[2025] UKUT 292 (LC)

Part IV of the Landlord and Tenant Act 1987 is entitled “Variation of leases”. It provides that leases may be varied by the FTT in response to three different kinds of application.

Section 35 enables an individual who is a party to a long lease to make an application:

“(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;

…

(3A)  For the purposes of subsection (2)(e) the factors for determining, in relation to a service charge payable under a lease, whether the lease makes satisfactory provision include whether it makes provision for an amount to be payable (by way of interest or otherwise) in respect of a failure to pay the service charge by the due date.

(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.”

Section 36 enables a respondent to a section 35 application to apply for an order varying other leases if the section 35 application succeeds, on the ground (in sub-section (3)) that they all fail to make satisfactory provision in the same way; it is easy to see why that might be necessary when, for example, there is an application to vary just one of a number of identical or similar leases. Section 37 makes provision for an application to be made to vary a number of leases when a majority of lessees consent to the application; on such an application there is no need to invoke one of the grounds in section 35(2), but the applicant must show that “the object to be achieved by the variation cannot be satisfactorily achieved unless all the leases are varied to the same effect.”

Section 38 then provides that if on an application under sections 35, 36 or 37 the FTT is satisfied that the relevant grounds are made out (section 35(2), section 36(3)) or section 37(3) 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.

Section 38(6) restricts the FTT’s discretion in the following way:

“(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.”

Section 38(10) provides:

“(10)

Where [the FTT] makes an order under this section varying a lease [the FTT] may, if it thinks fit, make an order providing for any party to the lease to pay, to any other party to the lease or to any other person, compensation in respect of any loss or disadvantage that [the FTT] considers he is likely to suffer as a result of the variation.”

It is worth noting that section 38(10) provides for an award of compensation for “any loss or disadvantage”; so compensation may be payable even where it is not suggested that there is a “substantial prejudice” which would, absent adequate compensation, prevent the variation of the lease.

If it decides to exercise its discretion to vary the lease the FTT can make the amendment requested by the applicant or such other variation as it thinks fit (s. 38(4)).

Section 102(1) and paragraph 10 of Schedule 7 to the 2002 Act provide that sections 35 , 36 , 38 and 39 of the 1987 Act have effect as if references to a party to a long lease included the RTM Company. Therefore although it is not a party to a lease, an RTM company may apply to the FTT for a variation of the lease.

The Tribunal, and its predecessor the Lands Tribunal, has made a number of decisions about these provisions, but there are no decisions of the Court of Appeal or above about them. A number of the Tribunal’s decisions have been about applications relying on section 35(2)(f), which is satisfied (sub-section (4) provides) where the service charge provisions do not add up. Ground (f) was described by the Tribunal in Tower Hamlets Community Housing Limited v Leaseholders of Painter House [2024] UKUT 37 (LC) at paragraph 30 as “rather a blunt instrument”, because it is easy to imagine circumstances where the ground is satisfied but it would not be right to vary the lease.

Ground (e) by contrast is more open-textured; there is no further provision defining when it is satisfied, analogous to subsection (4), but instead subsection (3A), added by the Commonhold and Leasehold Reform Act 2002, gives an example of a circumstance when the ground will be satisfied, namely when there is no provision for the payment of interest when service charges are paid late. In 56 Westbourne Terrace RTM Company Limited v Polturak, Davies and others [2025] UKUT 88 (LC) the Tribunal (the Deputy President, Martin Rodger KC) discussed the statutory provisions and the Tribunal’s decisions and considered the meaning of “fails to make satisfactory provision” in section 35(2). He said this:

“112.

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.

113.

“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 issue in 56 Westbourne Terrace was whether the FTT had been right to refuse to vary the lease in question so as to enable the RTM company to recover from the leaseholder its costs of enforcing the liability to pay the service charge. The lease contained a standard clause enabling the landlord to recover its costs “of and incidental to the preparation and service of” a notice under section 146 of the Law of Property Act 1925; such a notice is a prelude to forfeiture, and an RTM company cannot forfeit. The Deputy President said:

“117.

… In FirstPort Services Ltd v Settlers Court RTM Co Ltd [2022] UKSC 1, 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.

118.

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.”

In 56 Westbourne Terrace the Tribunal made the variation requested. In the present appeal it is argued that the Deputy President’s understanding of the meaning of “fails to make satisfactory provision” was incorrect, and that on a correct reading of that phrase the bar is set very high; the appellants also say that the fact that the person trying to recoup its expenditure is an RTM company is not a relevant consideration, again in disagreement with the reasoning in 56 Westbourne Terrace.