[2025] UKUT 292 (LC)

The FTT in its decision explained the factual background and the law, and the RTM company’s reasons for seeking a variation. They relied on section 35(2)(e), that the lease failed to make satisfactory provision for “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”, because the lease fails to make provision for the respondent to collect the cost of the emergency works by way of interim maintenance charge, the latter being limited to a maximum of half the previous year’s expenditure (as we saw at paragraph 7 above).

The FTT recorded the arguments of the landlord and of the second and third appellants, represented by Mr Upton, that the provisions in the lease about the interim service charge and the reserve fund were not unusual and were satisfactory, that the RTM company had not provided sufficient evidence to show that it could not afford to do the work, and that one of the leaseholders was a high net worth individual who would be able to provide the necessary funding. Mr Upton pointed out that Part IV of the LTA 1987 was intended to implement the recommendations of the Nugee Report 1985 (Report of the Committee of Enquiry on the Management of Privately Owned Blocks of Flats HMSO 1985), whose authors recommended the introduction of a power to vary a lease where it was “seriously defective” – a point which is made again in the appeal.

I have to set out the following paragraphs of the FTT’s decision at length because they are the subject of detailed commentary in the appeal:

“31.

Both counsel referred us to paragraph 16 of the decision of the Upper Tribunal in Mayor and Burgesses of London Borough of Camden v Morath [2019] UKUT 193 set out above, where the Upper Tribunal considered that a provision that is ‘clear and workable’ is unlikely to be unsatisfactory. They both stressed that the tribunal must be careful not to substitute a test of “clear and workable” for the test in s.35(2). However, as the Upper Tribunal went on to explain in that paragraph, the question is whether the bargain as it stands works in practice and must be considered on the basis of the evidence before the Tribunal. …

33.

We have to consider how the machinery of the existing leases works in practice. It is illustrative to take Flat 23 in the year commencing 25 March 2021 as an example, and ignoring for the moment any potential delay in certifying actual costs for the preceding year. The service charge payable in respect of Flat 23 is 6.7% of the total building costs. The total actual maintenance costs for the building for the year ending 24 March 2021 was £393,268. Therefore the total interim maintenance charges which the RTM company could have demanded of the leaseholder of Flat 23 in 2022, excluding any contribution towards the reserves, was £26,345, with 50% of that sum payable on 25 March 2022 and the other 50% payable on 29 September 2022. The total sum which the RTM company could have demanded of all the leaseholders towards the reserve fund in 2022 was £117,980 (i.e. 30% of the actual costs for 2021) The maximum it could have demanded from the leaseholder of Flat 23 towards the reserve fund in 2022 was £7,904.66. This is significantly less than that leaseholder’s liability to contribute towards the cost of the urgent works to the three pinnacles which, assuming a total cost of £450,000, comes to £30,150. Realistically the RTM company could only use the sums which it could have demanded for the reserve fund to pay for urgent works, as most or all of the interim maintenance charge would be needed to pay for the day-to-day expenses of running the building.

34.

In order to repair the tower and spire if the lease is not varied the RTM company will have do one of the following;

(i)

Fund the works itself and claim the cost from the leaseholders as a balancing charge once the certified accounts are available; or

(ii)

Find a contractor who is willing to start the works but defer seeking payment of the bulk of the cost until after the leaseholders pay their balancing charges; or

(iii)

Persuade some or all of the leaseholders to pay in advance notwithstanding the fact that they are under no obligation to do so; or

(iv)

Wait until it has accumulated sufficient money in the reserve fund. Again taking Flat 23 as an example, and using the figures for 2022, it would take 3 to 4 years to build up enough money to carry out the urgent works to the 3 pinnacles, and several years thereafter to build up enough money to complete the repairs to the tower.

35.

In our view there is ample evidence to show that the provisions of the leases are not working in practice; the spire and tower have been in a state of significant disrepair since 2016 and have now deteriorated to the point that the pose a danger to persons in the vicinity of the building. The Second Respondent attempted to carry out the necessary repairs in 2021 by seeking payment of the costs in advance from the leaseholders. However it was unable to raise the funds in this way because some of the leaseholders objected on the grounds that the terms of their leases did not require them to pay the sums demanded. The only works that were carried out by the Second Respondent was to net the spire in 2021. The bulk of the works remained outstanding as at the date the Applicant acquired the right to manage. In our view the ultimate cause of this is not warring factions among the building’s leaseholders or poor management decisions on the part of either the Second Respondent or the RTM company but a consequence of the service charge mechanism the leases themselves which effectively prevents the landlord from seeking advance payment in respect of major works. It may have been the intention of the parties when the leases were entered into that over time the reserve fund would be built up to cater for such eventualities but as this case demonstrates, reserve funds can be depleted. We do not accept that we can properly consider whether any of the leaseholders is in a position to act as a ‘white knight’ and either fund the works or grant the Applicant a short-term loan. The fact that they could is no guarantee that they will and in any event any such leaseholder could dispose of their interest in the building at any time. Furthermore we note that at paragraph 8 of her statement Ms O’Carroll says that the RTM company does not at present have sufficient funds available to it to carry out the emergency works. If the Respondents did not accept the evidence of Ms O’Carroll on this point then in our view they should have sought to challenge it.

36.

Consequently we consider that we have jurisdiction to vary the leases.”

The FTT concluded that the best of the proposed variations was the one amending the definition of the interim maintenance charge, and it ordered a variation to that effect.