First-tier Tribunal Allows Reserve Fund Variation in 61 Leases

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00BJ/LVT/2025/0004 Property :

[ADDRESS] [POSTCODE]

Applicant : [redacted] :

[COUNSEL], Assistant Solicitor, [COMPANY]

Respondents : [redacted] : N/A Type of [NAME] : To vary two or more leases by a majority Tribunal member : Judge Tagliavini Venue : 10 [ADDRESS] [POSTCODE] Date of decision : 13 January 2026

DECISION

2 The tribunal’s decision (1) The tribunal varies the lease in accordance with the Order attached to

this Decision. _________________________________________________ The [NAME] 1. The applicant seeks to vary 61 residential leases under section 37 of the

Landlord and Tenant Act 1987 ("the 1987 Act") by the addition of a

provision for the collection of a [NAME]. 2. The tribunal is required to determine the following issues:

• What is the object to be achieved by the proposed variation? Can

the object be achieved satisfactorily without all the leases being

varied to the same effect?

• Is the proposed variation within the contemplation of sections 37

and 38 of the 1987 Act?

• Is there a sufficient majority for an [NAME] under section 37

of the 1987 Act?

• If it does make an order varying the leases, should the tribunal

order [NAME] to pay compensation to [NAME] (see

section 38(10) of the 1987 Act).

• The date from which the proposed variations are to take effect The background 3. The subject property is a mixed use development known as [NAME] and comprises 61 residential flats over seven floors. In

addition there are commercial units and a former Granada cinema. The

applicant is the freehold owner of the subject property known as 58 [ADDRESS] [POSTCODE] having acquired its interest on or around

30th November 2018, following 47 lessees coming together to purchase

the freehold. 4. Of the 61 respondents, 46 [NAME] have returned their agreement to

vary the lease. The applicant received one objections from [NAME] 2 flats but received no [NAME] objections or comments from

the respondents to the proposed variation.

3 The applicant’s case 4. In written submissions, the applicant asserted the threshold set down by

the 1987 Act is met, in that more than 75% of the parties’ consent to the

[NAME] and only one [NAME] (of 2 properties) object to the

variation. In written submissions the applicant asserted that:

The variation sought by the Applicant will allow a [NAME]

to be collected via the service charge mechanism. Service charge

expenditure, especially for the likes of roof repairs, are difficult

to forecast with any certainty and this can result in unwelcome

peaks and troughs in the service charges. A [NAME] is a

useful mechanism for avoiding large fluctuations in the service

charge. As per the RICS Service Charge Residential

Management Code (3rd edition) (“the RICS Code of Practice”),

the intention of a [NAME] is to spread the costs of ‘use and

occupation’ as evenly as possible throughout the life of the lease

to prevent penalising [NAME] who happen to be in

occupation at a particular moment when a major expenditure

occurs. The RICS Code of Practice also states it considered good

practice to hold reserve funds where the leases permit and that

were the leases do not permit the collection of a [NAME]

[and] you should consider recommending that consideration

be given to discussing the benefits of a variation to allow for a

[NAME] to be set up.

A [NAME] with a healthy balance will allow the cost of major

works to be spread over a period of time and avoid unexpected

high service charge demands. This is beneficial to the

[NAME] as well as to landlord. By allowing a [NAME] to be collected, this will enable successful and efficient

management of the development. 5. The applicant seeks to make the following variation with retrospective

effect from 25 March 2010 or alternatively the 30th November 2018,

being the date of the acquisition of its interest:

The following shall be added to the Lease as a new clause 3(H)(v):

(v) Such sum as the [NAME] shall determine as desirable to be set

aside in any year towards a [NAME] to make provision for

expected or unexpected future expenditure which the [NAME] has

responsibility 6. In response to this [NAME] only one of the [NAME] has

indicated in writing their objection to the proposed variation. [NAME] [COMPANY] of flats 104 and 301 provided

written objections to the variation sought on the following grounds:

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2.[NAME] opposes the [NAME] to vary the leases.

