Tower Hamlets Community Housing Limited v Leaseholders of Painter House

Under section 35 of the Landlord and Tenant Act 1987, the statutory grounds are gateway conditions rather than automatic entitlements to vary leases. For the service-charge gateway, “proportions” may be descriptive, such as a fair proportion, and need not be numerical or capable of immediate computation. The gateway is satisfied where the amounts payable by reference to the lease provisions would be less than or exceed the relevant expenditure, even if the expenditure also benefits the landlord’s premises. Passing the gateway leaves a discretion under section 38. The tribunal must consider the proposed variation as drafted and cannot rely on an assurance that the landlord will not enforce a materially prejudicial liability. A variation must be refused where it would substantially prejudice leaseholders without adequate compensation or would otherwise be unreasonable.

The landlord applied to the First-tier Tribunal under section 35 of the Landlord and Tenant Act 1987 to vary leases of 24 flats at Painter House. The leases required most leaseholders to pay one thirty-eighth of expenditure relating to the block, although the residential flats represented only part of the building and the landlord occupied a substantial commercial unit on the ground floor. Two leases required payment of a fair proportion.

The First-tier Tribunal varied the leases by correcting “Building” to “Block”, but refused the more substantial variations. It held that the service-charge gateway was not met because “proportions” had to be fixed numerical proportions, and alternatively considered the existing provisions satisfactory. The landlord appealed. The central issues were whether section 35(4) applied to descriptive proportions and, if so, whether the proposed variations should be made.

1. Construction of the gateway. The appeal succeeded on the construction of section 35(4) of the Landlord and Tenant Act 1987. “Proportions” did not mean only numerical proportions. A provision requiring payment of a fair proportion could fall within section 35(4)(b), even though the total could not be calculated without determining what was fair. The FTT therefore erred in concluding that section 35(2)(f) was unavailable.
2. The section 35(2)(f) gateway is binary. It asks whether the amounts payable by reference to the relevant lease provisions would exceed or fall short of the expenditure. The expenditure need not be incurred solely for the benefit of the leaseholders. Passing the gateway does not itself justify a variation.
3. Discretion and prejudice. The Tribunal substituted its own decision rather than remitting the matter. It confirmed the agreed correction from “Building” to “Block”, but refused the requested alteration making the residential leaseholders liable for one twenty-fourth of all expenditure on the Block, including the commercial unit. The Tribunal had to assess the variation on the basis that the landlord intended the leases to have that effect. A reassurance that the landlord would not enforce the liability could not remove substantial prejudice, make an unreasonable arrangement reasonable, or bind a future freeholder.
4. The proposed variation would substantially prejudice the leaseholders and would otherwise be unreasonable under section 38(6). It would make them responsible for the landlord’s office costs, including costs benefiting a future commercial occupier. The alternative variation was also refused because it was inadequately formulated and would leave important questions unresolved.
5. The appeal therefore failed in its ultimate result. The FTT’s outcome remained in force, apart from the confirmed correction of “Building” to “Block”; no further variation was made.

• First-tier Tribunal (Property Chamber): corrected “Building” to “Block” in the leases but refused the requested service-charge variations.
• Upper Tribunal (Lands Chamber): allowed the appeal on the construction of section 35(4), substituted its own decision, confirmed the correction, and refused the substantial variations. The practical outcome remained that no further variation was made.