Residential leases are sometimes unsatisfactory. They may be defective, outdated or contain draconian provisions. Lessees often assume that they can remedy these defects by applying to the First-tier Tribunal (FTT) for a variation under the Landlord and Tenant Act 1987 (the 1987 Act), but in reality the FTT’s powers are very limited.
The most obvious way of amending a lease is by agreement. However, even this may not be as easy as it sounds. Many leases provide that every flat lease in the building will contain the same, or similar, covenants. In addition, there will usually be a mutual enforceability covenant requiring the landlord to enforce those covenants if a tenant asks him to do so.
In Duval v 11-13 Randolph Crescent Ltd [2018] EWCA Civ 2298; [2018] PLSCS 177, the Court of Appeal found that the landlord could be in breach of the mutual enforceability covenant if it agreed to allow a tenant to carry out works that would otherwise be in breach of an absolute prohibition on carrying out structural alterations. The court said the tenant was entitled to oblige the landlord to enforce the alterations covenant and that the landlord was therefore under an obligation not to put out of its power the ability to comply with that obligation. Duval concerned a licence for alterations but the same principles would apply to a variation of a single lease if the landlord had covenanted that all the leases would be on similar terms.
The 1987 Act
If an agreement can’t be reached, the next possibility is an application under the 1987 Act. This Act contains two regimes – a defect-based regime and a majority consensus regime. An application can be made under section 35 by “any party to a long lease of a flat” for a variation if one of the grounds contained in that section is fulfilled. These grounds include that the lease fails to make satisfactory provision for the repair or maintenance of the flat or building or that the service charges recoverable do not add up to 100%. The grounds are strictly construed.
In Morgan v Fletcher [2009] UKUT 186 (LC) the service charges added up to 116% so the leaseholders applied for a variation. The landlord responded by reducing the service charge proportions for the two flats it occupied to 0.1% and 0.3%. Even though this was patently unfair, the service charges added up to 100% and the Upper Tribunal had no jurisdiction to interfere.
The second way of varying under the 1987 Act is by a majority of the parties agreeing to the proposed change. Where there are eight or fewer leases, all but one of the parties concerned must consent to the change. Where there are more than eight leases, at least 75% of the parties concerned must consent and no more than 10% can oppose it. As most changes result in winners and losers, it can be difficult to reach this threshold. However, this can be a useful provision where, for example, the lease provides for communal heating and the leaseholders wish to avoid the cost of replacing an outdated communal boiler and to install individual boilers in each flat.
Management order
A short-term solution to a defective lease might be obtained by the appointment of a manager under section 24(1) of the 1987 Act if the building is badly managed. The tribunal can appoint the manager to carry out such functions in relation to the premises as it thinks fit. These functions are not limited to the landlord’s obligations under the lease. So if, for example, the lease made inadequate provision for the placing of insurance, the tribunal could order the manager to remedy this – Queensbridge Investments Ltd v Lodge [2015] UKUT 635 (LC); [2015] PLSCS 347.
Lease extension
There is scope for amending the terms of the lease granted on a lease extension under the Leasehold Reform, Housing and Urban Development Act 1993. Although the starting point is that the new extended lease should be on the same terms as the existing lease, section 57(6) of the Act allows any term of the existing lease to be excluded or modified in so far as (a) it is necessary to do so in order to remedy a defect in the existing lease or (b) it would be unreasonable in the circumstances to include the term in question in view of changes occurring since the date of the commencement of the existing lease. In Rossman v Crown Estate Commissioners [2015] UKUT 288 (LC); [2015] PLSCS 184 this provision was used to modify a service charge contribution where the aggregate of the service charges collected by the landlords totalled 130%. However, it cannot be used to add terms – only to exclude or modify them (see Gordon v Church Commissioners LRA/110/2006).
Section 57 (6) is strictly construed. In Burchell v Raj Properties Ltd [2013] UKUT 443 (LC); [2013] 3 EGLR 62, the tenant sought the deletion of a covenant that prohibited use of the flat otherwise than by the lessee or his family. The Upper Tribunal held that this change did not fall within either of the grounds in section 57(6), no matter how desirable it might be to the tenant.
Unfair contract terms
The legislation relating to unfair contract terms, which is now contained in the Consumer Rights Act 2015, can apply to leases. A term will be unfair if it creates a substantial imbalance in the rights and obligations between the “trader” and a “consumer”, contrary to the requirements of good faith, to the detriment of the consumer. If the term is “unfair” it is not binding. The 2015 Act contains a list of terms which “may” be deemed unfair, such as unreasonably restricting the tenant’s right to assign or allowing the landlord to unilaterally alter the services provided. However, to date the courts have shown little appetite for finding terms of a long lease unfair.
In short, lessees need to get proper advice before acquiring a residential lease because their rights to vary the lease later are very limited.
Nicola Muir is a barrister at Tanfield Chambers
