[2025] UKUT 88 (LC)

The leases with which these proceedings are concerned are all long leases of flats. By section 102(1) and paragraph 10 of Schedule 7 to the Commonhold and Leasehold Reform Act 2002 the RTM Company is entitled to make an application under section 35 as if it was a party to the leases it seeks to vary. The contentious questions to be determined in relation to each proposed variation (or any alternative formulation of the variation) are therefore (1) whether there are grounds under section 35(2) for making the variation, (2) whether the variation would substantially prejudice any person, (3) if so, whether money would be adequate compensation for that prejudice, (4) whether for any other reason it would not be reasonable in the circumstances for the variation to be effected, (5) whether any variation should take effect retrospectively, or only from the date of the application or this decision, and (6) whether compensation should be paid to any person in respect of any loss or disadvantage they are likely to suffer as a result of the variation.

The sole ground of the application submitted to the FTT on 23 October 2023 was under section 35(2)(e). It was said that the leases fail to make satisfactory provision for the recovery by the Lessor (and therefore by the RTM Company) of expenditure incurred or to be incurred by them for the benefit of the leaseholders. The particular expenditure highlighted was expenditure incurred by the RTM Company in recovering unpaid service charges.

The proposed variations are somewhat wider than the grounds require. In particular, the proposed clause 3(13A) (see [16] above) refers to the recovery of professional fees incurred in connection with or in contemplation of the enforcement of any of the Lessee’s covenants. That is the formulation which the Tribunal found objectionable in Shellpoint. There is no need for so wide an obligation if the objective of the variation is to deal with the non-payment of service charges. A covenant by every leaseholder in these terms would suffice (clause 4(1) being the leaseholder’s covenant to pay service charges):

“To pay to the Lessor on demand the reasonable costs and expenses (including any solicitors', surveyors' or other professionals' fees, costs and expenses and any VAT on them) incurred by the Lessor in or in connection with the determination or recovery of sums payable under clause 4(1).”

The second variation, to add to the categories of service charge expenditure listed in paragraph 1(1) of the Third Schedule a new category covering professional fees incurred in connection with the enforcement of any leaseholders’ covenants, would not be objectionable in principle and would go no further than necessary to enable the RTM Company to fund enforcement action in the event of a breach of covenant.

As I have explained, the Tribunal has power under section 38(4) to make different variations from those proposed in the application. I will therefore consider the sequence of questions identified above by reference to the narrower terms of clause 3(13A), but the original formulation of the proposed new paragraph 1(1)(iv) of the Third Schedule.

Do the leases make satisfactory provision for the recovery by the RTM Company of expenditure incurred or to be incurred by it for the benefit of the leaseholders? It is common ground that the leases do not provide for the RTM Company to recover its costs incurred in connection with the determination or recovery of service charges. One way of considering ground (e) would be to focus narrowly on those costs and to ask whether the leases fail to make satisfactory provision for the recovery of costs incurred in connection with the determination or recovery of service charges. An alternative approach would be to consider whether, by failing to make provision for the recovery of those costs, the leases fail to make satisfactory provision for the recovery by the RTM Company of the costs of services it provides to the leaseholders. In practice there may not be much difference between the two questions, but it seems to me that the second, wider question is more consistent with subsection (2)(e) itself, particularly in the light of subsection (3A).

Does the absence of provision for the recovery of costs incurred in connection with the determination or recovery of service charges mean that the leases fail to make satisfactory provision for the recovery by the RTM Company of costs expenditure incurred by it for the benefit of the leaseholders? That raises the question of what the Act means when it refers to a lease which “fails to make satisfactory provision”.

