inresidence
Lessons to be learned from
I t is important for flat owners and their landlords alike that the flat lease is not defective and if it is to be able to correct the defect. Flat owners will be concerned to ensure their flat lease doesn’t contain defects that might prevent a sale proceeding smoothly or affect value. Landlords will want to ensure that all costs incurred in connection with the building are recoverable via the service charge amongst other things. This is particularly relevant where some flat owners collectively acquire the freehold to their building leaving others out of the process for example. If the leases are not correctly drawn then there may be a significant shortfall to be funded. Such a situation was subject to this upper tribunal decision. A flat owner – benefiting from a lease that didn’t oblige them to contribute towards all of the costs incurred – sought to fend off a claim by the other flat owners via their freehold company that the lease should be varied to correct this “defect” as the landlord perceived it. Background The case concerned a basement flat in the building made up of four flats where the upper three flat owners held the freehold between them via a company. As is common, the basement flat had its own entrance and didn’t share any common parts, so there was some justification for the service charge provisions being different in the lease of that flat. You would often expect to see that only the upper three flats, for example, would contribute towards the upkeep of the internal communal parts serving those flats. What was unusual here is that the basement flat was only obliged to contribute towards external painting. It did not have to make any contribution towards the maintenance of the structure and roof or management costs incurred by the landlord. So was this a “defect” that the landlord was able to vary the lease for? The flat owner applied to the tribunal to strike out certain service charge demands that went beyond external painting and decorating and, in response, the landlord made an application to vary the flat lease to make the flat owner contribute towards these other usual items of expenditure.
Decision at first instance and appeal The landlord won at first instance and so the tenant appealed. The landlord company wasn’t party to the proceedings by the time the upper tribunal heard the matter, so there was no representation on the landlord’s side. Shortfall The flat leases appeared to have been badly drawn and certainly the wording from the basement flat lease quoted in the decision evidences that as absent; a clause reference error the flat owner would have Ground rent investors and enfranchising flat owners need to be sure that leases are not defective as varying such a lease is limited, warns Mark Vinall
been on the foot for the balance of the service charge costs sought by the landlord. The net effect of the confused leases were that all four flat owners were obliged to contribute towards insurance, but other contributions were split between the owners: • Three of them to 25% each towards maintaining the structure • Two at a quarter each towards management costs • Three at 25% each towards exterior paint and two out of the three upper flats towards maintenance of the internal common parts at a third each. This left significant shortfalls to be suffered by the landlord which, of course, can’t have been the intention of it when drafting the leases absent unusual circumstances. Right to vary The right to seek a variation of a flat lease is regulated by sections 35 and 38 of the Landlord & Tenant Act 1985. That allows a party to the long lease of a flat to apply to the tribunal for a variation. It is discretionary relief as opposed to a right. The relevant
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