In 56 Westbourne Terrace RTM Co Ltd v Polturak and others [2025] UKUT 88 (LC) the Upper Tribunal allowed the RTM company's appeal of the First Tier Tribunal's decision and ordered the variation of long residential flat leases to enable the landlord, and consequently the RTM company, to recover costs of enforcing service charge arrears from leaseholders.
This case concerned 56 Westbourne Terrace in Paddington (the 'Building'), which consists of 11 residential flats held under long leases. The appellant was the RTM Company for the Building, which acquired the right to manage during December 2018.
Two of the leaseholders, Mr Davies and Mr Polturak, who between them owned 3 flats, were in service charge arrears. It was noted in the Judgment that the service charge arrears had prevented the RTM company from managing the building as it would have liked.
All of the flat leases were granted in substantially the same form and contained a single leaseholder covenant in clause 13(3) which allowed the landlord to recover enforcement costs associated with forfeiture, by reference to costs of an incidental to the preparation and service of notices under Sections 146 and 147 of the Law of Property Act 1925. However, pursuant to the Commonhold and Leasehold Reform Act 2002 a RTM company is not entitled to serve notice under Section 146 of the Law of Property Act 1925. Accordingly, the RTM company could not rely on clause 3(13) of the flat leases to recover costs in connection with enforcement of service charge arrears.
The proceedings
The RTM company applied to the First-tier Tribunal for four variations to the leases pursuant to Section 35 of the Landlord and Tenant Act 1987. Section 35 allows applications to be made for the variation of a lease if the lease "fails to make satisfactory provision" in respect of one or more of the matters listed in Section 35(2), one of which concerns recovery of expenditure (Section 35(2)(e)).
The RTM company was unsuccessful in the FTT and pursued two variations on appeal to the Upper Tribunal to allow the landlord, and by extension the RTM company, to recover enforcement costs as an administration charge payable only by the leaseholder in default or as part of the service charge payable by all leaseholders of the Building.
The Judge considered the statutory provisions which govern applications to vary leases in detail and concluded that the Tribunal does have jurisdiction to vary leases to provide for recovery of legal costs as an administration charge. Furthermore, the Judge concluded that the FTT had failed to take account of relevant considerations and had misapplied the law when deciding not to vary the leases to provide for recovery of legal costs as an administration charge or as a service charge. The Judge allowed both variations sought by the RTM company, albeit subject to modifications to the wording as considered appropriate by the Tribunal. For example, the Judge considered that the right to recover costs as an administration charge should not apply to current arrears, but only to future arrears.
In reaching his decision the Judge noted that even if the drafting of a lease is "clear and workable", it does not necessarily follow that it makes "satisfactory provision". The Judge noted that legislation had come into force since the leases were drafted during the early 1980s which altered several aspects of the practicalities of the lease terms. For example, RTM companies did not exist when the original flat leases were granted. Accordingly, the ability of a RTM company to take enforcement action and recover costs to enable the Building to be properly maintained would not have been in the minds of the parties when the leases were drafted. The Judge noted that once-satisfactory lease provisions can become unsatisfactory over time, and that legislative changes since the grant of leases are relevant when considering whether it is reasonable to order a variation.
The Judge also noted that the leaseholders of 8 of the 11 flats in the Building supported the variations sought by the RTM company, and that the level of support is relevant when considering whether it is reasonable to give effect to a variation.
Takeaway
When a RTM company is prevented from carrying out its obligations such as repair and maintenance due to leaseholder arrears, and the drafting of the lease does not allow the RTM company to recover its costs of enforcing those arrears, the RTM company can apply to vary the lease(s) in question. This could help to unlock 'stand off' situations, where an RTM company cannot carry out repairs due to service charge arrears.
