Is your lease fit for purpose?

Yashmin Mistry explains how to apply to the FTT for a Variation Order

Many leases are, by any objective view, defective.  Common examples are where the lease may not deal with the issue of placing insurance or with responsibility for maintaining the doors or windows.  This may be because the lease was poorly drafted at the outset or because it was drafted using a standard precedent used across a developer’s entire portfolio.

Often the most effective way to resolve issues where the lease is defective in some way is by seeking a variation to the lease and generally speaking there are two ways to do this:

A commercial agreement between the parties to the lease (this includes any lenders any of the parties may have); or

Making an application to the First Tier Tribunal (FTT) seeking a Variation Order.

Applying to the FTT

There are a number of grounds under which an application can be made to the FTT for a Variation Order.  The first is an Application to Vary an Individual Lease. Under Section 35 of the Landlord and Tenant Act 1987 (LTA 1987) any party to the lease may apply for its variation if the lease fails to make satisfactory provision for one of more of the following:

  • Repair or maintenance of the building;
  • Insurance;
  • Repair or maintenance of installations and services; or
  • Recovery of expenditure under the lease / recovery of service charges. 

Please note that a Right to Manage Company is treated as a party to the lease, but managing agents are not.

When making applications under Section 35 of the LTA 1987 it is important to remember that the FTT applies what is known as an objective test as to whether or not the lease can be considered to “fail to make satisfactory provision” for something.  So, an applicant simply wishing the lease to be drafted differently is not enough.  For example, if the applicant wants to have a reserve fund included within the lease, arguably, such an application may fail under Section 35 of the LTA 1987 as the lease is still workable without the reserve fund. The fact that the applicant wishes for a reserve fund to be included does not make the lease defective.

Once an application to vary a lease has been made (original lease/application), any other party to the lease may apply to the FTT asking the FTT to vary the other leases if an order is made varying the original lease.  It must be shown that it would be it would be in the respondent’s interest to have all the leases varied in the same manner. The lease must share the same landlord although not necessarily in the same building as the original lease / application. For these reasons, applications such as these are usually made by landlords.

Such an application can be made pursuant to Section 36 of the LTA 1987.

Application by majority

In cases where one lease is defective, it will be fairly common for most or all other leases of flats in the same building to also be defective.  In such a case an application for variation of some or all of the relevant leases may be made if the application is supported by a sufficient number of parties.

Where there are fewer than nine dwellings then all but one of the parties must agree to the variation;

Where there are nine or more dwellings, at least 75% of the parties support (or consent) to the application with not less than 10% objecting to the application.

Such an application can be made pursuant to Section 37 of the LTA 1987 and all leases must be with the same landlord, although not necessarily in the same building.  Such an application may only be made if the object to be achieved by the variation cannot be satisfactorily achieved unless all the leases are varied to the same effect. Consequently, it would seem that an application of this kind will not be restricted by grounds for making an application under Section 35 of the LTA 1987.

If the FTT is satisfied that the grounds for an application under the relevant section has been successful, a Variation Order will be made. Although the FTT will normally make an order in accordance with that submitted by the applicant, it does have powers to make variations as it thinks fit. However, its power is limited in a couple of ways:

The FTT has power to order that any party pays compensation for any loss or disadvantage likely to be suffered as a result of the variation;

If there could be substantial prejudice to any person and, where an order for payment would not be adequate compensation (in such a case the FTT must not make the Variation Order); or

If for any reason “it would not be reasonable in the circumstance”.

Health warning!

Proposed variations should be drafted by a legally qualified person in order to reduce the prospect of delay, redrafting and amendment. The worse case scenario would be ending up with a lease that is far worse after the variation than it was before!

Yashmin Mistry is a Partner at JPC Law