First-tier Tribunal Rejects Application to Vary Sub-Leases

OUTCOME: Dismissed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00BJ/LVL/2024/0604 Property : [NAME_1], 75 [ADDRESS] [POSTCODE] Applicant : [redacted] : [NAME_3], counsel Respondents : [redacted] :

(1) [NAME_4] for the sub leaseholders in application LON/00BJ/LSC/2024/0256

(2) The other sub-leaseholders – in person

Type of application :

For the variation of sub- leases made pursuant to section 35(2) (e ) and (f) of the Landlord and Tenant Act 1987

Tribunal members : Judge [NAME_5] Venue : 10 [ADDRESS] [POSTCODE] Date of hearing Date of decision : 21 – 23 May 2025 7 July 2025

DECISION

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Decisions of the tribunal (1) The tribunal refuses the application to vary the respondents’ sub-leases. _____________________________________________________ The application 1. This is an application made pursuant to section 35(2) (e ) and (f) of the

Landlord and Tenant Act 1987 seeking to vary the sub-leases held by the

respondents. 2. The subject property at is a purpose-built block of flats known as

Block V1 which forms part of large Building containing Blocks V1 to V8

located on the Development known as [NAME_1], 75

[ADDRESS] [POSTCODE]. The applicant, [COMPANY_2] (“NHHO”), the tenant under a headlease

dated 27 April 2007, and the landlord of the Respondents under shared

ownership subleases of various dates.

The background 3. This application was made without prejudice to the application brought

under LON/00BJ/LSC/2024/0256. That application concerned the

payability and reasonableness of services charges under the terms of the

sub-leases pursuant to s.27A of the Landlord and Tenant Act 1985 to

[COMPANY_2] (‘NHHO’). The issues - LON/00BJ/LSC/2024/0256 4. The main issue in LON/00BJ/LSC/2024/0256 was whether NHHO’s

sub-leases with the sub-leaseholders of [NAME_1] permit it

to recover sums as service charges which it has paid as tenant to its

superior landlord in respect of the ‘Maintained Property.’ This was

primarily a matter of construction of the various leases for the

tribunal. The applicant argued that it can, on the proper construction of

the sub-leases recover such charge. However, if contrary to these

assertions it was determined by the tribunal, that the applicant may not,

as a matter of construction, recover such sums, NHHO sought a variation

of the subleases pursuant to s.35(2)(e) and (f) of the Landlord and

Tenant Act 1987.

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The hearing 5. This application seeking a variation of the sub-leases was held by the

same tribunal immediately after LON/00BJ/LSC/2024/0256.

However, in this application only the sub-leaseholders who were parties

to LON/00BJ/LSC/2024/0256 were represented by [NAME_14], of counsel with the other leaseholders who had objected to the

application, either appearing in person and/or had sent in written

objections.* The applicant was represented by [NAME_6]

counsel who had also represented in LON/00BJ/LSC/2024/0256 in

which NHHO had been named as the first respondent. For this

application the tribunal was provided with a digital bundle of 279 pages

as well as the skeleton arguments of both counsel.

*The leaseholders of flats 200, 201, 214 and 216 are NOT respondents

to this lease variation application, The applicant’s (NHHO) case 6. [NAME_3] submitted in his skeleton argument that:

If the Tribunal is against NHHO on its contention in case

LON/00BJ/LSC/2024/0256, NHHO contends that, as a

minimum, there should be such variation as is required to enable

to recover its costs in relation to the “Maintained Property”

(which is only part of the Development). This includes:

▪ amending “Estate” in the sublease to mean “All the land

and building registered under title number

TGL248073” (i.e. the Development under the Headlease);

▪ amending “Property” throughout the sublease to mean

“All such land and such if the building as is registered

under the Title Number” (i.e. TGL300662);

▪ amending “Common Parts” to mean “Common Parts of

the Building and of the Estate”. 7. The applicant contended the tribunal has the power to effect the

variation (and from the commencement of the subleases) pursuant to

s.35 of the Landlord and Tenant Act 1987. The section provides (so far

as is material:

(1) Any party to a long lease of a flat may make an application

to the appropriate Tribunal for an order varying the lease in

such manner as is specified in the application.

