Lease variation: tribunal declines to exercise discretion

The First-tier Tribunal has a discretion to vary a lease where any of the grounds set out in section 35(2) of the Landlord and Tenant Act 1987 are satisfied and to order compensation for loss or damage suffered. The FTT should not vary a lease where to do so would substantially prejudice any respondent or other person and compensation would be insufficient. The Upper Tribunal (Lands Chamber) has considered this provision in Tower Hamlets Community Housing Ltd v Leaseholders of Painter House [2024] UKUT 37 (LC). The case concerned Painter House, a block of 24 long leasehold flats in Sidney Street, London E1, with commercial premises, occupied by the appellant, on the ground floor. The majority of the leases were on identical terms. Twenty-two of them required the leaseholders to pay 1/38 of a service charge based on the landlord’s expenditure comprising the costs of insurance, maintenance, repair and decoration of the block and of the common parts of the block and the wider estate. The leaseholders of flats 9 and 11 had to pay a “fair proportion” of such expenditure. The landlord asked the FTT to amend all 24 leases to provide either that the specified proportion of the service provision read 1/24 instead of 1/38 of costs incurred in maintaining the block and 1/38 of costs incurred in maintaining the estate or “such reasonable proportion of the total expenditure as the lessors shall state is attributable” and to backdate the amendments. A number of lessees objected arguing that the arrangements might well have been deliberate with the landlord bearing 14/38 of the expenditure being the costs attributable to the ground floor commercial element and that they were already being charged for some services attributable to the commercial unit. The FTT decided that section 35(2)(f) of the 1987 Act – that the lease failed to make satisfactory provision for the computation of the service charge payable – did not apply. The current arrangements were workable and satisfactory. On the landlord’s appeal, the tribunal reversed the FTT decision. Section 35(2)(f) was met. There was no reason to exclude proportions expressed as descriptions – as for flats 9 and 11 – rather than as numbers. The aggregate of the service charge payable was less than the whole of the expenditure and therefore the FTT did have power to vary the lease. However, the variation sought would require the leaseholders to pay 1/24 of the landlord’s expenditure on the block including the commercial unit which would substantially prejudice the respondents and be unreasonable. The tribunal declined to exercise its discretion to vary the leases. Louise Clark is a property law consultant and mediator