First-tier Tribunal varies leases for maintenance costs

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case reference

HMCTS Code

:

BIR/41UD/LVT/2020/0006

V:PAPERREMOTE Properties :

10-58 [NAME], Fazely, Tamworth, [POSTCODE] Applicant :

[redacted] [COMPANY]. (2) [COMPANY]. (3) [COMPANY]. (4) Representative : [NAME] Respondents :

[redacted] C2, D, E and F as listed in Appendix 2 Type of application :

An application for variation of leases under section 35 of the Landlord and Tenant Act 1987 Tribunal :

Judge D. [NAME] of Decision : 29 October 2020

DECISION

2 Covid-19 pandemic: description of hearing This has been a remote hearing on the papers which has been consented to by the parties. The form of remote hearing was P:PAPERREMOTE. A face-to-face hearing was not held because it was not practicable, no-one requested the same and all issues could be determined on the papers.

DECISION We order that the leases of the Flats at Blocks B, C1, C2, D, E and F, as set out in Appendix 2, are varied in accordance with the terms of the Order set out in Appendix 1 below.

BACKGROUND 1. This application concerns six of seven blocks of flats that comprise the estate known as 1-58 [NAME], Fazely, Tamworth [POSTCODE] (“the Estate”). The seven blocks, which were constructed by [COMPANY] (“[NAME]”) in 2007/2008, house 57 flats on long residential leases. The seven Blocks within the Estate are known as Blocks A, B, C1, C2, D, E and F.

2. Following completion of the Estate, [NAME] transferred the seven Blocks by way of five freehold transfers, to other companies in the [COMPANY]. Those Companies then granted the individual Flat leases. The five freehold reversionary titles of the seven Blocks have since changed hands.

3. The Applicants are the registered freehold owners of 6 of the 7 Blocks as follows: a. First Applicant: [redacted] (“Block B”), comprising Flats 10-12 and 14-16. b. Second Applicant: [redacted] (“Block C1”), comprising Flats 17-22. c. Third Applicant: [redacted] (“Blocks C2 and D”), Block C2 comprises Flats 23-28 and Block D comprises Flats 29-34. d. Fourth Applicant: [redacted] (“Blocks E and F”), Block E comprises Flats 35-46 and Block F comprises Flats 47-58.

4. The Flat leases are all long term residential leases, granted in common form, for a term of 155 years commencing in 2006. All leases oblige the lessee to contribute in fixed proportions to the Maintenance Expenses set out in Part A (Estate Costs)

3 and Part B (Block Costs), of the Sixth Schedule. The Part B, fixed proportion of 1.7544% (1/57th), set out in the Particulars section of the Flat leases of all seven Blocks, together, add up to 100% of the Part B (Block Costs) for the entire Estate. There is no contractual provision within the leases for any variation of the fixed proportion.

5. The freehold owner and landlord of Block A, Flats 1-9 [NAME] is [COMPANY] (“[NAME]”). [NAME] acquired Block A on 1 March 2016 and from that date has been responsible for Maintenance Expenses in respect of the Part B Block Costs (but not the Part A (Estate Costs)). Prior to this, all seven Blocks were managed by [COMPANY] (“[NAME]”), a management company appointed by the Applicants to manage the Estate. 6. [NAME]’s acquisition of Block A in 2016, [NAME] have continued to carry out the management functions of the Applicants in respect of the Part A (Estate Costs) for all seven Blocks, including Block A; but has only managed the Part B (Block Costs) in respect of Blocks B, C1, C2, D, E and F. The lessees of Block A have, since 2016, continued to contribute their fixed proportion of the Part A (Estate Costs) to [NAME], but have not contributed to the Part B (Block Costs), because liability for the maintenance of Block A, was assumed by [NAME] following its acquisition in 2016.

7. As a consequence, the Applicants face an annual shortfall 15.79% of the Part B (Block Costs) they incur on the remaining six Blocks.

8. The Applicants have applied under s35(4) of the Act, to vary the Flat leases of Blocks B, C1, C2, D, E and F, to ensure that the landlords can recover the whole of the Maintenance Expenditure in respect of the Part B (Block Costs) for those Blocks.