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(2) The grounds on which any such application may be made are

that the lease fails to make satisfactory provision with respect to

one or more of the following matters, namely—

(a) the repair or maintenance of—

(i) the flat in question, or

(ii) the building containing the flat, or

(iii) any land or building which is let to the tenant under the

lease or in respect of which rights are conferred on him under

it;

(b)…

(c)…

(d) the provision or maintenance of any services which are

reasonably necessary to ensure that occupiers of the flat enjoy a

reasonable standard of accommodation (whether they are

services connected with any such installations or not, and

whether they are services provided for the benefit of those

occupiers or services provided for the benefit of the occupiers of

a number of flats including that flat);

(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 that other party;

(f) the computation of a service charge payable under

the lease.

(g)..

(3) For the purposes of subsection (2)(c) and (d) the factors for

determining, in relation to the occupiers of a flat, what is a

reasonable standard of accommodation may include— (a)

factors relating to the safety and security of the flat and its

occupiers and of any common parts of the building containing

the flat; and (b) other factors relating to the condition

of any such common parts.”

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(4) For the purposes 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

paragraphs (a) and (b) would either exceed or be less than the

whole of any such expenditure. 8. [NAME_3] submitted it was a matter for the tribunal to determine

whether the sub-leases fail to make satisfactory provision for any of the

statutory matters. [NAME_3] accepted that a lease does not fail to

make satisfactory provision simply because it could have been better or

more explicitly drafted. The fact that the proposed variations are

common or standard does not make the original terms unsatisfactory:

see Triplerose v Stride [2019] UKUT 99 (LC). However, in this case the

variations sought do not seek to correct standard or minor matters. 9. [NAME_3] submitted that the subleases fail to make satisfactory provision

for “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 that

other party”: s.35(2)(e). Consequently, it would be grossly unfair to

NHHO to have to absorb costs, particularly as a registered charity and

provider of social housing, Further, the sub-leaseholders, having paid

the charges historically, would gain the benefit of a windfall. 10. In his skeleton argument [NAME_3] also submitted that:

It is also possible to see NHHO’s case as a case concerning failure

to make adequate provision for computation of service charges:

s.35(2)(f).

The subsection can only be invoked in 1 of 2 situations:

the first is where the aggregate of service charges payable in

respect of a block of flats amounts to more than 100% of

expenditure, thus giving the lessor a surplus over monies

expended.

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The second situation is where the aggregate is less than 100%,

thus risking the proper maintenance of the block: Morgan v

Fletcher [2009] UKUT 186 (LC).

That second situation is arguably present in the instant case.

The aggregate of the sums payable by NHHO’s sublessees does

not come to 100% of the amounts it must pay under the

headlease. If the sub-leaseholders are right, NHHO cannot

recover all it has to pay. In Lardy v Gytenbeek [2011] UKUT 347

(LC) the President of the Upper Tribunal remarked that in

circumstances where a landlord was only entitled to be

reimbursed for 5/6 of expenditure, an application under

subsection (f) would be the appropriate course of action so as to

make each of the tenants liable for 1/5 of the entire expenditure.

The second question

Common to all variation applications is that a Tribunal should

not make a variation which substantially prejudices a lessee and

an award of compensation under s38(10) would not afford

adequate compensation: see s.38(6). 24. However,

compensation is not necessarily payable even where the lessee

may, as a consequence of the amendment, have to pay a higher

percentage of the service cost than before: see Parkinson v

Keaney Construction Limited [2015] UKUT 607 (LC).

Similarly, in [COMPANY_7] v

[NAME_8]

(LON/00BGT/LVL/2007/0001) the FTT decided that no

compensation should be paid since ‘all tenants enjoy[ed] the

benefit of lower service charges for the last 11 years or more.’ 11. [NAME_3] also submitted that:

In this case, the lessees have historically paid the amounts

demanded, and what is sought is a backdated variation; it is not

a case of the sublessees losing the benefit of historically lower

charges.

There is no substantial prejudice in asking a leaseholder to pay

service charges for parts of an estate other than the maintained

estate.

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Indeed, if the subleases are regularised, there will be an

enhanced capital value of their flats in a building where there is

now to be a lease structure in place which provides fully and

fairly and unequivocally for the recovery of service charges.

Backdating

In Brickfield Properties Ltd v Botten [2013] UKUT 133 (LC), the

Upper Tribunal confirmed that a variation of a lease may be

backdated to the date when the defect in the lease arose. 29. It is

submitted that there is no obvious reason why the Tribunal

would not order backdating in this case to the date of

of each sublease. The respondents’ case 12. The tribunal had regard to the written objections of the

leaseholders of the following flats who either stated simply they objected

to a variation of their lease or in some instances, made more detailed

objections.

