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The Tribunal may not come to the rescue! Unsatisfactory service charge provisions

The Upper Tribunal’s recent decision in the matter of Camden LBC v Morath and others [2019] UKUT 293 (LC) highlights the good sense of striving to agree variations to old leases, and the risk of relying on the Tribunal to remedy imperfect historical leases.  

In Morath, the UT considered an appeal from Camden LBC after they unsuccessfully applied to the FTT to vary the terms of 28 of their sub-leases, pursuant to section 35 of the Landlord and Tenant Act 1987. The sub-leases were for flats in residential blocks forming part of the Brunswick Centre (a mixed-use development containing 395 flats, commercial units and a cinema) which Camden held on a 99-year lease.

Camden’s head lease required it to pay the freeholder 25% of the expenditure incurred by the freeholder in relation to the whole of the Brunswick Centre in the provision of various services. Of the 395 residential sub-leases which Camden had granted, only the “Type B” and “Type C” leases required the sub-lessee to pay a proportion of the estate service charge expenditure.  The Type A leases, which the appellant applied to vary, had no similar provision.

Section 35 of the 1987 Act allows for the variation of a long lease for one of the purposes listed in the section, including recovery by one party to a long lease from another if the lease fails to make satisfactory provision for recovery of expenditure incurred on the other party’s behalf or for their benefit. If those grounds are made out, s.38 of the 1987 Act allows the Tribunal to make an order varying the lease.

The UT considered the cases of Triplerose Ltd v Stride [2019] UKUT 99 (LC) and Cleary v Lakeside Developments Ltd [2011] UKUT 264 (LC), which were applications for the variations of leases on the basis that the mismatched service charge provisions rendered the leases unworkable.  The UT determined that if the service charge provision in a lease is workable and clear, it is satisfactory, regardless of whether it causes unequal burdens. As a result, a lease cannot be varied just because it is expensive or inconvenient for one of the parties.

The decision serves as a useful reminder to landlords that they should take care when drafting service charge provisions in leases, or when negotiating variations.  The Tribunal will impose a high threshold when deciding whether or not to vary lease terms. A shortfall in service charge is not sufficient justification for the Tribunal to impose a variation, and landlords should therefore ensure that leases permit recovery of all potential expenditure that may arise in the future.

Realty is expert in providing its clients with advice as to how best to address potential defective service charge provisions in old leases.

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