56 Westbourne Terrace RTM Company Limited v Jeremy Polturak & Ors

A lease may fail to make satisfactory provision under section 35(2)(e) of the Landlord and Tenant Act 1987 even if its terms are clear and have previously been workable. The statutory question is whether the provision is satisfactory in the circumstances which now exist. Changes in legislation, and the creation of a right-to-manage company unable to fund enforcement or use forfeiture, may render previously satisfactory enforcement arrangements unsatisfactory.

Once a section 35 ground is established, the Tribunal may order an appropriate variation, including an administration charge. It must then apply section 38(6). A variation may not take effect where it causes substantial prejudice that money cannot adequately compensate, but leaseholders’ statutory protections and the collective benefits of effective management are material to that assessment.

The RTM company appealed from the First-tier Tribunal’s decision of 20 March 2024 refusing to vary the leases of 11 flats at 56 Westbourne Terrace.

The company sought provisions enabling the recovery of professional costs incurred in enforcing leaseholders’ covenants. One proposed provision would make a defaulting leaseholder liable by an administration charge. The other would permit recovery through the service charge where the costs could not be recovered from that leaseholder.

The FTT held that it lacked jurisdiction to introduce an administration charge and declined both variations. The central issues were the proper construction of sections 35 and 38 of the Landlord and Tenant Act 1987, the relevance of prejudice, and the form and effective date of any permissible variation.

1. Appeal allowed. The FTT erred in treating the introduction of an administration charge as outside its jurisdiction. Under section 35(2)(e) of the Landlord and Tenant Act 1987, the relevant question is whether expenditure was incurred by one party for the benefit of another, not whether its recovery benefits the defaulting leaseholder. Once a statutory ground is established, the Tribunal may make an appropriate variation under section 38, subject to section 38(6).

2. The expression “fails to make satisfactory provision” must be given its ordinary meaning. Clarity and workability are relevant, but are not an exhaustive test. A lease may become unsatisfactory because statutory change and the advent of an RTM company have removed the practical means by which enforcement costs were originally expected to be recovered.

3. The leases failed to make satisfactory provision for recovering the costs of services. The RTM company had no assets beyond its rights under the leases, could not use forfeiture, and could not fund proceedings to collect disputed service charges. The resulting burden on members or compliant leaseholders was objectively unsatisfactory.

4. A service-charge variation allowing enforcement costs to be recovered initially through the service charge would not substantially prejudice the leaseholders. Its collective management benefits, the statutory reasonableness control, and the protections under section 20C of the Landlord and Tenant Act 1985 outweighed any disadvantage.

5. However, making an individual defaulting leaseholder liable for the whole costs of enforcement in the existing disputes would cause substantial prejudice which could not practically be compensated under section 38(10). The administration-charge variation was therefore confined to sums first becoming payable after 18 March 2025. The service-charge variation took effect from 23 October 2023. An order under section 20C excluded the RTM company’s costs of these variation proceedings from service-charge recovery.

• Upper Tribunal (Lands Chamber): Allowed the RTM company’s appeal, set aside the FTT’s refusal, and remade the decision by ordering limited variations of all leases.
• First-tier Tribunal (Property Chamber): On 20 March 2024, refused the RTM company’s application to vary the leases.