Flat 187 Flat 196 Flat 189 Flat 216 Flat 207 ` Flat 209 Flat 197 Flat 215 Flat 185 Flat 181

Flat 193 Flat 205 Flat 213 Flat 184 Flat 195

Flat 214 Flat 202 Flat 192 Flat 199 Flat 217

Flat 203 Flat 206 Flat 186 Flat 186 Flat 194

Flat 188 Flat 28 Flat 190 Flat 218 Flat 211

Flat 210 Flat 208 13. In their written objection, the leaseholders of Flat 196 stated:

In our opinion, it is quite clear that the terms of the original lease

originally did intend us not to be charged for services for which

we do not benefit. For example, when we first moved in, there

was no charge for Concierge services as we were not entitled to

it but, after a couple of years, [NAME_2] introduced both

concierge service and also an extra charge for it. We bought the

property based on the Sublease's contract and would not have

done so if it had been written to state that we would have to pay

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for services we don't receive in parts of [NAME_1] to

which we have no access. In addition to this, our block is

separate from the rest of Viridian, we access it from a different

street and we have a different postcode to the areas that [NAME_2] wants us to pay for. 14. The leaseholder of Flat 216 stated:

The fact that NHHO deem the lease is defective is their own

internal issue. They have bought the block around 15

years ago. As a large housing association they have internal

resources and access to external solicitors who, following good

practice, should have checked the lease is correct as part of the

purchase together with relevant plans and back to back with

head-lease and sub-lease(s), and would have had plenty of time

to do so prior to sale completion. If the lease(s) has not been

checked at that point in time, that is their own problem and

negligence.

To add to this, the building has not been designed nor operates

as a single estate. For example, there is no direct access from V1

block to the rest of the Estate, which prevents V1 residents

accessing communal areas (e.g. courtyard, the Concierge,

rooftop terraces), enjoyed by the residents from rest of the

building. The ground floor entrance overlooking the courtyard

is blocked and inaccessible from the courtyard side. From the V1

side it is labelled as a fire egress but cannot be opened

whatsoever. This is further supported by planning application

documents that shows that from the outset it has always been

intended that V1 is separate from rest of the Estate. The practice

within residential development industry and affordable housing

sector is to ALWAYS separate affordable block(s) from private

blocks and to limit access for affordable housing to shared

amenities and thus to charge affordable housing residents

service charge costs relevant only to their own block. I am

writing that as an industry professional who has worked both in

private and affordable housing sector, for some leading housing

providers in the UK. 15. [NAME_4] told the tribunal that the leaseholders who he

represented objected to the application to vary the sub-leases, on the

grounds that it was unclear what variation the applicant was seeking as

a draft of the proposed variation had not been provided. This situation

was wholly unsatisfactory as:

‘The tribunal is required to determine not just whether there are

grounds for making the order but also whether it is reasonable

to make the order.’

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16. Therefore, [NAME_4] submitted the application should be

dismissed on that basis alone. *

*A draft of the variations sought was subsequently provided by the

applicant at the hearing.

17. [NAME_4] also submitted in his skeleton argument and at the

hearing that:

Whether the lease fails to make satisfactory provision with

respect to one of the matters in s.35(2) is the “gateway or

threshold question” for the Tribunal to determine first.

Whether a lease fails to make “satisfactory provision” is for the

Tribunal to judge having regard to all the circumstances of the

case: 56 Westbourne Terrace RTM Co Ltd v Polturak [2025]

UKUT 88 (LC), at [60] citing [NAME_9] v [NAME_9]. 18. [NAME_4] submitted that there is nothing unsatisfactory in a lease

by reason of the landlord’s inability to recover all of its

expenditure on management, if (i) that is reflected in the different

contractual bargains entered into and has not produced any practical

problems; (ii) the scheme is not seriously defective and has no bearing

on the upkeep and fitness for habitation and (iii) the flats in Block V1;

NHHO has other sources of funds which it can use to meets it

contractual obligations and (iv) Block V1 remains in reasonable

condition. In Camden LBC v Morath [2019] UKUT 193 (LC) it was held

that a lease that prevented a local authority landlord from recovering the

expenditure it incurred on the common parts of an estate was not

unsatisfactory. 19. [NAME_4] submitted that the ‘gateways’ relied upon by the

applicant under 35 (2) (e ) or (f) were not satisfied as the other

leaseholders (non- residents of the social-housing blocks) are required

to contribute to the Development/Estate charges under the terms of

their leases. Therefore, the leases cannot be considered to be defective

because the tenants’ proportions are defined as being ‘such reasonable

and appropriate proportions as the Landlord shall determine’ and will

amount to 100%. 20. Further, it is for NHHO to satisfy the tribunal that it has incurred or

to expenditure on services for the benefit of the sub-leaseholders

that it is not able to recover under the sub-leases. Simply because

NHHO cannot recover all expenditure it pays to the [COMPANY_10] is not sufficient to meet the

jurisdictional gateway and the variation of the sub-leases.

