The Upper Tribunal has dismissed the appeal of a landlord and two leaseholders, upholding the First Tier Tribunal's decision to vary service charge provisions to enable an RTM company to recover the cost of emergency repair works from leaseholders in advance.
Earlier this year, the Upper Tribunal allowed the appeal of the RTM company in 56 Westbourne Terrace RTM Co Ltd v Polturak and others [2025] UKUT 88 (LC) and ordered residential flat leases to be varied to enable the costs of enforcing service charge arrears to be recovered from leaseholders.
In another victory for RTM companies in exercising statutory rights to vary leases, on 4 September 2025 in the case of Eastern Pyramid Group Corporation SA (1) City Investments Limited (2) Primavista Properties Corporation SA (3) v Spire House RTM Company Limited [2025] UKUT 292 (LC), the Upper Tribunal dismissed an appeal brought by a landlord and two leaseholders and upheld the decision of the FTT to vary service charge provisions in flat leases so as to allow the RTM company to raise funds for emergency repair works to be carried out promptly. Without variation of the leases, it would have taken a number of years for the RTM company to accumulate the necessary funds to carry out the works.
In the RTM company's application to the FTT for the leases to be varied, it relied on Section 35(2)(e) of the Landlord and Tenant Act 1987. This provides a gateway for leases to be varied if they fail to make satisfactory provision in respect of "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".
Prior to the variation, the terms of the lease limited advance service charge payments to 50% of the actual service charge expenditure incurred during the previous service charge year. The building, Spire House, included a church tower which required urgent repair works to three pinnacles which posed a threat to the remainder of the building and also posed a danger to the public, due to a risk of falling masonry. It was estimated that emergency works to make the building safe would cost in the region of £450,000. Further longer-term repair works were estimated to cost upwards of £1 million.
The leases provided for a reserve fund, but the reserve account contained insufficient funds for the works. The RTM company had no other assets and could not undertake the requisite works without collecting further service charge funds. Therefore, the FTT decided that the provisions of the leases were not working in practice and that the case fell within the FTT's jurisdiction to vary the leases. The FTT ordered a variation to remove the limitation of interim service charges to 50% of the actual service charge expenditure in the previous year and allowed the landlord (and consequently the RTM company) to adjust the amount of interim payments during a service charge year if necessary or appropriate.
The landlord and two leaseholders appealed the decision of the FTT on four grounds, as follows:
- That the FTT failed to consider whether the variation would cause "substantial prejudice".
- That the FTT was wrong in its decision that the original terms of the lease were unsatisfactory;
- That the FTT was wrong in taking the RTM company's financial circumstances into account when considering whether the leases failed to make satisfactory provision; and
- That, if grounds 1 to 3 above fail, the FTT had erred in its consideration of the evidence in deciding that the leases failed to make satisfactory provision.
The Upper Tribunal rejected all four grounds of appeal and upheld the variations ordered by the FTT. In respect of ground 1, the Upper Tribunal noted that the appellants had not pleaded any substantial prejudice during the FTT hearing and consequently the FTT was correct to proceed as it had.
In respect of ground 2, the Upper Tribunal agreed with the FTT's view that the service charge mechanism in the leases was unsatisfactory and followed the analysis of the Upper Tribunal in 56 Westbourne Terrace. Although the original lease provision regarding advance service charge payments was clear, it was unworkable for the RTM company as it meant that emergency works could not be paid for and consequently it is unsatisfactory.
In relation to ground 3, the Upper Tribunal held that the identity and nature of the person who is responsible for the repair and maintenance of property is relevant when considering whether a lease makes satisfactory provision. The change in circumstances which arises when an RTM company takes over responsibility for repair and maintenance can result in lease provisions, which were previously satisfactory (when the landlord was responsible for works), to become unsatisfactory.
The Upper Tribunal also held that ground 4 failed. Points raised by the appellants in reliance on this ground included that the person with control of the RTM company was an ultra-high net worth individual, who could have funded the emergency works. Perhaps unsurprisingly, the Upper Tribunal considered that the financial status of a member of the RTM company is irrelevant as they are not required to fund the works. This is akin to the principle that the financial status of a shareholder of a corporate landlord would be irrelevant.
Another example of a RTM company successfully applying to the Tribunal to vary service charge provisions in residential flat leases, highlighting the relevance of a change in circumstances where an RTM company takes over.
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