[2024] UKUT 37 (LC)

It is perhaps surprising that there is a judicial power to vary leases, since the courts do not re-write people’s bargains; but sometimes, either as a result of a drafting error or because the physical layout of a building or development has changed, it is in the interests of all concerned that there should be such a power. Section 35 of the Landlord and Tenant Act 1987 confers upon the FTT the power to vary leases in certain circumstances. The provision reads, as far as relevant:

“(1)

Any party to a long lease of a flat may make an application to [the FTT] for an order varying the lease in such manner as is specified in the application.

(2)

The grounds on which any such application may be made are that the lease fails to make satisfactory provision with respect to one or more of the following matters, namely—

(a)

the repair or maintenance of—

(i)

the flat in question, or

(ii)

the building containing the flat, or

(iii)

any land or building which is let to the tenant under the lease or in respect of which rights are conferred on him under it;

(b)

the insurance of the building containing the flat or of any such land or building as is mentioned in paragraph (a)(iii);

(c)

the repair or maintenance of any installations (whether they are in the same building as the flat or not) which are reasonably necessary to ensure that occupiers of the flat enjoy a reasonable standard of accommodation;

(d)

the provision or maintenance of any services which are reasonably necessary to ensure that occupiers of the flat enjoy a reasonable standard of accommodation …

(e)

the recovery by one party to the lease from another party to it of expenditure incurred or to be incurred by him, or on his behalf, for the benefit of that other party or of a number of persons who include that other party;

(f)

the computation of a service charge payable under the lease [;]

…

(4)

For the purposes of subsection (2)(f) a lease fails to make satisfactory provision with respect to the computation of a service charge payable under it if—

(a)

it provides for any such charge to be a proportion of expenditure incurred, or to be incurred, by or on behalf of the landlord or a superior landlord; and

(b)

other tenants of the landlord are also liable under their leases to pay by way of service charges proportions of any such expenditure; and

(c)

the aggregate of the amounts that would, in any particular case, be payable by reference to the proportions referred to in paragraphs (a) and (b) would [either exceed or be less than] the whole of any such expenditure.

…

(8)

In this section “service charge”  has the meaning given by section 18 of the 1985 Act.

I have set out sub-section (2) (a) to (f) so as to show the range of grounds on which an application may be made, but only (e) and (f) are relevant to this appeal. Sub-section (4) above sets out the circumstances in which ground (f) will apply, and it is agreed that these are the only circumstances where it applies – essentially where the lessees have to pay “a proportion” of the landlord’s expenditure on services and the proportions together do not add up to 100%.

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)). If it makes a variation the FTT may order the applicant to pay compensation to any party to the lease or to any other person in respect of any loss or damage they are likely to suffer as a result of the variation. But section 38(6) provides:

“(6)

[The FTT] shall not make an order under this section effecting any variation of a lease if it appears to [the FTT] —

(a)

that the variation would be likely substantially to prejudice—

(i)

any respondent to the application, or

(ii)

any person who is not a party to the application,

 and that an award under subsection (10) would not afford him adequate compensation, or

(b)

that for any other reason it would not be reasonable in the circumstances for the variation to be effected.