[2025] UKUT 292 (LC)

As we saw above, the Tribunal in 56 Westbourne Terrace regarded “satisfactory” as a term of approval with “middling connotations”, and “unsatisfactory” as “a comparatively mild rebuke”. The Deputy President said: “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.” The appellants disagree.

It is not in dispute that the words of a statute are to be given their ordinary and natural meaning in their context. Mr Bates KC added that 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 the mischief it was supposed to be addressing, enabling a purposive interpretation of a statutory provision. In Kostal UK Ltd v Dunkley [2021] UKSC 47 Lord Leggatt explained at [30]: “The modern case law…has emphasised the central importance of identifying the purpose of the legislation and interpreting the relevant language in the light of that purpose.”

Mr Bates KC had three reasons for disagreeing with the Tribunal’s construction of “satisfactory” and its antonym in 56 Westbourne Terrace. First, he disagreed about the natural meaning of the words. The Oxford English Dictionary defines “satisfactory” as “adequate, fair, tolerable; sufficient for the needs of a given situation or circumstance.” That he said, was a simple or low threshold; something is satisfactory if it is good enough. But the antonym “unsatisfactory” is not a mild rebuke; it must mean that something is intolerable, unfair, or insufficient. And that is a high threshold to overcome. Moreover, the law does not generally interfere with bargains; parties are free to agree what they wish and the law does not require perfection, best practice or fairness. A provision will only be unsatisfactory if it falls outside a broad range of satisfactory provisions; only, Mr Bates KC argued, if it gives rise to a defective lease.

Second, Mr Bates KC pointed out that the 1987 Act in enabling the FTT to vary a lease has been described as “a radical piece of legislation which in a number of respects impinged upon the contractual rights of landlords” (Maunder Taylor v Blaquiere [2002] EWCA Civ 1633, Aldous LJ at paragraph 35). Accordingly, one would expect any power to re-write the parties’ bargain to be justified only on substantial grounds.

Third, that the grounds are intended to be substantial can be seen from the Report of the Committee of Inquiry on the Management of Privately Owned Blocks of Flats, chaired by Edward Nugee QC (“the Nugee Report”), whose recommendations prompted the enactment of the 1987 Act. The committee was tasked with examining evidence of problems for landlords and tenants arising from the management of blocks of flats and making recommendations as to how they might be solved. The report explained at its paragraph 6.12:

“If, as can happen, the leases of the flats in a block have been so drafted that the landlord is not entitled to recover from his tenants in aggregate the whole of his expenditure on services, he has to bear the deficiency himself. On the other hand, if, as is not uncommon, the leases provide for the tenants to pay the cost of services, but impose no obligation on the landlord to provide those services, the tenants may have no ready means of ensuring that essential repairs are carried out even though they, or most of them, are willing to pay for the work. A defective or inconsistent set of leases in a block can be improved at present only if all parties agree. We consider in paragraphs 7.6. l to 7.6.13 a procedure for varying defective leases where such unanimous agreement cannot be obtained.”

Paragraph 7.6 of the report is headed “Variation of Defective Leases.” It sets out three situations in which a defective or unsatisfactory lease might be varied: (1) where all parties agree; (2) where the landlord and a majority of lessees agree; and (3) where a party to the lease identifies a “major defect” to one or more of the leases. As to the third category, “We consider such intervention to be justified where the combined effect of the obligations imposed by the leases on the landlord and the lessees produces a seriously defectivescheme, and the defects have a direct bearing on the upkeep and fitness for habitation of the flats in the block” (paragraph 7.6.9).” The emphasis is added by Mr Bates KC. The committee at paragraph 8.45 recommended a new procedure “Where the landlord or one or more of the lessees identifies a major defect in one or more of the leases in a block…”. And that recommendation is made under the heading “Variation of unsatisfactory leases”, so that “unsatisfactory” must be taken to mean “having a major defect”.

Accordingly, Mr Bates KC argued, the committee recommended the procedure that was enacted in sections 35 of the 1987 Act only in limited circumstances where the lease was “seriously defective.” That indicates, he said, that Parliament intended the power to vary the lease to be exercised sparingly and only where the circumstances were sufficiently serious to justify interfering with the parties’ bargain.

Mr Bates KC pointed out that the committee at para 7.6.9 suggested that where a lease was varied to add an obligation for a landlord to carry out work, there should also be provision for the recovery of on account payments. That, he said, indicates that provision for an on account payment was envisaged only as a quid pro quo when a landlord took on additional obligations, and such a variation should not be made in any other circumstances.

In the grounds of appeal (drafted before the Tribunal’s decision in 56 Westbourne Terrace) the appellants also relied on the Tribunal’s observation in London Borough of Camden v Morath, to which as we have seen the FTT also referred (paragraph 25 above).

