Landlord and tenant – Service charges – Variation of lease – Appellant appealing against decision of First-tier Tribunal carrying lease of flat – Whether lease failing to make satisfactory provision for repair or maintenance – Whether compensation payable for loss or damage suffered by lessee – Appeal allowed
The appellant was the lessee of the basement flat at 11, Crossfield Road, London NW3, a late Victorian four-storey terraced house in Belsize Park. The house was divided into four flats. Each flat had approximately 100 years remaining on its lease. The respondent was the lessee of the first floor flat. The landlord of all four flats was a lessee-owned company with the sole purpose of holding the freehold of the property. All four lessees were directors of the company. The basement flat had its own entrance accessible by steps from the common frontage and did not share any of the common parts of the building.
A problem arose because the four leases did not contain the same provisions for the payment of the service charge. The appellant’s lease provided that its only obligation was to contribute to the external painting. On that basis the appellant was not liable to make any contribution towards the repair or renewal of the main structure of the building or the employment of staff or agents by the lessor for the performance of its obligations under the lease.
On 20 September 2017, the appellant applied to the First-tier Tribunal (FTT) for an order under section 27A of the Landlord and Tenant Act 1985 as to whether a service charge was payable under its lease and, if so, the amount. It argued that many of the items could not be categorised as external painting and decorating. The landlord made a cross application to vary the terms of the basement lease under section 35 of the Landlord and Tenant Act 1987.
The FTT varied the appellant’s lease compelling it to contribute one quarter of the cost of repair and renewal of the main structure of the building, and of the cost of any staff or agents employed by the landlord. No compensation was awarded to the appellant under section 38(10) of the 1987 Act. The FTT was not satisfied that the appellant would suffer any prejudice from the variations.
The appellant was granted permission to appeal on the basis that it was arguable that the mere fact that the allocation of responsibility for contributions by lessees towards the maintenance of the building was not in standard form and favoured one lessee over others, was not a sufficient basis on which to treat those arrangements as unsatisfactory for the purpose of section 35 of the 1987 Act. The landlord did not file a respondent’s notice and ceased to be a party to the appeal. The respondent was added as a party to the appeal in her capacity as the lessee of the first floor flat.
Held: The appeal was allowed.
(1) The four leases in question demonstrated an astonishing lack of care and illustrated the dangers of cutting and pasting parts of a lease to another lease without checking the details. The result was a mess. A layman unversed in the jurisprudence surrounding section 35 of the 1987 Act might describe it as unsatisfactory. However, for the purposes of section 35 of the 1987 Act, the fact that the proposed variations were common or standard did not make the original terms unsatisfactory. Equally the fact that different tenants made different contributions did not make the lease unsatisfactory. All the leases contained an obligation by the lessor to repair the structure which prima facie was a satisfactory provision so this was not a case where there was no obligation to repair. Even though the original lessor was not a lessee owned company, the question whether the provision was satisfactory had to be considered at the time of the application to vary. Thus, the position could change from time to time and there might be circumstances where the financial position of the lessor might make the absence of a lessee’s covenant to pay for the cost of management unsatisfactory. However, that could only be established by evidence. If, for example, the building required a major roof or other structural repair beyond the means of the members of the landlord company, that might constitute the necessary evidence. But there was no such evidence at present. The current position was that the building was in reasonable condition and any shortfall in the service charge was being funded by the other members of the landlord company: Cleary v Lakeside Developments Ltd [2011] UKUT 264 (LC) and Shellpoint Trustees v Barnett [2012] UKUT 245; [2012] 3 EGLR 115 considered.
(2) On the true construction of the badly worded lease, the appellant was only liable for one quarter of the external painting costs. That construction was supported by the fact that there were four flats that needed outside painting and, in the earlier lease of the ground floor flat, the proportion was one quarter. Whilst there might be difficult decisions as to whether a particular item fell within the repair clause or the external painting clause, that factor did not affect the question whether the lease was unsatisfactory. Difficult items would have to be dealt with on a case by case basis. There were many leases with separate clauses for repair and painting and they could not all be regarded as unsatisfactory. It followed that the appeal had to be allowed on the basis that the claimant’s lease was not unsatisfactory within the meaning of section 35 of the 1987 Act. The FTT’s order would be set aside.
(3) Had it been necessary to decide the point, the FTT’s decision on compensation and prejudice could not stand. There were benefits in having a lease structure which provided fully and fairly for the recovery of service charges and the inadequate arrangements in the present lease would discourage prudent and well-informed purchasers. The proposed variation of the lease would remove that detrimental effect (at least insofar as the subject flat was concerned) and would increase the value of the lease to a degree. Such an increase would partially offset the loss or disadvantage of the proposed variation to the appellant. An appropriate figure of compensation was £9,500.
Justin Bates and Ayesha Omar (instructed by Scott Cohen Solicitors, of Henley-on-Thames) appeared for the appellant; The respondent appeared in person.
Eileen O’Grady, barrister