Landlord and tenant – Service charges – Variation of lease – Appellant landlord appealing against decision of First-tier Tribunal refusing to vary terms of sub-lease pursuant to section 35 of Landlord and Tenant Act 1987 – Whether lease failing to make satisfactory provision for payment for services provided for respondent tenant’s benefit – Appeal dismissed
The appellant local authority held a lease of part of the Brunswick Centre (the estate), which was a mixed-use development of residential flats, shops and a cinema. The appellant’s lease was for a term of 99 years from December 1973; the demised premises were two buildings containing 210 and 185 flats respectively which were let to residential sub-lessees. The appellant’s lease required it to pay to the head lessor (the freeholder) 25% of the expenditure incurred by the head lessor in relation to the whole of the estate in providing a wide range of services. At the hearing before the First-tier Tribunal (FTT), the appellant gave evidence about the costs passed on to it by the freeholder, for services including the provision of security, cleaning, health and safety risk assessments and legislative compliance, insurance of common areas and plant, mechanical and engineering services, general repairs and maintenance, staff costs and the cost of utilities and of accounting and auditing.
There was no provision for the appellant to be reimbursed for what it paid to the freeholder under the terms of its own leases except insofar as the freeholder’s expenditure related to the individual building where the flat was situated. The appellant applied to the FTT to vary the terms of 28 sub-leases pursuant to section 35 of the Landlord and Tenant Act 1987 to make such provision. Most of the sub-leases were varied by agreement but the respondent took part in the hearing before the FTT. The variation was refused.
The appellant appealed, contending that, having found that the respondent derived some benefit from some of the works and services provided by the freeholder, the FTT ought to have found that the test in section 35(2)(e) was satisfied, namely that the lease failed to make satisfactory provision with respect to the recovery of expenditure incurred by one party to the lease for the other party’s benefit. Further, the FTT had taken into account irrelevant considerations.
Held: The appeal was dismissed.
(1) An application to vary would not succeed unless it could be shown that the lease failed to make satisfactory provision for various matters listed in section 35(2)(a)-(g) of the Landlord and Tenant Act 1987, the relevant matter in this case being (e), namely the recovery by the landlord of expenditure incurred for the benefit of the tenant. The word “satisfactory” was not defined in the statute. The tribunal had to consider whether the wording of the lease as it stood was clear, and whether the term sought to be varied was workable. If it was clear and workable then it was not unsatisfactory. The question whether the bargain as it stood worked in practice had to be considered on the basis of the evidence in each case. But section 35 did not enable the tribunal to vary a lease on the basis that it imposed unequal burdens, or was expensive or inconvenient. It would be strange if it did, in view of the law’s general resistance to the temptation to interfere in or improve contractual arrangements freely made: Cleary v Lakeside Developments Ltd [2011] UKUT 264 (LC) and Triplerose Ltd v Stride [2019] UKUT 99 (LC); [2019] PLSCS 70 considered.
(2) The FTT had found that the lease clearly stated that the respondent was to pay a service charge in respect of her own building, rather than a contribution to the appellant’s payment of the head lessor’s expenditure on the wider estate and that decision was not appealed. Having found that there were services that benefited the sub-lessees, the FTT was right to find that nevertheless the lease made satisfactory provision for the recovery of costs paid by one party for the other’s benefit. That decision was made squarely on the basis of the well-established meaning of the term “satisfactory” in section 35(2). The provisions, and the extent to which the underlessees were obliged to pay towards costs incurred by the appellant and the head lessor, were found to be clear and perfectly workable. A clearer reflection of the meaning of “satisfactory” as established in Cleary and Triplerose could hardly be imagined. The FTT necessarily referred to the construction of the lease and to the bargain made by the parties, because those were essential elements in the factual matrix. The meaning of the words as they stood was crucial, as was whether they were clear and reflected the bargain made. Any variation might disturb the contractual bargain, but the FTT had to consider what that bargain was before deciding whether or not to vary it.
(3) The tribunal did not agree with the appellant’s argument that it was important, in Cleary, that leases had been varied consensually without the variation sought in the proceedings being made. That was a relevant circumstance, but it was not essential to the FTT’s decision. The fact that in this case consensual variations of the kind sought had been made did not mean that the existing provision was unsatisfactory in the sense found in Triplerose and Cleary. It had not been argued that those decisions were made in error and there was nothing in the facts of this case that might persuade the tribunal to depart from the construction of “satisfactory” adopted in them. As in those cases, there was here a perceived inequity in the bargain made between the parties. Why it was so made was not known, but it was clearly made and the provisions were workable. There was no suggestion that the appellant could not meet its contributions. The appellant had criticised the FTT for taking into consideration the intention of the parties, objectively ascertained from the clear wording of their bargain, but sought to rely on the appellant’s intention, “objectively” ascertained from the surrounding circumstances that it must have made a mistake and could not have intended the provisions to be as they were. That was speculation and of no value in assessing whether the provision made in the sub-leases was satisfactory within section 35(2)(e). The decision of the FTT was unarguably correct.
Jonathan Upton (instructed by Judge Priestley LLP) appeared for the appellant; Andy Creer (instructed by Bar Pro Bono Unit) appeared for the respondent.
Eileen O’Grady, barrister
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