[2025] UKUT 292 (LC)

Spire House comprises a Victorian church tower with a spire, a block of 23 flats built on the site of the nave of the church, and an enclosed garden. The first appellant (“the landlord”) holds the freehold of the flats, a 999-year lease of the tower and a 125-year lease of the garden. The flats are held on long leases, most granted in the 1980s and 1990s (the first no later than 1984) and one in 2021; the second and third appellants hold long leases of flats 16, 19 and 23.

In June 2019 the respondent (“the RTM company”) served a claim notice in order to acquire the right to manage Spire House pursuant to the Commonhold and Leasehold Reform Act 2002. The landlord and two leaseholders resisted that acquisition, but their case failed in the FTT, the Upper Tribunal and the Court of Appeal (Eastern Pyramid Group Corporation SA v Spire House RTM Company Limited [2021] EWCA Civ 1658), with the result that the respondent acquired the right to manage the property on 9 February 2022.

The tower of Spire House has been in need of repair since at least 2016, and urgent work is now required to protect both the integrity of the block of flats and members of the public due to the risk of falling masonry. Under the terms of the long leases of the flats the landlord is responsible for the repair and maintenance of the property (defined to include the tower); the task now of course falls to the RTM company. The RTM company has obtained from the FTT an order dispensing with the consultation requirements of section 20 of the Landlord and Tenant Act 1985, so that it can recover the cost of initial emergency work to the pinnacles on the tower through the service charge and is consulting regarding further work to the spire.

The cost is obviously going to be significant. The financial implications of that were set out by the FTT, at paragraph 18 of the decision now appealed, as follows:

“The certified accounts for the year ending 24 March 2022 indicated that the sum of £2,350,000 was held in the reserve fund. According to the grounds in support of the application however, after the RTM company acquired the right to manage in February 2022 it discovered that the sum held in the reserve fund account came to just over £110,000. Further the two dissenting leaseholders have not paid any service charges since the right to manage was acquired. According to Ms Carroll’s statement together they are in arrears of £212,881. For the purposes of comparison the total service charge income raised by the freeholder in the year ending 24 March 2022 was £295,458. In the course of its determination in respect of the application for dispensation, the Tribunal noted that total cost of the emergency works to safely remove the three pinnacles was estimated in March 2024 to be in the region of £450,000. According to a Stage 2 notice of intention served in September 2020 by the Second Respondent, i.e. 2 years prior to the Applicant’s acquisition of the right to manage, the estimates it had obtained for the repairs that were then required to the spire and tower ranged from of £1.2 million to £2.3 million.”

Inevitably the cost of the work on the tower will be paid sooner or later by the leaseholders. But it is the “sooner or later” that now poses a problem for the RTM company. The leases enable the landlord to demand a service charge each year to cover its actual expenditure in the previous year, and also to recover an interim service charge payment in advance in respect of anticipated expenditure, but limited to one half of the actual expenditure the previous year. And although the lease does provide for the landlord to require contributions to a reserve fund, they are limited to 30% of the costs incurred in the previous year. The application before the FTT in the present proceedings was for an order varying the leases under section 35 of the Landlord and Tenant Act 1987 to enable the RTM company to remove that limitation on advance payments so that it can recover the cost of the work in advance; alternative variations were suggested including a removal of the cap on contributions to the reserve fund, or to add a new provision to enable the landlord to demand funds on an ad hoc basis. The application was made on the basis that the lease failed to make satisfactory provision for the recovery of service charges to pay for the emergency work in advance, because the RTM company with no assets other than the service charge contributions made by the lessee – could not otherwise do the emergency work but would have to wait years to accumulate enough funding to pay for it.

The landlord, far from being pleased to be off the hook in the face of such a project, opposed the application, as did the second and third appellants. They were unsuccessful in the FTT, which amended the definition of the Interim Maintenance Charge in the lease from this:

“the Interim Maintenance Charge means the sum specified in Paragraph 8 of the Particulars or one half of the Maintenance Charge for the immediately preceding Maintenance Year whichever is the greater”

to this:

“the Interim Maintenance Charge means the sum specified in paragraph 8 of the Particulars or the amount which in the opinion of the lessor or its managing agents or accountants shall from time to time represent a fair and reasonable estimate of one half of the Maintenance Charge for the Maintenance Year in question PROVIDED that if it should appear necessary or appropriate to adjust the Interim Maintenance Charge during the Maintenance Year the Interim Maintenance Charge may be increased or decreased (as the case may be) by the lessor at any time”.

I shall have to look closely at the FTT’s reasoning later. First I turn to the relevant law.