First-tier Tribunal Denies Landlord's Request to Vary Leases

OUTCOME: Dismissed

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AY/LVL/2019/0002 Property :

7-8 Cavendish Parade, London [POSTCODE] (“Cavendish Parade”)

Applicant: [redacted] :

In person

1st Respondent : [redacted] : In person 2ndRespondent

:

(1) [COUNSEL] (2) [NAME] of [NAME] : To vary a lease Tribunal member :

Judge Angus Andrew

Date and venue of hearing : 13 [ADDRESS] [POSTCODE] Date of decision : 23 December 2019

DECISIONS

Decision 1. I decline to vary the long leases of the flats and loft spaces in Cavendish Parade. The [NAME] and the hearing 2. On 21 February 2019 the tribunal received the landlord’s [NAME] to vary the leases of flats 7A, 7B, 8A and 8B Cavendish Parade. The [NAME] was made under section 35 of the Landlord and Tenant Act 1987 (“the Act”). By the [NAME] the landlord sought to increase the Tenant’s Proportion (as defined in the leases) from 1/9th to 1/6th. [RESPONDENT] was named as the only respondent, in the original [NAME].

3. There have been three case management hearings on 14 March 2019, 30 April 2019 and 6 November 2019. The net effect of the directions issued following those hearings was to extend the scope of the [NAME] to include the leases of [NAME] and [NAME] and to join Mrs [NAME] and Mr [NAME] as respondents to the [NAME], Mrs [NAME] being the lessee of [NAME] and Mr [NAME] being the lessee of [NAME]. The [NAME] was also effectively varied to include a reduction in the Tenant’s Proportion in the leases of [NAME] and [NAME] from 1/9th to zero.

4. The directions given on 6 November 2019 by Judge Tagliavini and [NAME] gave comprehensive directions for the preparation of the document bundle to be used at the hearing before me. [APPELLANT] did not comply with those directions despite my direction of 4 December 2019, which warned [APPELLANT] that failure to provide a compliant bundle might result in either the [NAME] being struck out or the imposition of a costs sanction if the hearing had to be postponed. In particular, the majority of the official copy registers were out of date and there was no official copy of the registers of [NAME].

5. I heard the [NAME] on 13 December 2019. At the hearing the landlord was represented by [NAME]. Mr [NAME] is a responsible member of [APPELLANT], whilst Mr [NAME] is an employee. [APPELLANT] was represented by [NAME] who is a director. Mrs [NAME] and Mr [NAME] did not attend the hearing and neither were they represented.

6. At the hearing I handed both Mr [NAME] and Mr [NAME] copies of the Upper Tribunal decisions in [NAME] v [COMPANY] [2011] UKUT 264 (LC), [COMPANY] v Stride [2019] UKUT 99 (LC) and [NAME] v [NAME] and Others [2019] UKUT 193 (LC). Background 7. Cavendish Parade comprises a commercial unit on the ground and part basement floors, two flats on the first floor, two flats on second floor and two loft spaces on the third floor. Mr [NAME] told me that the two loft spaces known as [NAME] and [NAME] can only be accessed through hatches in the ceilings of flats 7B and 8B on

the second floor. Consequently, it is apparent that they cannot be used as independent flats separate from flats 7B and 8B.

8. In 2006 the freehold interest in Cavendish Parade was owned by [COMPANY]. On 6 November 2006 [COMPANY] granted six leases of the 4 flats and 2 loft spaces to [NAME] [NAME]. The leases of flats 7A, 7B, 8A and 8B were granted for premiums of £250,000. The leases of the two loft spaces were granted for premiums of £50,000. I do not know if there was any connection between [COMPANY] and Mr [NAME] and I do not know the reason for the grant of the leases of the two loft spaces. The most obvious explanation is that Mr [NAME] wanted to acquire the potential development value in the loft spaces, but that is conjecture.

9. On 2nd May 2007 [COMPANY] granted a long lease of the commercial unit on the ground and part basement floors to [NAME] in consideration of a premium of £1,640,000. Mr [NAME] remains the lessee of the commercial unit which, I was told, is used as a bar.

10. All seven leases appear to be in similar form and contain service charge provisions that are commonly found in long leases. That is, the lessor maintains, repairs and insures the exterior, main structure and common parts of Cavendish Parade with each lessee contributing to the lessor’s costs in the proportions specified in each of the seven leases. These proportions are at the heart of the [NAME] and the dispute between [APPELLANT] and [COMPANY]. In each of the seven leases the proportion is referred to as the “Tenant’s Proportion”. The tenant’s proportion in the lease of the commercial unit is 3/9th whilst in each of the other six leases it is 1/9th.

11. Mr [NAME] told me that Mr [NAME] was declared bankrupt more than five years ago. The leases of the four residential flats and two loft spaces were offered for sale at auction by Mr [NAME] trustee in bankruptcy. [COMPANY] purchased the leases of 7A, 7B, 8A and [NAME]. Mrs [NAME] (or Mrs [NAME] as she than was) purchased the lease of loft space [NAME] and Mr [NAME] purchased the lease of loft space [NAME]. I do not know in any detail the circumstances under which Mrs [NAME] and Mr [NAME] purchased the leases of the two-loft spaces. All that I can say (on the basis of the official copy of the register entries of [NAME]) is that Mrs [NAME] paid £375,000 for the lease of loft space [NAME] and that her purchase was funded by a mortgage from [COMPANY].

