Eastern Pyramid Group Corporation SA & Ors v Spire House RTM Company Limited

Under section 35 of the Landlord and Tenant Act 1987, the question is whether the lease makes satisfactory provision in the circumstances that exist, not whether it is seriously defective. The inquiry is practical and evidence-based. A provision may become unsatisfactory because a change of circumstances, including the acquisition of the right to manage, makes it unworkable. The identity and resources of an RTM company responsible for maintenance may therefore be relevant. An individual member’s wealth or willingness to provide funds is generally irrelevant where there is no obligation to do so. Where section 38(6) is relied on, substantial prejudice must be raised and supported; compensation under section 38(10) may address loss or disadvantage falling short of substantial prejudice.

Spire House comprised flats, a church tower and a garden. The respondent RTM company had acquired the right to manage after earlier litigation, and responsibility for repairing the tower therefore fell to it. Urgent works were required, but the leases limited advance interim service-charge payments and reserve-fund contributions. The RTM company applied under section 35 of the Landlord and Tenant Act 1987 for variation of the leases.

The First-tier Tribunal found that the existing machinery did not enable the RTM company to fund the works and varied the leases by removing the effective cap on interim payments. The landlord and two leaseholders appealed, arguing that the leases were not seriously defective, that the RTM company’s financial position was irrelevant, that section 38(6) had not been addressed, and that the evidence was insufficient.

1. Appeal dismissed. The variation ordered by the First-tier Tribunal took effect.
2. Section 35(2) of the Landlord and Tenant Act 1987 creates gateways to the discretionary power in section 38. The statutory test is whether the lease fails to make satisfactory provision for one of the specified matters. The more demanding expression “seriously defective” in the Nugee Report was not the statutory test and could not be used to read down the Act.
3. “Satisfactory” is an ordinary word. The tribunal must identify the provision made, or omitted, and assess whether it is satisfactory in the circumstances that exist. The question is whether the arrangement works in practice. The observation that a clear and workable provision is unlikely to be unsatisfactory is not an exhaustive test or substitute for the statutory language.
4. The identity and nature of the person responsible for maintenance are relevant. In particular, an RTM company’s lack of assets beyond service-charge contributions may make lease provisions unworkable where it cannot fund necessary works. A lease satisfactory for a landlord may become unsatisfactory when an RTM company lawfully assumes management. The restriction on interim payments meant that the RTM company could not afford the emergency works.
5. Section 38(6) must be considered before the discretion to vary is exercised where substantial prejudice is actually relied on. The appellants had not pleaded or established substantial prejudice, and counsel could identify no such prejudice. Quantification of compensation could be left to a later hearing. Section 38(10) permits compensation for loss or disadvantage even where substantial prejudice is absent.
6. The evidence supported the FTT’s conclusion. The RTM company’s evidence that it could not fund the works was unchallenged, and the suggested alternatives were unrealistic. The wealth of an individual leaseholder or member was irrelevant because there was no obligation to provide the funds and the individual could sell the flat or cease to be a member.

• Upper Tribunal (Lands Chamber) [2025] UKUT 292 (LC): appeal dismissed; the First-tier Tribunal’s variation took effect.
• First-tier Tribunal (Property Chamber): found that the leases failed to make satisfactory provision for recovery of the cost of urgent tower works and varied the interim maintenance-charge provision.