The starting point to any exercise in statutory interpretation is the language of the Act itself. In Morgan v Fletcher the Tribunal referred to the report of the Nugee Committee to identify the vice or mischief which Part IV of the 1987 Act was intended to address, but care is required when resorting to such external sources. In O (a minor), R (on the application of) v Secretary of State for the Home Department [2022] UKSC 3, at [29], Lord Hodge DPSC emphasised that the words which Parliament has chosen to enact as an expression of the purpose of a piece of legislation are the primary source by which the meaning of the legislation is to be ascertained. The role of external aids is secondary, as he explained, at [30]:

“External aids to interpretation therefore must play a secondary role. Explanatory notes, prepared under the authority of Parliament, may cast light on the meaning of particular statutory provisions. Other sources, such as Law Commission reports, reports of Royal Commissions and advisory committees, and Government White Papers may disclose the background to a statute and assist the court to identify not only the mischief which it addresses but also the purpose of the legislation, thereby assisting a purposive interpretation of a particular statutory provision. The context disclosed by such materials is relevant to assist the court to ascertain the meaning of the statute, whether or not there is ambiguity and uncertainty, and indeed may reveal ambiguity or uncertainty: Bennion, Bailey and Norbury on Statutory Interpretation, 8th ed (2020), para 11.2. But none of these external aids displace the meanings conveyed by the words of a statute that, after consideration of that context, are clear and unambiguous and which do not produce absurdity.”

In this case, the relevant words of the statute are “the lease fails to make satisfactory provision”. The key word is “satisfactory”, which the Oxford English Dictionary defines as meaning “adequate, fair, tolerable; sufficient for the needs of a given situation or circumstance”. It is a word of approval with middling connotations, and its antonym, unsatisfactory, is also a comparatively moderate rebuke. To say that there has been a failure to make satisfactory provision for something suggests that there is a problem of some sort without giving the impression that the problem is acute. Nor does it give any indication of the nature of the problem. It may be something for which provision has been made, which turns out not to be adequate, or it may be the omission to make any provision at all for a particular contingency which is unsatisfactory.

“Satisfactory” is an ordinary English word with a well understood meaning. It is not necessary or appropriate to substitute some different word, such as “defect” when addressing the ground (e) question. The better course is to identify the provision which has been made in the lease, or which is missing from it, and to consider whether in the circumstances which now exist that amounts to satisfactory provision, in the ordinary understanding of those words.

The leases do not contain a covenant by the leaseholder to reimburse expenditure by the landlord in recovering unpaid service charges. Nor does they provide for the landlord to recoup such costs through the service charge. When the leases were first granted, those features would not have been regarded as problematic or as less than satisfactory. For reasons which I have already considered, the landlord would have been confident that a leaseholder who failed to pay services charges which were due would be liable to pay the landlord’s costs of securing payment contractually under clause 3(13). If it was necessary to resort to proceedings, payment of the landlord’s costs would have been a standard condition of relief against forfeiture. Thus, reimbursement of the landlord’s costs of enforcement was what the original parties bargained for.

Statute has subsequently intervened to place obstacles in the way of the landlord. The parties could not have foreseen or made provision for that intervention when they first entered into the leases. Provision which was satisfactory has become unsatisfactory, in the sense that it no longer achieves what the parties originally intended.

Nor could the parties have foreseen or made provision for the right to collect service charges becoming vested in an entity, an RTM company, which would have no assets of its own and which would not have the opportunity to enforce payment by forfeiture.

In Cleary, Triplerose and Shellpoint this Tribunal has identified the position of an RTM company as one which introduces different considerations. In FirstPort Services Ltd v Settlers Court RTM Co Ltd [2022] UKSC1, at [56] Lord Briggs explained that:

“An RTM company is, because of the statutory provisions which regulate it, not a creature of substance. It is a company limited by guarantee with no share capital and no assets other than the right to enforce the tenant covenants in the leases of the flats in its building, otherwise than by forfeiture.”