The Landlord and Tenant Act 1987 9. The Act provides: s35 Application by party to lease for variation of lease. (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. (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— … (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. …

4 (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. S 38 Orders varying leases. (1) If, on an application under section 35, the grounds on which the application was made are established to the satisfaction of the tribunal, the tribunal may (subject to subsections (6) and (7)) make an order varying the lease specified in the application in such manner as is specified in the order. S38 (1)(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 application, or (ii) any person who is not a party to the application and that an award under subsection (10) would not afford him adequate compensation, or (b)that for any other reason it would not be reasonable in the circumstances for the variation to be effected.

Details of the variations requested 10. In essence, the Applicants submission is that the Flat leases of Blocks B, C1, C2, D, E and F fail to make satisfactory provision for the computation of the service charge payable under the leases because the aggregate of the amounts that are payable by reference to the fixed proportions set out in the Particulars section of the Flat leases now amounts to less than the whole of the Part B (Block Costs).

11. The Applicant therefore seeks to vary the definition of the lessees “Part B Proportion” at paragraph (g) of the Particulars of the lease, to provide for the lessee to contribute an equal proportion (as set out in the Order below), of the Part B (Block Costs) for their individual Block, rather than the current fixed

5 proportion which is based on the total number of flats within the Estate (i.e. 1.754% - or 1/57th ).

12. This will allow for 100% recovery of the Part B (Block Costs) for each individual Block and if managed collectively, full recovery for the Estate.

13. The Flat lease variations are intended to rectify inadequate drafting of the leases which failed to make satisfactory provision for recovery of 100% of the expenditure from the contributing lessees, in the event that individual landlords of the Blocks decide to manage and maintain their respective Block(s), rather than manage together through the collective appointment of a single manager; thus, engaging section 35(2)(e) and (f) of the Act.

14. The Applicants contend that the lack of any contractual mechanism for varying the Part B proportions means that where the ownership of the Blocks; and consequently, the management and maintenance of the Blocks, is split between two or more freeholders, the lease fails to make satisfactory provision for the recovery by each landlord of its covenanted expenditure for its Block(s), thus engaging section 35(2)(e) and (f) of the Act.

The Lease 15. The relevant clauses of the Flat Leases are as follows:

16. The Particulars (a) Block – “the Buildings forming part of the Estate in which the Demised Premises are situate” (b) Building(s) – “the building(s) comprising several flats and all structural parts thereof….” (c) Estate – “ the land described in the First Schedule known for development purposes as [ADDRESS]” (d) Lessee’s Proportion – “the proportion of the Maintenance Expenses payable by the Lessee in accordance with the provisions of the Seventh Schedule” (e) Maintenance Expenses – “ the moneys actually expended or reserved for periodical expenditure by or on behalf of the Lessor at all times during the Term in carrying out the obligations specified in the Sixth Schedule” (f) Part A Proportion – “1.7544% (Estate Costs)” (g) Part B Proportion – “1.7544% (Block Costs)” Note that the Part A and Part B Proportions are expressly subject to a proviso: “SAVE THAT any of the said Proportions may be subject to variation from time to time in accordance with the provisions of clause 7.10” However none of the Flat leases contain a clause 7.10 or any other provision for variation of the proportions.

6 17. The Tenth Schedule paragraph 1 “Conditional upon the Lessor having first received the Lessee’s Proportion then to carry out the works and do the acts and things set out in the Sixth Schedule…..” 18. The Seventh Schedule Paragraph 1.1 – “The Part A Proportion of the amount attributable the Estate Costs in connection with the matters mentioned in Part ‘A’ of the Sixth Schedule and …..” Paragraph 1.2 – “The Part B Proportion of the amount attributable the Block Costs in connection with the matters mentioned in Part ‘B’ of the Sixth Schedule and ……” 19. The Sixth Schedule sets out the Maintenance Expenses being monies expended or reserved by the Lessor, and separates these expenses into Part A (“Part A Costs”), Part B (“Part B Costs”) and Part C.

20. No objections have been received from the lessees of the Estate.

21. There does not appear to be any evidence of substantial prejudice to any person who is not a party to the application that could not be compensated by an award of compensation under s38(1) of the Act, but as no submissions have been made by the Applicants or any lessee concerning the value of any loss or disadvantage, the Tribunal is unable to consider any issue concerning compensation.