The appellants’ position is that there is nothing “unsatisfactory” about the current lease. The costs of the proposed works can be recovered, just not in a way that would be convenient for the RTM company. But that is not enough. As a matter of law, this lease is not unsatisfactory in its intended sense of seriously defective and it was not open to the FTT to reach any other conclusion.

Furthermore, say the appellants (moving on to ground 3), a change in the identity of one of the parties, and in particular the fact that the person responsible for the work on the tower is now an RTM company, cannot be a reason why the lease fails to make satisfactory provision. As a matter of fact the appellants do not believe that the respondent cannot afford to do the emergency work, see ground 4; but leaving that aside, even if it cannot, that is not a relevant consideration. It is as irrelevant as are the financial circumstances of a tenant to a decision whether service charges were reasonably incurred (Waaler v Hounslow London Borough Council [2015] UKUT 17 (LC) at paragraph 45); similarly, where a landlord wants a dispensation from the consultation requirements for major works, the financial consequences to the landlord of failure to get a dispensation are irrelevant (Daejan Investments Limited v Benson [2013] UKSC 14 at paragraph 51).

Moreover it cannot be the case that the lease was satisfactory for years and then suddenly became unsatisfactory because the identity of the landlord has changed. There is a conceptual difference between a change of circumstances resulting from a deliberate choice (here, the respondent’s choice to acquire the right to manage) and a change that none of the parties could control such as the introduction of new legislation.

Mr Bates KC referred to the consultation paper that preceded the introduction of the right to manage by the Commonhold and Leasehold Reform Act 2002 (Commonhold and Leasehold Reform, Draft Bill and Consultation Paper (Cm 4843), August 2000). This, he said, supports the appellants’ case. The paper stressed that the right to manage does not change the terms of the lease; section 3 paragraph 11 reads:

“11.

Except where specifically provided to the contrary, RTM is not intended to override any aspect of the lease, other than to transfer relevant functions or responsibilities to the managing body. Nor should RTM affect the ownership of any interest in the building. Any long lease in the block will remain an agreement between the leaseholder and the landlord, albeit with the managing body carrying out most of the landlord’s functions.”

At paragraph 68 the paper went on to say:

“The RTM company would be required to carry out the management functions for the premises in accordance with the terms of the leases of the property. That would mean, for example, that where there is a positive requirement to do something under a lease, such as redecoration of common areas once every five years, that would become an obligation upon the company. Similarly, the company would not be able to step outside the terms of the lease – for example, if the lease did not provide for certain expenditure to be recoverable, the company would not be able to recover it from the leaseholder.”

Mr Bates KC acknowledged that the 1987 Act was amended to enable an RTM company to use the provisions of section 35; but it is not intended to be in a different or better position from the landlord.

Section 4.2 of the consultation paper asked a number of questions about possible amendments to the 1987 Act, introduced at paragraph 2 with the words “The management provisions of a lease can frequently be defective in a number of ways” – a further indication, said Mr Bates KC, that the thinking in the Nugee Report is encapsulated in the legislation. It asked some consultation questions about the need to set out more clearly what should or should not constitute “satisfactory provision”, and made a proposal which was enacted as section 35(3A). It also made the following proposal:

“14.

Where leases do not provide for advance payment of service charges, a landlord (or an RTM company) will often have to pay for works in advance and then collect the service charge monies. This will mean that the landlord or the company will be out of pocket and may result in the necessary repair works not being done because of cash flow problems. We therefore intend that where a lease fails to provide for the payment and collection of service charges in advance of works (whether repairs or maintenance) being carried out, that should constitute a ground for variation.”

That proposal did not result in an amendment to the 1987 Act. We do not know why; the consultation responses were not published. But Mr Bates KC argued that fact that the proposal was not enacted indicates that it was not the intention that such variations should be made. The variation made by the FTT was just such a variation and was improper.

In summary, the appellants argue that the lease can be varied only if it is seriously defective, in line with the Nugee Report and contrary to what was said in 56 Westbourne Terrace. In fact the lease is not defective or unsatisfactory; there is nothing unusual about its provisions; indeed, it provides for advance payments and for a reserve fund, although it does not go as far as the respondent would like. The provisions of the lease are a consequence of the bargain the parties made, and of course can cause cash-flow difficulties for some landlords, but the lease is not defective for that reason. The RTM company’s financial circumstances are not relevant in determining whether the lease fails to make satisfactory provision; and that the terms of the Consultation Paper that preceded the 2002 Act support their position. Had Parliament wanted the tribunal to take the landlord’s or an RTM company’s financial circumstances into account it would have said so, but it did not take the opportunity to do so.