Such an entity will not be in a position to fund litigation without some external source of funds. That source must necessarily be either the members of the company, or the whole body of leaseholders, or the individual leaseholder whose default gave rise to the need for enforcement. In deciding where such expense would most satisfactorily fall it is relevant to bear in mind that an RTM Company has no interest in the premises themselves; it exists to provide services for the benefit of all leaseholders, not for its own benefit, or that of its members as such. Unlike the landlord, an RTM company has no possibility of achieving a forfeiture windfall. It is relevant also to remember that the consequences of the inability of an RTM Company or a leaseholder-owned landlord to pursue a defaulting leaseholder through litigation, or a lack of alternative funds to make up the shortfall will be felt by all leaseholders collectively. The building may not be maintained as they would like it to be, works may be delayed or cancelled, or they may be asked to make additional contributions beyond their contractual liability.

In all of those circumstances it is not difficult to describe a structure under which the expense of enforcement falls on the members of the company or the whole body of leaseholders as one which fails to make satisfactory provision for the recovery of the costs of services. Viewing their leases objectively, rather than from the perspective of an individual who was already in dispute with the RTM Company, all leaseholders would be likely to regard the current arrangements as unsatisfactory both insofar as they protect a defaulting leaseholder from the risk of paying the RTM Company’s costs of court or tribunal proceedings, and in depriving the RTM Company of recourse to the service charge account to meet anticipated expenditure.

For these reasons I am satisfied that there are grounds under section 35(2)(e) for making the variations because the leases fail to make satisfactory provision for the recovery of service charges by the RTM Company and by the current, leaseholder-owned landlord.

When considering whether substantial prejudice would be caused to any person by a variation order, it is necessary to remember that there is a live issue over the date from which the proposed variations would take effect. But, as far as I am aware, there have as yet been no proceedings against any leaseholder to which the proposed variations would apply. The current proceedings are not directly concerned with enforcement and, if it was considered appropriate for the avoidance of doubt, they could be excluded. I believe the issue of timing can be put to one side for the moment. I will first consider whether, in principle, the variations are likely substantially to prejudice an individual leaseholder before considering whether a specific leaseholder is likely to be prejudiced.

I do not consider that variations which make individuals liable for the consequences of their own default, or which enable the costs of enforcement to be met initially from the service charge, are likely substantially to prejudice the general body of leaseholders. It is to the benefit of the leaseholders as a whole that their leases facilitate the performance by the RTM Company of the functions which it was set up to discharge. Only in that way will the building be maintained in accordance with their expectations, to a high standard and without a disproportionate share of the cost falling on any particular group. Those benefits will be reflected in the condition of the building and may also be seen in the maintenance or improvement of the value of individual flats, and in the willingness of individuals to take on the responsibility of running the RTM Company. The leaseholders will obtain sufficient value for the additional expenditure to which they will be exposed to eliminate any prejudice.

As for Mr Polturak and Mr Davies, they too will benefit from the RTM Company being in a position to collect the service charges on which it depends to be able to maintain the building. Any disadvantage they experience will be offset to some extent by the benefit they derive from the RTM Company being able more effectively to proceed against other leaseholders. But, as leaseholders currently in dispute with the RTM Company, they face a much more immediate and substantial risk that they may personally be liable to meet the cost of enforcement action against themselves. They also share the risk of being required to contribute through the service charge to the costs of proceedings against themselves, but will additionally be burdened by their own costs of defending those proceedings (which might be avoided altogether if the RTM Company’s access to funds remained restricted). The risk of prejudice is therefore greater for Mr Polturak and Mr Davies than for other leaseholders.

But, importantly, the risk that individual leaseholders may be the first who are liable to reimburse the RTM Company’s costs of proceedings under the proposed clause 3(13A), or through the service charge, is not a risk against which they lack protection.

A charge under proposed clause 3(13A) would be an administration charge. Paragraph 5A of Schedule 11 of the Commonhold and Leasehold Reform Act 2002 allows the tenant of a dwelling to apply to the court or tribunal before which proceedings are, or have been, taking place for an order reducing or extinguishing the tenant’s liability to pay a particular administration charge in respect of litigation costs. By paragraph 5A(2), the relevant court or tribunal may make whatever order on the application it considers to be just and equitable.