Tribunals deliberations.

22. The Tribunal is satisfied that the definition Part B Proportion, in paragraph (g) of the Particulars to the Flat leases, does not currently allow for full recovery of the Part B (Block Costs) by the landlords. There were 57 flats within the original seven Blocks comprising the Estate. Each flat lease required the lessee to contribute 1/57th (expressed as 1.7544%) of the Part B Block Costs which allowed for 100% recovery across the Estate. The remaining definitions and expressions within the lease are consistent with an intention that the lessees of each Block would contribute equally 100% of the total costs payable in respect of the Part B Block Costs. There is no evidence of a contrary intent. The Tribunal is therefore satisfied that the lessees were intended to contribute an equal proportion of the Part B (Block Costs).

23.

For the reasons set out above, the leases currently fail to make satisfactory provision for the landlords of each Block to recover the Maintenance Expenditure in respect of the Part B (Block Costs) in full. The Tribunal finds, that section 35(2)(e) and (f) of the Act are engaged and that to allow for full recovery by the landlords of the Maintenance Expenditure in respect of the Part B (Block Costs), that the leases should be varied as set out in the Order at Appendix 2.

7

Judge D. Barlow

10 November 2020

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 [NAME]. 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 [NAME] 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).

© CROWN COPYRIGHT APPENDIX 1

THIS ORDER relates to the leases of Flats 10-12, 14-16, and 17 – 58 (inclusive), [NAME], Fazely, Tamworth, [POSTCODE] as set out in Appendix 2:

UPON the Tribunal considering an application by the Applicants to vary the terms of each of the Leases of the Flats within Blocks B, C1, C2 D E and F, [NAME], Fazely, Tamworth, [POSTCODE], the reversionary freehold titles of which, are as follows: Block B – Title Number SF543443 Block C1 – Title Number SF530137 Blocks C2 and D – Title Number SF536435 Blocks E and F - Title Number SF343043

AND UPON the Tribunal being satisfied that, pursuant to section 35(2)(e) and (f) of the Landlord and Tenant Act 1987, the Leases fail to make satisfactory provision with regard to the, the recovery by one party to each 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 the computation of service charges;

AND PURSUANT TO section 38(1) of the Landlord and Tenant Act 1987;

IT IS ORDERED THAT:

1. Block B Leases (Flats 10-12 and 14-16): (1) The definition “Part B Proportion” in the Particulars to the lease shall be deleted and replaced with the following wording: (2) “Part B Proportion – “16.6666667% (Block Costs)”

2. Block C1 Leases (Flats 17-22): (1) The definition “Part B Proportion” in the Particulars to the lease shall be deleted and replaced with the following wording: (2) “Part B Proportion – “16.6666667% (Block Costs)”

3. Block C2 Leases (Flats 23-28): (1) The definition “Part B Proportion” in the Particulars to the lease shall be deleted and replaced with the following wording: (2) “Part B Proportion – “16.6666667% (Block Costs)”

4. Block D Leases (Flats 29-34): (1) The definition “Part B Proportion” in the Particulars to the lease shall be deleted and replaced with the following wording:

9 (2) “Part B Proportion – “16.6666667% (Block Costs)”

5. Block E Leases (Flats 35-46): (1) The definition “Part B Proportion” in the Particulars to the lease shall be deleted and replaced with the following wording: (2) “Part B Proportion – “8.333% (Block Costs)”

6. Block F Leases (Flats 47-58): (1) The definition “Part B Proportion” in the Particulars to the lease shall be deleted and replaced with the following wording: (2) “Part B Proportion – “8.333% (Block Costs)”

7. HM Land Registry is directed to enter a note in the register of each of the leasehold titles of Flats 10-12, 14-16, and 17 – 58 (inclusive); and in the relevant reversionary freehold title, confirming that the terms of the registered lease has been varied by an Order of the Tribunal dated 29 October 2020; and to file a copy of this Order under each affected title.