[NAME] acknowledges that reserve funds can have

the benefits outlined at paragraphs 7-8 of the Applicant’s

preliminary submissions, its view is that, as currently drafted,

the proposed variation could lead to the already significant

service charge payable becoming generally unmanageable

and/or unaffordable . This is for the following reasons:

2.1 The proposed variation does not place a reasonable annual

cap on contributions to the [NAME]. It is noted that section

19 of the Landlord and Tenant Act 1985 provides that costs will

be taken into account in determining the amount of a service

charge payable for a period only to the extent that they are

reasonably incurred. However, it is established in case-law that,

in determining the reasonableness of costs pursuant to section

19, the means of [NAME] are not determinative. It is

therefore possible for costs to both be (a) reasonable for the

purpose of section 19 and (b) unaffordable for [NAME].

Given this, [NAME] is concerned that the variation as

drafted (with the lack of a reasonable annual cap) opens it up to

a potentially unmanageable service charge liability.

2.2 It is noted that the proposed deed of variation provides, at

clause 2, that the variation will have effect from the date of the

deed of variation. However, it has been suggested in

correspondence from the Applicant dated 14 October 2025 that

the intention is for the variation to have retrospective effect from

25 March 2010. If this is indeed what is proposed, it is submitted

by [NAME] that this would significantly increase the

potential for the proposed variation to lead to service charge

liabilities becoming unmanageable as [NAME] could (under

the terms of the variation) face liability for over 15 years of back-

dated [NAME] contributions from day one.

[NAME]’s concerns as set out above have not been

assuaged by the Applicant (as part of this process) failing to (a)

provide any detailed information as to the level of contributions

to the [NAME] that it envisages seeking and (b) advise

whether there is currently any major expenditure required that

it envisages meeting through a newly set up [NAME]. 3 For

the reasons set out at paragraph 2 of this statement, it

submitted by [NAME] that the proposed variation would

be likely to be substantially prejudicial to [NAME] or, at the

very least, it would not be reasonable in the circumstances for

the variation to be effected. 7. In Reply to these objections the applicant asserted:

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…it would be unusual for any service charge clause in a lease,

including those relating to [NAME], to have a “reasonable

annual cap,” or in fact any form of annual cap. The protection

for [NAME] is in section 19 of the Landlord and Tenant Act

1989 (“the 1985 Act”). Varying the lease so as to allow the

Applicant to collect a [NAME] does not interfere with those

section 19 rights; the section 19 rights are preserved. [COMPANY] acknowledges, service charges must be reasonable in

accordance with section 19 of the 1985 Act.

The apparent overriding concern of [COMPANY] is

unaffordability. Whether collected in one lump sum, or collected

over time, the costs are the costs. There is no link between reserve

funds and affordability from the point of view of the actual costs.

Conversely to [COMPANY]’ arguments, the collection of a

[NAME] arguably makes the costs of a large project of works

more affordable for [NAME], given the general approach to

reserve funds is to collect contributions over a period of time

rather than sending a single larger large invoice.

…

[COMPANY] suggest that if the variation were to have

retrospective effect, it would enable the Applicant to

retroactively demand [NAME] contributions from

[NAME] for the past 15 years. It is not the Applicant’s

intention to retrospectively demand service charge

contributions. In any event, the Applicant would not be able to

do so as section 20B of the 1985 Act bars the Applicant from

doing so.

For transparency, the Applicant's request for the variation to

have retrospective effect is because [NAME] have already

been voluntarily contributing to the [NAME] the Applicant

wants to avoid a situation where the [NAME] seek a refund

of this contribution as this will likely cause huge cash flow issues

at the development. All lessees at [NAME], including

[COMPANY], have been contributing towards the [NAME], as such the Applicant would not need to retrospectively

demand [NAME] contributions.

If the Tribunal is reluctant to give the variation retrospective

effect dating back to 25th March 2010, the Applicant instead

invites the Tribunal to order the variation have retrospective

effect as from 30th November 2018, this being the date the

Applicant took assignment of the freehold interest. Between 2010

and 30th November 2018 there was a third-party landlord. On

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30th November 2019, the Applicant acquired the freehold

interest from [APPELLANT].

[COMPANY] allege the Applicant has not provided detailed

information as to the level of contribution to the [NAME] it

envisages seeking. As is common, the [NAME] contributions

are likely to fluctuate dependant on planned future expenditure.

