Variations of leases under the Landlord and Tenant Act 1987 may take effect retrospectively
Section 35 of the Landlord and Tenant Act 1987 enables a party to a long lease of a flat to seek an order varying its provisions if the lease fails to make satisfactory provision for the computation of a service charge.
Parliament’s original intention was to ensure that landlords did not profit from service charge contributions. Consequently, the legislation applies where the aggregate of service charges payable in respect of a block of flats amounts to more than 100 per cent of expenditure. There was a debate, before the legislation was first enacted, as to whether landlords should be entitled to apply for variations where tenants’ service charge contributions fell short of 100 per cent of expenditure. It was suggested that this would encourage landlords to maintain their properties, but Parliament chose to restrict the right to apply to vary leases to cases where landlords were entitled to a surplus over money spent.
The Leasehold Reform, Housing and Urban Development Act 1993 amended the 1987 Act. Consequently, landlords are now able to apply to adjust service charge contributions to eliminate shortfalls. Brickfield Properties Ltd v Botten [2013] UKUT 0133 (LC) concerned a development of eight blocks of flats. The service charge provisions in the tenants’ leases were crafted to ensure that the landlord collected 100% of its expenditure.
Following the enfranchisement of one of the blocks in 2006, the proportion of the service charge that the landlord was able to recover fell to just over 85%. The landlord tried to persuade the remaining tenants to vary their leases to increase the percentage of the service charge for which they were responsible and made it clear that it would apply for an order, should the negotiations fail.
In due course, the landlord sought variations of the relevant leases to eliminate the shortfall and asked the Leasehold Valuation Tribunal to backdate the effect of its order to the date of the enfranchisement. The tribunal was satisfied that the landlord had taken steps to keep the tenants, and any assignees, fully informed and agreed to correct the anomaly. However, it refused to require the tenants to make backdated contributions, even though the landlord had continued to provide the services and the tenants would obtain a windfall as a result.
The Upper Tribunal upheld the landlord’s appeal. The judge agreed that there was nothing in the statute to indicate that an order varying a lease must take effect prospectively and drew attention to section 39(5) which provides that, where an order cancels or modifies a variation, the cancellation or modification is to take effect from the date of the order or from such later date as the order specifies. The contrast between these different provisions confirmed the breadth of the tribunal’s jurisdiction when making orders for variations.
Tenants may think the decision harsh – but stand to gain when applying for variations of leasehold provisions that entitle landlords to recover more than 100% of any service charge costs incurred.
Allyson Colby is a property law consultant