Judge D. Barlow

10 November 2020

Appendix 2

[NAME] Schedule of lessees

Leaseholders Address Leaseholders Name Date of the Lease Leasehold title number 10 [NAME] [POSTCODE] [NAME] 11.04.2008 SF540241 11 [NAME] [POSTCODE] [NAME] and [NAME] 15.06.2007 SF530069 12 [NAME] [POSTCODE] [NAME] 22.08.2007 SF535610 14 [NAME] [POSTCODE] [NAME] 22.06.2007 SF531468 15 [NAME] [POSTCODE] [NAME] 29.06.2007 SF533106 16 [NAME] [POSTCODE] [NAME] 25.05.2007 SF536774 17 [NAME] [POSTCODE] [NAME] and Ms [NAME] H [NAME] 25.05.2007 SF528717 18 [NAME] [POSTCODE] [NAME] 31.05.2007 SF531751 19 [NAME] [POSTCODE] [NAME] and Mrs [NAME] 25.05.2007 SF530262 20 [NAME] [POSTCODE] [NAME] 29.06.2007 SF532616 21 [NAME] [POSTCODE] Mr D P & Mrs N F Orme 25.05.2007 SF529757 22 [NAME] [POSTCODE] [NAME] 01.06.2007 SF529602 23 [NAME] Pk [POSTCODE] [NAME] 27.06.2007 SF535927 24 [NAME] Pk [POSTCODE] [NAME] 29.06.2007 SF529601 25 [NAME] Pk [POSTCODE] [NAME] 28.06.2007 SF535445 26 [NAME] Pk [POSTCODE] [NAME] 30.11.2007 SF536767 27 [NAME] Pk [POSTCODE] [NAME] 13.06.2007 SF528301 28 [NAME] Pk [POSTCODE] Mr I D and Mrs J M MacKenzie 05.10.2007 SF532901 29 [NAME] Pk [POSTCODE] [NAME] 03.08.2007 SF536236 30 [NAME] Pk [POSTCODE] [NAME] 01.08.2007 SF530645 31 [NAME] Pk [POSTCODE] [NAME] 06.08.2007 SF536237 32 [NAME] Pk [POSTCODE] Mr M R and Mrs C A Davison 27.07.2007 SF532341 33 [NAME] Pk [POSTCODE] Ms [NAME] 04.10.2007 SF536331 34 [NAME] Pk [POSTCODE] [NAME] 29.06.2007 SF536181 36 [NAME] [POSTCODE] [NAME] 31.07.2007 SF535781 35 [NAME] [POSTCODE] [NAME] 27.07.2007 SF536240 38 [NAME] [POSTCODE] [NAME] 27.06.2008 SF542746 37 [NAME] [POSTCODE] [NAME] 14.11.2007 SF536067 40 [NAME] [POSTCODE] [COMPANY] 16.12.2008 SF560487 39 [NAME] [POSTCODE] [COMPANY] 16.12.2008 SF560494 42 [NAME] [POSTCODE] Mr T [NAME] 21.11.2008 SF548403 41 [NAME] [POSTCODE] [COMPANY] 16.12.2008 SF560496 44 [NAME] [POSTCODE] [COMPANY] 16.12.2008 SF560499

43 [NAME] [POSTCODE] [NAME] 29.02.2008 SF541322 46 [NAME] [POSTCODE] [COMPANY] 16.12.2008 SF560500 45 [NAME] [POSTCODE] [COMPANY] 16.12.2008 SF560501 50 [NAME] [POSTCODE] [NAME] and Mrs [NAME] 28.03.2008 SF540252 49 [NAME] [POSTCODE] [NAME] 31.08.2007 SF534894 48 [NAME] [POSTCODE] [NAME] 26.06.2008 SF543037 47 [NAME] [POSTCODE] [NAME] 19.06.2008 SF542298 54 [NAME] [POSTCODE] [NAME] 20.03.2008 SF539201 53 [NAME] [POSTCODE] [COMPANY] 16.12.2008 SF560504 52 [NAME] [POSTCODE] [COMPANY] 16.12.2008 SF560505 51 [NAME] [POSTCODE] [COMPANY] 16.12.2008 SF560506 58 [NAME] [POSTCODE] Mr T [NAME] 31.08.2007 SF536073 57 [NAME] [POSTCODE] Mr C A Brindley and Mrs M A Brindley 15.01.2008 SF537518 56 [NAME] [POSTCODE] [COMPANY] 16.12.2008 SF561001 55 [NAME] [POSTCODE] [NAME] 26.06.2008 SF543036