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21. It was further submitted that there would be prejudice caused to the sub-

leaseholders were the leases to be varied for which they could not be

adequately compensated. The sub-leaseholders would be required to

pay for services they did not receive or enjoy thereby impacting on the

value of their flats and a prospective diminution in value which requires

expert valuation evidence to determine before a variation can properly

be made. 22. [NAME_4] also submitted that the tribunal must consider the

reasonableness of making the variation sought. In this instance it was

not reasonable ot make an order as it would not reflect the original

bargain intended by the parties. LON/00BJ/LSC/2024/0256 23. In this application the tribunal determined that on the construction of

the terms of the sub-leases, the sub-leaseholders were not required to

contribute to the service charges in respect of the Development which

NHHO had contracted to pay to the head leaseholder [COMPANY_10] as ‘the Maintenance Expenses.’ The tribunal’s decision . 24. The tribunal determines NHHO has failed to establish that the ‘gateways’

have been reached and the tribunal is not required to consider the

variations of the sub-leases under either s.35(2)(e ) or (f) as relied upon

by the applicant. Reasons for the tribunal’s decision 25. The tribunal had regard to the relevant parts of section 35(2) on which

the applicant relied and which states:

one or more of the following matters, namely—

persons who include that other party;

(f) the computation of a service charge payable under

the lease.

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26. The tribunal prefers the arguments and submissions of the respondents

and finds that the sub-leases do not fail to make satisfactory provision

for the recovery or computation of the service charges payable by the

sub-lessees to their landlord. Clause 7(5) of the sub-leases state:

The relevant expenditure to be included in the Service

Provision shall comprise all expenditure reasonably

incurred by the Landlord in connection with the repair

management maintenance and provision of services for

the Building [i.e. the Block of flats erected on the Estate

and known as Block V1 and shall include (without

prejudice to the generality of the foregoing):-

(a) the costs of and incidental to the performance of the

Landlord’s covenants contained in Clause 5(2), 5(3)and

5(4)… 27. Clauses 5(2), 5(3) and 5(4) of the sub-leases concern the

landlord’s covenants to insure, repair and maintain the Building

(Block V1) and keep the common parts of the Building clean and lighted. 28. The tribunal finds the sub-leases make satisfactory provision for the

services the respondent sub-leaseholders are required to contribute and

pay to the applicant i.e. the services and expenses that benefit Block V1

and which the sub-leaseholders enjoy and/or have access to. 29. The tribunal adopts [NAME_4]’s submissions and finds there is nothing

inherently unsatisfactory in the sub-leases simply because NHHO contracted to

contribute to sums incurred for which it received no benefit; does not adversely

impact on the applicant’s obligations to repair and maintain the property i.e.

Block V1; has maintained Block V1 in a reasonable condition; and has other

sources of funds by which it can meet its obligations no evidence having been

presented of financial difficulties together with the fact these contributions for

the ‘Maintenance Expenses’ had not been demanded from thee applicants until

about 2014. 30. The tribunal finds that the fact that NHHO may have entered into a poor bargain

with its landlord does not mean the ‘gateway’ has been reached, Camden LBC

v Morath [2019] UKUT 193 (LC) and that the sub-leases should be

varied. 31. Therefore, the application to vary the sub-leases is refused.

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Name: Judge Tagliiavini Date: 7 July 2025

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 application for permission must be made to the First- tier Tribunal at the regional office which has been dealing with the case. The application for permission to appeal must arrive at the regional office within 28 days after the tribunal sends written reasons for the decision to the person making the application. If the application is not made within the 28-day time limit, such application 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 application for permission to appeal to proceed, despite not being within the time limit. The application 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 making the application is seeking. If the tribunal refuses to grant permission to appeal, a further application for permission may be made to the Upper Tribunal (Lands Chamber).