A service charge to cover the costs of enforcement proceedings in a court or tribunal would be a charge to which section 20C, Landlord and Tenant Act 1985 would apply; the reasonableness limitation imposed on all service charges by section 19 of the 1985 Act would also apply to it. Mr Davies and Mr Polturak, or any other leaseholder, would be entitled to apply for an order that the costs of the proceedings were not to be regarded as relevant costs when calculating any service charge payable by them. The court or tribunal would make such order on the application as it considered just and equitable. They could also apply for a determination of their liability under section 27A of the 1985 Act, to which the section 19 cap would apply.

These statutory protections will be significantly enhanced from the commencement (on a date not yet appointed) of section 62 and 63 of the Leasehold and Freehold Reform Act 2024. The former section will place the onus on landlords of making an application to the FTT for a determination that the costs they have incurred in litigation should be recovered from one or more leaseholders. On such an application the relevant court or tribunal may make such order on the application as it considers just and equitable in the circumstances. The latter provision willmake it an implied term of a lease thatthe landlord shall pay any amount ordered by a court or tribunal in respect of the tenant’s litigation costs in connection with proceedings concerning the lease. Once again, the relevant court or tribunal will be able to make such order on an application under section 63 as it considers just and equitable in the circumstances. When it comes into force, this provision will go a long way to eliminate arguments based on an inequality of arms which Mr Demachkie particularly relied on in this part of the appeal. He suggested that it would be prejudicial and unjust for the RTM Company to be armed by the Tribunal with contractual rights which it could rely on to recover its costs of proceedings in the FTT or the small claims court, where a leaseholder would be unable to recover their own costs if they were the successful party.

The question is therefore whether, taking account of (1) the collective benefits of the RTM Company having access to funds to enable it to pursue defaulting leaseholders, (2) the disadvantage for Mr Davies and Mr Polturak of the RTM Company being in a stronger position to pursue them (ultimately at their own expense) for sums which they are currently withholding, and (3) the protections currently and prospectively available to leaseholders, the proposed variations would be likely substantially to prejudice Mr Davies and Mr Polturak. In view of the statutory protections I have identified I will assume, when answering that question, that each leaseholder will be able to ensure that no liability will fall on them unless the relevant court or tribunal considers it just and equitable that it should, and that, in due course, but on a date not yet known, a successful leaseholder will be entitled to recover their costs of relevant tribunal proceedings to the extent that the relevant tribunal considers it just and equitable.

On that assumption, I do not consider that Mr Davies and Mr Polturak would be likely to be substantially prejudiced by the proposed variations to the service charge schedule. They would be required to contribute their proportionate share of the RTM Company’s costs of proceedings, if it was just and equitable that they should do so. That would put them in a less advantageous position than they currently enjoy, because at present the RTM Company has very limited access to funds. But the financial burden involved would be shared proportionately amongst all leaseholders, would be controlled by their mutual self-interest, would be further limited, if necessary, by the reasonableness limitation imposed on all service charges by section 19, Landlord and Tenant Act 1985, and finally would be restricted to what was just and equitable by section 20C of the same Act. Any prejudice which any leaseholder might experience would be counterbalanced by the ability of the RTM Company properly to manage the building and I am satisfied that the result would be a net benefit, rather than a cause of prejudice. In the absence of a likelihood of substantial prejudice the prohibition in section 38(6) does not apply and the Tribunal has a discretion to make an order varying all of the leases to introduce a new paragraph 1(1)(iv) into the Third Schedule allowing recovery through the service charge of expenditure on professional fees in connection with the enforcement of any leaseholders’ covenants.

The proposed clause 3(13A) would expose Mr Davies and Mr Polturak to the risk of a much larger bill, equal to the whole of the costs of enforcement proceedings, including proceedings in the FTT to quantify their liability for the service charges which they have been withholding. That liability might be measured in tens of thousands of pounds and the prejudice which would be likely to result would be significant, even when the counter balancing factors already mentioned are taken into account. On that basis the Tribunal has power to introduce the new clause 3(13A) only if it appears to me that an award of compensation under section 38(10) would not afford Mr Davies and Mr Polturak “adequate compensation”.

