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Upper Tribunal decision to vary a defective lease

In the case of Rossman v The Crown Estate Commissioners [2015] UKUT 288 (LC the Upper Tribunal (Lands Chamber) considered whether the provisions for service charges in the current lease should be changed in a claim for a new lease under the Leasehold Reform, Housing and Urban Development Act 1993.

The Leasehold Reform, Housing and Urban Development Act 1993 allows a flat owner to extend the term of their lease by ninety years subject to paying a premium and with the new lease being granted being a replacement for the existing one. Section 57(6) of the 1993 Act gives the chance to ensure that defects in the existing lease are remedied when the new lease is granted.

Mr R had applied to extend the lease of his flat in Whitehall, SW1. His lease contained a provision to pay a service charge as a fixed percentage of the expenditure incurred in providing the relevant services. Leases of other flats in the block were in similar terms.

The service charge contributions payable by the lessees in the building had added up to 100% of the relevant expenditure but, owing to the creation of new flats and the subdivision of others over the years, a situation had been reached where the aggregate of service charge contributions exceeded 100% of expenditure, namely 129%.

However, a scheme outside the lease terms was operated whereby the service charge actually raised was adjusted so that no more than 100% was collected. Mr R contended that the service charge provision in the new lease should be modified, under section 57 of the 1993 Act, to require him to pay a fair proportion based on the floor space of his flat. He submitted that such a modification was necessary “in order to remedy a defect in the existing lease” within the meaning of section 57(6).

The FTT rejected this argument and decided that the existing regime, while not perfect, did not amount to a sufficiently serious “defect” to justify a variation of the service charge provisions under section 57(6). The FTT decided that the service charge provisions in the new lease should be the same as those in the existing lease unless the parties agreed different terms.

In doing so, it adopted the same reasoning as the Leasehold Valuation Tribunal (LVT) in an earlier decision concerning an application by the lessees in the building for a variation of the service charge provisions under section 35 of the Landlord and Tenant Act 1987.

Mr R therefore appealed to the Upper Tribunal (Lands Chamber) who overturned the FTT’s decision and ruled that there was no justification for the fixed service charge percentage and that it was a defect serious enough to require variation. The existence of the voluntary adjustment scheme showed that the existing service charge provisions should be changed.

That being said the Upper Tribunal decided Mr R’s proposed floor area suggestion was not the best scheme that could be devised and remitted his application to the FTT to decide what form of changed scheme should be formulated to replace the one in the current leases.

Further information:

LEASE is governed by a board, appointed as individuals by the Secretary of State for the Ministry of Housing, Communities & Local Government.