Section 35, Landlord and Tenant Act 1987, makes provision for the FTT (Property Chamber) to vary a residential lease where the lease fails to make satisfactory provision for one or more specified matters (repairs, contribution to service charges etc). If such a variation is made, the FTT may order the payment of compensation to the party whose lease is being varied (s.38). This case concerned a building which was divided into four flats. The service charge arrangement was unusual and there was not 100% recovery of any item of expenditure other than the building insurance. The freehold was held by a lessee-owned company in which three of the four leaseholders had shares. The company applied to vary the lease of the fourth leaseholder so as to increase the service charge liabilities of that leaseholder (e.g. by imposing a duty to contribute towards the management costs and external repairs). The FTT considered that the variations were simply part of a necessary “tidying up” exercise designed to bring the lease into line with modern practice.
The Upper Tribunal allowed an appeal. In order for the FTT to be satisifed that a lease made unsatisfactory provision in some regard there had to be evidence of an actual problem. In particular, it was not the purpose of s.35 to allow the FTT simply to update old leases or standardise badly drafted leases. There was no evidence of any actual problem in the present case. The service charge mechanism was unusual but was not affecting the proper management of the building. If, contrary to that decision, the lease was unsatisfatory, then compensation would need to be paid in order for any variation to be permitted. That compensation would be £9,500, calculated as the “harm” suffered by the leaseholder by increasing the service charge provisions, less a discount for the increased capital value that would flow from having a properly ordered lease.
Justin Bates led for the appellant leaseholder. The case can be found here: http://landschamber.decisions.tribunals.gov.uk//judgmentfiles/j1487/LRA-33-2018.pdf