No evidence was presented to the FTT on the issue of compensation. Mr Demachkie submitted that it was impossible to provide such evidence, as the consequences of making the variations proposed were not capable of being quantified in money. In particular, he suggested, the balance of the relationship between the leaseholders and the RTM Company would be altered in a way which could not be measured. That submission might be said to apply with greater force to the introduction of clause 3(13A) and Mr Demachkie himself acknowledged that the case for varying the service charge provisions in the Third Schedule was stronger.

The main prejudice which any leaseholder is likely to experience as a result of the variation of their lease to introduce a new clause 3(13A) would be their exposure for the first time to a risk of a liability to pay money. I can see no reason why a risk of liability to pay money could not, in principle, be adequately compensated by a payment of money. Perfection is not required, and there is nothing in the nature of the prejudice which would affect a leaseholder’s enjoyment of their flat or their personal well-being such that a payment would not be capable of compensating them “adequately”. Nor do I consider that the “balance of the relationship” between the parties creates a difficulty. The parties’ relationship is transactional: the RTM Company is liable to provide services and the leaseholders are liable to pay for them. It is also heavily regulated by the statutory provisions I have mentioned. The consequences of a change are capable of assessment. Some types of variation may not be capable of being adequately compensated in money, but this is not one of them.

The prejudice in question is the immediate risk to Mr Davies and Mr Polturak in particular (it has not been suggested that other leaseholders are in dispute with the RTM Company) that they will be exposed to an obligation to pay costs in proceedings brought to resolve the current disagreement over their service charge liability. Once the current dispute is determined, there is no reason why Mr Davies and Mr Polturak should not be in the same position as other leaseholders who, for the reasons I have explained, will benefit from the proposed variations, rather than be prejudiced by them.

In order to determine adequate compensation it would be necessary to assess the likelihood of either leaseholder being required to pay the RTM Company’s costs of proceedings and to quantify the amount which would be likely to be payable. An experienced litigator would be able to provide a reliable estimate of the costs of tribunal proceedings. But in circumstances where the parties are already in dispute, assessing the likelihood of a particular leaseholder being required to pay the RTM Company’s costs is a much more difficult exercise. It would require detailed knowledge of the circumstances of the current dispute and of the appetite of all parties for litigation and for compromise. It would also require an assessment of the likelihood, at the conclusion of proceedings, of an order being made protecting the leaseholders from their new liability to pay an administration charge to meet the RTM Company’s costs. These may be the sort of assessments which those who provide after the event insurance against the costs of litigation undertake, but it difficult to see how, practically, a tribunal could embark on the same exercise. It would be required to immerse itself deep into the detail of the dispute to enable it to determine the probability of a particular outcome and then to determine the amount which would adequately compensate the two leaseholders for that risk. I do not think the power to award compensation under section 36(10) was intended for that purpose.

In summary, my conclusions on the adequacy of compensation are, first, that there is no need for any person to be compensated for the variation to the Third Schedule because it will not cause prejudice; secondly, that there is no need for any person other than Mr Davies and Mr Polturak to be compensated for the introduction of clause 3(13A); thirdly, that there is no need for Mr Davies and Mr Polturak to be compensated for prejudice arising out of future service charge disputes, as in that respect they will be in the same position as all other leaseholders and will be beneficiaries of the new clause 3(13A); fourthly, that Mr Davies and Mr Polturak are likely to be substantially prejudiced in respect of the existing service charge disputes and could not be adequately compensated for that prejudice by an award of money under section 38(10).

