[2025] UKUT 292 (LC)

For the respondent, Mr Rainey KC agreed that the Nugee Report is admissible, but pointed out that it is quite remote from the legislation itself. It is not a White Paper or a Law Commission report, it has no bill attached, and being published in 1985 was not contemporaneous with the legislation. So it is a weak guide to the construction of the 1987 Act. In any event, in Mr Rainey KC’s view the words “defective” and “unsatisfactory” are used interchangeably in the report, along with “gaps”, “inadequacies”, “ambiguities” and so on.

However, said Mr Rainey KC, if it is the case that “seriously defective” is the test the Nugee Report had in mind, and if that is a higher threshold than “fails to make satisfactory provision”, then the appellants’ argument is doomed to failure; the statutory test is the one to be applied. And while the common law does place a heavy emphasis on the sanctity of the parties’ bargain, the point of the 1987 Act was to get past that emphasis and enable satisfactory provision to be made where the parties’ bargain failed to do so. As the Nugee Report itself said, such statutory intervention is not unprecedented, section 84 of the Law of Property Act 1925 (the power to discharge or modify restrictive covenants) being a conspicuous precedent.

The Nugee Report was written 17 years before the right to manage was enacted. It cannot have been Parliament’s intention in 2002 to create a scheme for leaseholders to acquire the right to manage, only to have the RTM company’s ability to carry out necessary maintenance frustrated by provisions in the lease that will not work for a company that is necessarily (because of the way the statute sets it up) under-capitalised. It has no assets to sell or to offer security for a loan. It cannot sell lease extensions, nor get a windfall from a forfeiture. It simply cannot operate unless it is put in funds.

As to the idea that the lease cannot be found to have made satisfactory provision for years, only to become suddenly unsatisfactory when the identity of the landlord changes, Mr Rainey KC argued that that is to put it the wrong way round. The lease was always unsatisfactory, in that the provision for advance payments was ill-conceived because it was too limited, but that is only revealed when the person responsible for maintenance is an RTM company without resources instead of a landlord who has the means to meet its obligations subject to later reimbursement.

Mr Rainey KC pointed out that the words “clear and workable” in Camden v Morath are not a statutory test. But in any event this lease is not workable in the present circumstances. Decisions about the reasonableness of service charges and dispensation, where the financial circumstances of the parties are irrelevant, are not on point. Other decisions of the Tribunal about section 35 make it very clear that the financial situation of an RTM company is a relevant consideration. The “failure to make satisfactory provision” has to be proved by evidence; there are cases such as Camden v Morath where the arrangement works and there is no evidence of a problem. But if provision is not made for this respondent to be put in funds to do the work the tower will fall down – which is precisely the sort of problem that the 1987 Act was intended to prevent.

As to the 2000 Consultation Paper, it can hardly be a guide to the interpretation of the 1987 Act; and the reference to defective leases in its narrative can tell us nothing about the meaning of “fails to make satisfactory provision.” The reason why the proposal at paragraph 14 of section 4.2 of the paper (see paragraph 60 above) was not enacted may well have been because it was unnecessary; there is nothing to prevent such an amendment being made on the basis of the existing provisions.