The Upper Tribunal considered that the section 35(2)(f) (as to the computation of a service charge payable under the lease) gateway had passed. For this subsection, a lease is considered to fail to make satisfactory provision with respect to the computation of a service charge payable under it if (b) “other tenants of the landlord are also liable under their leases to pay by way of service charge proportions of any such expenditure”.
The Tribunal considered that the reference to ‘proportion’ in section 35(4)(b) was not limited to numerical proportions and, in this case, included descriptive proportions, noted as being ‘a fair proportion’. Although those two flats couldn’t be computed in numerical terms, a 16/38 share (being the remaining unpaid proportion after deduction of the 22 1/38 shares) would not be considered ‘fair’.
The Upper Tribunal declined to vary the service charge proportions. They determined that they could not order a variation where it would cause substantial prejudice to leaseholders (in accordance with section 38). The variation proposed by the landlord would have meant that the leaseholders would have become responsible for the expenditure which related to the commercial units which was considered unfair.
This case highlights that even when gateways are met, the tribunal can still refuse to exercise its discretion. Even where a gateway is satisfied, the tribunal still has to take into account the provisions of section 38(6) when exercising that discretion.
If you are experiencing a similar situation or wish to discuss any landlord and tenant lease issues, please feel free to contact Amanda Nudds on 01328 852804 (email [email protected]) who would be pleased to advise you.