It follows from the fourth of my conclusions on the adequacy of compensation that the Tribunal has no power to order that the leases of Mr Davies and Mr Polturak be varied by the introduction of clause 3(13A) if it is applicable to the existing service charge dispute. The same considerations as led me to that conclusion would also have caused me to refuse the variation to that extent on the grounds of reasonableness. It would not be reasonable to expect the parties to embark on a complicated and uncertain assessment of compensation when the variation to the Third Schedule will be sufficient to meet the RTM Company’s immediate needs.

It is therefore necessary for me to consider whether there is any other reason, not already taken into account, why it would not be reasonable for the remaining variations to be effected.

I take into account the fact that the proposed variations are opposed by the leaseholders of three of eleven flats in the building and that the other leaseholders support them. It was submitted by Mr Demachkie that for an application made under section 35 rather than section 37, the degree of support for a variation was irrelevant. I do not agree. In circumstances where the obligations of each leaseholder are the same and are capable of having a significant impact on other leaseholders’ enjoyment of their own property, the degree of support which a particular variation commands does seem to me to be relevant to whether it is reasonable that it should be imposed against the will of some. Under section 35 it is not a decisive consideration, but it is relevant, and the greater the support a proposal attracts, the less likely it is to be unreasonable to impose it.

The FTT recorded in its decision that all parties had agreed before it that it would not be appropriate for it to be asked to make findings of fact or to apportion blame for the impasse which had been reached in the management of the building. It was not suggested that I should take a different course. But it is relevant to refer to the parties’ statements of case before the FTT to identify matters on which they relied as making it unreasonable for the proposed variations to be made.

In his statement of case, Mr Davies argued that it would not be reasonable to change the terms originally agreed. That is a serious consideration, engaging what the Tribunal in Camden v Morath referred to as “the law’s general resistance to the temptation to interfere in or improve contractual arrangements freely made.” This is the appropriate point in the analysis to take it into account. The parties’ freedom to contract in whatever terms they choose to accept weighs against the making of any change to the original scheme.

In Morgan v Fletcher the Tribunal referred, at [19], to the mischief which Part IV of the 1987 Act was intended to address (and which justified intervention to vary a contract freely entered into). That mischief was the problem of schemes for the maintenance of residential blocks which are seriously defective in circumstances where the defects “have a direct bearing on the upkeep and fitness for habitation of the flats in the block”. That cannot be taken to be a complete statement of the purpose of Part IV, but it is an indication of the balance which has to be struck in these cases. On the one hand, the principles of contractual autonomy and the freedom of parties to agree whatever terms they wish are very important; on the other hand, the terms which parties agreed often many years ago may contain drafting errors or incomplete or poorly thought out contractual arrangements, or they may have failed to anticipate social or legislative changes which give rise many years later to serious problems for the original parties or their the successors. Those are relevant considerations in this case for reasons which have already been considered. In particular, it is relevant that the proper maintenance of the building is being delayed by disputes over service charges which cannot be resolved (or at least, are not being resolved) because of the inability of the RTM Company (an entity which did not exist when the leases were first granted) to fund tribunal proceedings (which were not required when the leases were first granted).

Mr Davies also suggested that he had been given insufficient notice of the proposals on which he was not consulted in advance. The issue of notice can no longer be relevant, but it is material that Mr Davies (like Mr Polturak) is entitled to membership of the RTM Company and by that route will be able to influence its decisions. He also suggested that the RTM Company could rely on the threat of forfeiture, in the same way as the Freeholder, but section 100(3), 2002 Act confirms that an RTM company may not exercise any function of re-entry or forfeiture. He pointed to the RTM Company’s ability to raise funds from its members, but that depends on the willingness of members to contribute over and above their contractual liabilities under their leases. He also pointed out that, due to previous disputes between leaseholders and the Freeholder which resulted in proceedings in 2012 and 2016, the members of the RTM Company were aware that the leases did not provide for the recovery of legal expenses as a service charge or administration charge when they voluntarily assumed responsibility for the management of the building. Assuming that is correct, it does not seem to me to make it unreasonable for the leases to be varied in the manner proposed. The remaining matters which Mr Davies focussed on in his statement of case concerned the state of repair of the building, and responsibility for it. I have read his concerns, which confirm that there is significant work to be done in the building, and I take that into account along with the other matters he raised.

