The Upper Tribunal (Lands Chamber)
The case of 56 Westbourne Terrace RTM Co Ltd v Polturak and others [2025] UKUT 88 (LC), heard in the Upper Tribunal (Lands Chamber), addresses a crucial issue for Right to Manage (RTM) companies; namely their ability to recover costs associated with the enforcement of service charge arrears.
The Law
Generally, the terms of a lease can only be changed by mutual agreement between all parties involved, typically documented through a formal Deed of Variation. However, the Landlord and Tenant Act 1987 (“the LTA 1987”) provides a mechanism under Section 35 for an application to be made by a party to a lease-including an RTM company-to the First-tier Tribunal (Property Chamber) (“the FTT”) (in England) or to the Leasehold Valuation Tribunal (in Wales) for the variation of a residential property lease in certain circumstances.
Section 35(2) of the LTA 1987 outlines specific grounds on which a lease can be varied. These include instances where the lease fails to make satisfactory provision with respect to the repair or maintenance of a building or flat, the insurance of the building, the recovery by one party to the lease of expenditure incurred by them for the benefit of another, or the computation of service charges.
In essence, the Tribunal has the power to vary a lease if it concludes that the lease fails to make satisfactory provision for any of these matters.
The Facts
56 Westbourne Terrace in West London is a converted mid-19th-century terraced house comprising eleven self-contained flats, each held under a long lease originally granted in 1983 or 1984.
In December 2018, most of the leaseholders acquired the Right to Manage under the Commonhold and Leasehold Reform Act 2002 having established 56 Westbourne Terrace RTM Company Limited.
As the Right to Manage company (RTM), it became responsible for the management duties outlined in the leases, including the provision of services and the collection of service charges from the leaseholders to cover the associated costs. However, two leaseholders owning three of the eleven flats refused to pay their service charges. They alleged that the RTM company had failed to maintain the building adequately and therefore withheld payments. This led to significant arrears, hampering the RTM company’s ability to fund repairs.
The existing leases did not contain explicit provisions allowing the landlord (and the RTM company, in relation to its management functions) to recover any professional costs incurred in pursuing these arrears directly from the defaulting leaseholder as an administration charge or spreading recovery of those costs amongst the leaseholders through the service charge.
The only recoverable costs mentioned were those related to “forfeiture notices” but RTM companies are not legally allowed to serve such notices as they do not have the right to take steps to forfeit a lease.
To address this gap, the RTM company applied to the FTT under Section 35 of the LTA 1987 to vary the leases of all eleven flats. They sought to introduce clauses that would:
- Oblige leaseholders to pay the landlord’s (and thus the RTM company’s) reasonable costs and expenses (including any solicitors’, surveyors’ or other professionals’ fees) incurred in enforcing a leaseholder’s obligations under the lease. These costs and expenses would be regarded as an administration charge.
- Allow any shortfall in these costs, if not recovered as an administration charge, to be recovered through the service charge.
The application was supported by the leaseholders of eight of the eleven flats but opposed by the two defaulting leaseholders.
What did the FTT decide?
The FTT declined the RTM company’s application to vary the leases.
The FTT held that it lacked jurisdiction to introduce an entirely new administration charge clause, interpreting section 35 narrowly. The FTT viewed its jurisdiction as limited to correcting defects, not adding new categories of charges.
The FTT also refused the proposed variation to allow the RTM company to recover enforcement costs through the service charge.
The FTT’s reasoning revolved around the idea of whether the lease was clear and workable as it stood, rather than whether it made “satisfactory provision” for the recovery of service charges in the current context.
The RTM company appealed to the Upper Tribunal (Lands Chamber) (“the UT”).
What did the UT decide?
The UT allowed the RTM company’s appeal, overturning the decision of the FTT.
It held that the FTT has jurisdiction to introduce an entirely new administration charge.
The FTT had erred in considering whether the lease was merely “clear and workable.” Instead, the correct statutory test was whether the lease made “satisfactory provision” for the recovery of expenditure incurred for the benefit of the leaseholders.
The UT found that the absence of a mechanism for the RTM company to recover the costs of enforcing service charge payments constituted a failure to make satisfactory provision. This was particularly relevant given the statutory framework for Right to Manage introduced after the leases were originally granted. RTM companies have a duty to manage the building and collect service charges, but without the ability to recover enforcement costs, their ability to perform effectively these duties is undermined.
The UT acknowledged that the framework of residential leases must evolve in view of statutory developments like the introduction of RTM.
Consequently, the UT ordered that the leases of all eleven flats be varied to include the clauses sought by the RTM company.
Points to note
This decision is a significant one for RTM companies and leaseholders.
RTM companies now have legal grounds to seek a variation of leases under section 35 of the LTA 1987 to introduce or strengthen enforcement mechanisms.
As a consequence, leaseholders who default on service charges may become liable for the RTM company’s reasonable enforcement costs as administration charges.
The ability for RTM companies to recover enforcement costs from defaulting leaseholders as an administration charge means that non-defaulting leaseholders are less likely to bear the financial burden of these costs through increased service charges.
It is also an important development for RTM companies, providing them with a crucial tool to ensure the effective collection of service charges and the proper management of residential buildings.
The decision is also worth reading as it provides guidance as to how the FTT should deal with an application to vary a lease under section 35 of the LTA 1987.
