Upper Tribunal varies flat leases enabling a Right to Manage company to recover costs of service charge enforcement

Under Part IV of the Landlord and Tenant Act 1987 (the Act), a party to a long lease of a flat can apply to the First-Tier Tribunal ('FTT') for an order to vary one or more terms of the lease. 

A company which has acquired the right to manage is treated for these purposes as if it were a party to the lease (Commonhold and Leasehold Reform Act 2002 (CLRA), s.102, Sch.7, para.10). 

Section 35 of the Act contains a number of grounds under which an application can be made to the FTT for a lease variation. One of the said grounds is where the lease fails to make satisfactory provision for the recovery by one party to the lease of expenditure incurred by them for the benefit of another (s.35(2)(e)). 

If the FTT is satisfied that the ground is made out, it may vary the lease in the manner specified in the application for a variation or such other variation that the FTT sees fit.  

In the case of 56 Westbourne Terrace RTM Co Ltd v Polturak and others [2025] UKUT 88 (LC) the Upper Tribunal made an important ruling in relation to lease variations in allowing for the RTM company to recover some of their costs.

The respondents to the case were leaseholders of flats in a building (albeit the majority of them did not oppose the right to manage company's application). The appellant was a right to manage company (RTM), which acquired the Right to Manage in 2018. The RTM was responsible for performing the management duties under the leases and was entitled to be paid a service charge by the leaseholders for the cost associated with undertaking the services. Payment of the service charge was refused by two leaseholders owning three flats. 

The leases in question were granted in 1983/84 (and subsequently extended on substantially the same terms). This was some time before the Right to Manage under the CLRA came into existence. The costs clause in the lease only covered costs relating to service of a notice pursuant to section 146 of the Law of Property Act 1925 (relating to forfeiture of leases). An RTM cannot serve a section 146 notice or forfeit a lease (as the CLRA specifically carves out these functions from an RTM's obligations), and the leases did not otherwise enable the RTM to recover the costs associated with enforcement of the lease terms. 

The RTM applied to the FTT for a number of variations to the leases that would oblige the leaseholders to pay its reasonable legal and professional costs incurred in enforcing any covenant under the leases. The FTT refused to make the variations sought. 

Appeal to the Upper Tribunal

The Upper Tribunal ('UT') set out that, on a variation application under s35 of the Act the FTT must first consider whether the applicant is a party to a long lease (RTM companies included). The FTT should then move on to consider whether the lease in question fails to make “satisfactory provision” with respect to repair, insurance, installations, services, recovery of expenditure (including for service charges), or computation of service charges. Where those conditions are satisfied the Tribunal must then consider whether the proposed variation would cause substantial prejudice incapable of adequate compensation by money, or whether there is any other reason why the variation would not be reasonable.

The UT set aside the FTT’s refusal to vary the leases. The UT found that the FTT did have jurisdiction to vary the leases to insert an administration charge. Ultimately, the FTT had been wrong to consider whether the lease “was clear and workable”, instead of the correct statutory question of whether it made “satisfactory provision”. 

It was decided that the leases failed to make “satisfactory provision” for the recovery of service charges by the RTM. Notably, there had been substantial statutory changes since these leases were granted in 1983/84, and so they were no longer satisfactory.

The UT varied the leases to insert a tenant's covenant to pay the landlord's costs of recovering service charge arrears as an administration charge and to also allow recovery through the service charge (if unable to be recovered from the defaulting tenant as an administration charge). 

This UT ruling is important for RTM companies as it confirms that there is the option of an application to vary the lease where is fails to make “satisfactory provision” for costs recovery associated with service charge arrears by way of an administration charge or service charge. 

For further information, please contact Mark Foxcroft or Zoe Maclean-Wells.

LON/OOBK/LVL/2023/0006