In his statement of case Mr Polturak also referred to the ability of the RTM Company to look to its members to fund its activities. He pointed to the absence of a complete consensus and to the fact that his lease had not been varied in 1991, when the term was extended, and said that the bargain struck then should not be rewritten. He suggested that the RTM Company could act in tribunal proceedings without legal representation. I take these matters into account.

None of the points made by Mr Davies and Mr Polturak seem to me to make it unreasonable for all of the leases in the building to be varied to enable the RTM Company to raise funds through the service charge to enable it to participate in proceedings to enforce leaseholders’ covenants. Nor do they make it unreasonable for individual leaseholders to be liable for costs incurred by the RTM Company in enforcing their obligation to contribute to the cost of services provided to them. The leases have been overtaken by substantial statutory changes since they were first granted and are no longer satisfactory. They make it difficult or impossible for the RTM Company to carry out its functions in the face of resistance from particular leaseholders. Those leaseholders will have significant statutory protection from unreasonable charges. In all the circumstances it does not appear to me that there is any reason why it would not be reasonable for the remaining variations to be made.

I have previously said that, after concluding for the purpose of section 38(6)(b) that there is no other reason why a variation order should not be made, it is not obvious that a genuine discretionary question remains to be considered. But, strictly speaking, the conclusions I have reached do no more than engage the power in section 38(1) to make an order. Formally, therefore, I record that having considered all of the circumstances relied on by the parties I can see no reason not to exercise my discretion to make the variation.

It was suggested by Mr Demachkie that no variation should have retrospective effect. Mr Fain argued that they should be backdated to the date in 2018 on which the RTM Company acquired the right to manage.

I do not think it would be reasonable to rewrite history, as Mr Demachkie put it, by vesting the RTM Company with the right to recover costs of enforcement as far back as 2018. The application was made on 23 October 2023 and from that date all parties were on notice that their contractual rights might change. That seems to me to be an appropriate date, in this case, for the variations to take effect. That is subject to two points.

The variations proposed by the RTM Company were to enable it to recover professional fees incurred in connection with enforcement of leaseholders’ covenants. In their original form and, in the case of clause 3(13A), in its modified form, the variations do not expressly refer to costs incurred in the current variation proceedings, and it would be regrettable if further costs were incurred in an argument about what the new clauses mean. Whether or not the RTM Company hoped to be able to recoup its costs of these proceedings, I do not think it should be entitled to. This can be achieved by an order under section 20C, Landlord and Tenant Act 1985, made for the avoidance of doubt, and need not be reflected in the new clause itself.

Nor, for the reasons I have already given, do I consider that it would be reasonable for the new clause 3(13A) to apply to costs incurred by the RTM Company in connection with any current arrears. The same limitation is not required for the introduction of the new paragraph 1(1)(iv) into the Third Schedule.

These limitations require a further modification of the variations. The new clause 3(13A) will be in the following terms:

“To pay to the Lessor on demand the reasonable costs and expenses (including any solicitors', surveyors' or other professionals' fees, costs and expenses and any VAT on them) incurred by the Lessor in or in connection with the determination or recovery of sums which first became payable under clause 4(1) after 18 March 2025.”

The new sub-paragraph (iv) of paragraph 1(1) of the Third Schedule will be as follows:

“(iv)

in paying the fees of any Solicitors or other professional incurred after 23 October 2023 in connection with or in contemplation of the enforcement of any of the Lessee covenants in the lease where such fees are unable to be recovered from the defaulting leaseholder as an administration charge in accordance with clause 3(13A).”

In view of my conclusions on the issues of prejudice and the adequacy of compensation, summarised at [134] above, I do not think it necessary to provide for the payment of compensation.