[COMPANY] requested advice as to whether there is currently

any major expenditure required that it envisages meeting

through the [NAME]. [COMPANY] will perhaps know

better than most the fire safety issues at [NAME] as

they are linked to the original landlord (and developer). The

Applicant will need to undertake works to resolve

compartmentation issues within the building. At this stage, the

Applicant cannot confirm the estimated costs of these works as

further surveys are required before contractors can accurately

quote for the works, but it is anticipated it is in the region of £2.5-

3 million.

… the Applicant does not agree that the variations would

prejudice the [NAME] in any way, nor that it would be

unreasonable in the circumstances for the variations to be

effected. For the reasons outlined in the Applicant’s [NAME],

permitting the collection of a [NAME] will facilitate the

effective and efficient management of the development, while

also preventing significant fluctuations in service charges. The

Applicant also reminds parties that it is a stated in the RICS

Service Charge Residential Management Code (3rd edition) that

it is good practice to hold reserve funds and that were the leases

do not permit the collection of a [NAME], a landlord should

consider recommending that consideration be given to

discussing the benefits of a variation to allow for a [NAME]

to be set up. The hearing 8. Neither party requested an oral hearing and the tribunal determined the

[NAME] on the documents in the 147 page digital bundle provided by

the applicant. The tribunal’s decisions and reasons 9. In reaching its decision the tribunal had regard to the relevant sections

of the Landlord and Tenant Act 1987 which state:

Sections 37 & 38 of the Landlord and Tenant Act 1987

7 37.— [NAME] by majority of parties for variation of leases. (1) Subject to the following provisions of this section, an [NAME] may be made to the appropriate tribunal in respect of two or more leases for an order varying each of those leases in such manner as is specified in the [NAME]. (2) Those leases must be long leases of flats under which the landlord is the same person, but they need not be leases of flats which are in the same building, nor leases which are drafted in identical terms. (3) The grounds on which an [NAME] may be made under this section are that the object to be achieved by the variation cannot be satisfactorily achieved unless all the leases are varied to the same effect. (4) An [NAME] under this section in respect of any leases may be made by the landlord or any of the tenants under the leases. (5) Any such [NAME] shall only be made if—

(a) in a case where the [NAME] is in respect of less

than nine leases, all, or all but one, of the parties

concerned consent to it; or

(b) in a case where the [NAME] is in respect of more

than eight leases, it is not opposed for any reason

by more than 10 per cent. of the total number of the

parties concerned and at least 75 per cent. of that

number consent to it. (6)For the purposes of subsection (5)—

(a) in the case of each lease in respect of which the

[NAME] is made, the tenant under the lease

shall constitute one of the parties concerned (so

that in determining the total number of the parties

concerned a person who is the tenant under a

number of such leases shall be regarded as

constituting a corresponding number of the parties

concerned); and

(b) the landlord shall also constitute one of the parties

concerned.

8 38.— Orders varying leases. … (3) If, on an [NAME] under section 37, the grounds set out in subsection (3) of that section are established to the satisfaction of the tribunal with respect to the leases specified in the [NAME], the tribunal may (subject to subsections (6) and (7)) make an order varying each of those leases in such manner as is specified in the order. (4) The variation specified in an order under subsection (1) or (2) may be either the variation specified in the relevant [NAME] under section 35 or 36 or such [NAME] variation as the tribunal thinks fit. (5) If the grounds referred to in subsection (2) or (3) (as the case may be) are established to the satisfaction of the tribunal with respect to some but not all of the leases specified in the [NAME], the power to make an order under that subsection shall extend to those leases only. (6) A tribunal shall not make an order under this section effecting any variation of a lease if it appears to the tribunal —

(a) that the variation would be likely substantially to

prejudice—

(i) any respondent to the [NAME], or

(ii) [NAME] who is not a party to the

[NAME], and that an award under

subsection (10) would not afford him

adequate compensation, or

(b) that for any [NAME] reason it would not be

reasonable in the circumstances for the variation

to be effected. (7)A tribunal shall not, on an [NAME] relating to the provision to be made by a lease with respect to insurance, make an order under this section effecting any variation of the lease—