12. [APPELLANT] purchased the freehold reversionary interest in December 2013. The price paid is not recorded on the registers of the two freehold titles but the leasehold titles of the four flats and two loft spaces are noted on the charges registers.

13. Mr [NAME] told me that he did speak to Mrs [NAME] and he understands that she is in litigation with [COMPANY] although nothing is known about the nature of that litigation. The position of Mr [NAME] is unknown.

14. As a result of an informal agreement between [APPELLANT], [COMPANY] and [NAME], Cavendish Parade is repaired and maintained by [APPELLANT] and [NAME]. Consequently, since its purchase of the

reversion in 2013 [APPELLANT] has simply insured Cavendish Parade and has sought to recover the premiums through the service charge provisions of the seven leases. Demands have been sent to all the leases but Mrs [NAME] and Mr [APPELLANT] have not paid their contributions. [APPELLANT] could have taken enforcement proceedings against Mrs [NAME] and Mr [NAME] that might ultimately have resulted in the forfeiture of the loft space leases. It has not done that: instead it has, through these proceedings, sought to vary the leases of the four flats and two lofts spaces in the manner previously described.

15. Although not directly relevant to my decision it should be said that [APPELLANT] offered to increase the tenant’s proportion in each of the four flat leases from 1/9th to 1/7th for the entirely logical reason that the commercial ground and part basement floors comprise three units. [APPELLANT] however rejected that offer and insist on the tenant’s proportions for each of the four flat leases being increased to 1/6th.

Statutory framework 16. Section 35 of the Act reads, so far as relevant as follows: - “35 [NAME] by party to lease for variation of lease. (1) Any party to a long lease of a flat may make an [NAME] to a leasehold valuation tribunal for an order varying the lease in such manner as is specified in the [NAME]. (2) The grounds on which any such [NAME] may be made are that the lease fails to make satisfactory provision with respect to one or more of the following matters, namely – (a) - (d) … (e) the recovery by one party to the lease from another party to it of expenditure incurred or to be incurred by him, or on his behalf, for the benefit of that other party or of a number of persons who include the other party; (f) the computation of a service charge payable under the lease. (g) … (3) … (3A) For the purposes of subsection (2)(e) the factors for determining, in relation to a service charge payable under a lease, whether the lease makes satisfactory provision include whether it makes provision for an amount to be payable (by way of interest or otherwise) in respect of a failure to pay the service charge by the due date. (4) For the purpose of subsection (2)(f) a lease fails to make satisfactory provision with respect to the computation of a service charge payable under it if –

(a) it provides for any such charge to be a proportion of expenditure incurred, or to be incurred, by or on behalf of the landlord or a superior landlord; and (b) other tenants of the landlord are also liable under their leases to pay by way of service charges proportions of any such expenditure; and (c) the aggregate of the amounts that would, in any particular case, be payable by reference to the proportions referred to in paragraph (a) and (b) would either exceed or be less than the whole of any such expenditure. (5) – (8) …” 17. Section 38 provides that if those grounds are made out, the tribunal may make an order varying the lease. It may order the variation applied for or some other variation. And it may make an order that one party to the lease should compensate the other for any loss or disadvantage to be suffered as a result of the variation.

18. To summarise, an [NAME] to vary will not succeed unless it can be shown that the lease “fails to make satisfactory provision” for various matters listed in section 35(2) (a)-(g), the relevant matter in this case being (e) and (f), namely the recovery by the landlord of expenditure incurred for the benefit of the tenant and the computation of the service charge.

19. The meaning of the word “satisfactory” and the circumstances in which a variation order should be made under either paragraph (e) or paragraph (f) are fully explored in the three Upper Tribunal decisions to which I have referred and it would be superfluous to add any further gloss on those decisions.

Reasons for my decision 20. I decline to vary the six leases for each of two reasons. The first reason is that the service charge scheme contained in all seven leases and in particular the existing tenant’s proportions is both clear and satisfactory. I understand why Mrs [NAME] and Mr [NAME] may not wish to pay their service charge contributions but that does not make the existing lease provisions unsatisfactory. To borrow Judge Cooke’s wording from the [NAME] case the relevant service charge provisions under consideration “are clear and reflect the bargain made”. Under those provisions [APPELLANT] is entitled to recover the whole of its service charge expenditure including the insurance premiums and consequently paragraph (f) is not engaged.

21. Secondly because [COMPANY] bought the four flats on the open market on the clear understanding that it would only have to pay 4/9th of the lessor’s service charge costs in total. It would be seriously prejudiced if that proportion were increased to 4/6th. That prejudice could be offset by the payment of compensation under section 38(10) of the Act. However, neither party had considered that section and there was neither an [NAME] before me for

payment of compensation nor was there sufficient evidence that would enable me to calculate such compensation had I considered it appropriate.

22. Looking to the future I can see that an [NAME] for variation may succeed if the leases of the two loft spaces are brought to an end. Paragraph 35(f), as clarified by sub section 35(4), will then be engaged because [APPELLANT] will not be able to recover the “whole of any such expenditure”. I would however add two caveats. The first is that the issue of compensation may still have to be considered. The second is that section 35 does not sit easily with a mixed-use building because this tribunal has no jurisdiction to vary the commercial lease of the ground and part basement floors, as Mr [NAME] acknowledged. Indeed, on reflection, there is an argument that this tribunal has no jurisdiction to vary the leases of the two loft spaces in that neither of those spaces could be properly described as “a flat” within the meaning of sub-section 35(a)(1), as that word is commonly understood. That however is for the future.

Name: [NAME]: 23 December 2019

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] 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).