(a) which terminates any existing right of the landlord

under its terms to nominate an [NAME] for

insurance purposes; or

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(b) which requires the landlord to nominate a number

of insurers from which the tenant would be entitled

to select an [NAME] for those purposes; or which, in

a case where the lease requires the tenant to effect

insurance with a specified [NAME], requires the

tenant to effect insurance otherwise than with

another specified [NAME]. (8)A tribunal may, instead of [NAME] an order varying a lease in such manner as is specified in the order, make an order directing the parties to the lease to vary it in such manner as is so specified; and accordingly any reference in this Part (however expressed) to an order which effects any variation of a lease or to any variation effected by an order shall include a reference to an order which directs the parties to a lease to effect a variation of it or (as the case may be) a reference to any variation effected in pursuance of such an order. (9) A tribunal may by order direct that a memorandum of any variation of a lease effected by an order under this section shall be endorsed on such documents as are specified in the order. (10) Where a tribunal makes an order under this section varying a lease the tribunal may, if it thinks fit, make an order providing for any party to the lease to pay, to any [NAME] party to the lease or to [NAME], compensation in respect of any loss or disadvantage that the tribunal considers he is likely to suffer as a result of that variation.

10. The tribunal answers the questions raised in this [NAME] as follows:

(i) What is the object to be achieved by the proposed

variation? Can the object be achieved satisfactorily

without all the leases being varied to the same effect?

The tribunal is satisfied that the object of the proposed variation is to

assist in the provision of the expected level of management and

maintenance of the subject property in accordance with current RICS

requirements.

(ii) Can the object be achieved satisfactorily without all the

leases being varied to the same effect?

The tribunal is satisfied the variation to all leases is required, in

order to ensure uniformity and fairness to all [NAME] in respect

of the service charges each is required to pay under the terms of

their lease(s). To require only some [NAME] to contribute to a

[NAME] is perverse and unreasonable.

10

(iii) Is the proposed variation within the contemplation of

sections 37 and 38 of the 1987 Act and is there a

sufficient majority for an [NAME] under section 37 of

the 1987 Act?

The tribunal is satisfied that the proposed variation is within the

contemplation of the 1987 Act and finds it is more likely than not to be

of benefit to all [NAME] in the better management and maintenance

of the subject property in accordance with the RICS Service Charge

Residential Management Code (3rd edition). The tribunal finds the

objecting [NAME] is not unduly prejudiced by the variation as the

applicant is not seeking to make demands of reserve funds for any past

period(s). The tribunal is satisfied all [NAME] have statutory

protection in determining what is ‘reasonable’ in the event of any

disagreement as to the quantum of [NAME] payable by each

[NAME].

Further the tribunal is satisfied the required majority have actively and

expressly to the lease variation proposed by the applicant.

(iv) If it does make an order varying the leases, should the

tribunal order [NAME] to pay compensation to [NAME] (see section 38(10) of the 1987 Act).

The tribunal is not satisfied that [NAME] is required to pay [NAME] any compensation in respect of the proposed variation and finds

that none has been requested by any [NAME].

(v) The date from which the proposed variations are to take

effect

The tribunal is not persuaded that the initial date prosed by the applicant

from which the variation is to have retrospective effect is a

reasonable date in view of the antiquity of that date and the limited, if

any, practical purpose it provides. However, the tribunal accepts the

alternative date provided by the applicant of 30 November 2018 as

being a suitable date from which the proposed variation is to have

retrospective effect. 11. Therefore, the tribunal makes the Order attached to this Decision.

Name: Judge Tagliavini Date: 13 January 2026

11

Rights of appeal

By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, the Tribunal is required to notify the parties about any right of appeal they may have. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber), then a written [NAME] for permission must be made to the First- tier Tribunal at the Regional Office which has been dealing with the case. The [NAME] should be made on Form RP PTA available at https://www.gov.uk/government/publications/form-rp-pta-[NAME]-for- permission-to-appeal-a-decision-to-the-upper-tribunal-lands-chamber The [NAME] for permission to appeal must arrive at the Regional Office within 28 days after the Tribunal sends written reasons for the decision to the [NAME]. If the [NAME] is not made within the 28-day time limit, such [NAME] must include a request for an extension of time and the reason for not complying with the 28-day time limit; the Tribunal will then look at such reason(s) and decide whether to allow the [NAME] for permission to appeal to proceed, despite not being within the time limit. The [NAME] for permission to appeal must identify the decision of the Tribunal to which it relates (i.e. give the date, the property and the case number), state the grounds of appeal and state the result the party [NAME] the [NAME] is seeking. If the Tribunal refuses to grant permission to appeal, a further [NAME] for permission may be made to the Upper Tribunal (Lands Chamber).