What is a lease?
The lease is a binding contract between the freeholder, leaseholder and in the case of tripartite leases, the manager. In most cases it will be difficult to change its terms and therefore prospective buyers of leasehold property should seek specialist advice prior to completion of purchase.
The Leaseholder Association (LA) provides specialist advice to its members to explain their rights and obligations and those of the landlord or managers in respect of the lease and the relevant legislation.
‘Leases in common’, usually in respect of all properties contributing towards the same service charge, can be varied on a voluntary basis if there is 100% agreement of all of the parties, including the freeholder. An appropriately worded Deed Of Variation (DOV) is required and the services of a solicitor are needed to draft a DOV. If the contents are agreed by all of the parties, it needs to be signed and forwarded to the Land Registry. Costs will be incurred in relation to lease variations, which the lease will usually allow to be passed on to the leaseholders.
When might lease variation be required?
There are a number of circumstances where a lease variation might be desirable or required for the efficient management of the block:
- when a lease fails to make adequate provisions as defined by Section 35 of the Landlord and Tenant Act 1985 (LTA);
- when a term in a lease clearly states or strongly implies a provision that all, or a vast majority of the parties, wish to remove;
- when the lease is silent on a provision that all of the parties wish to introduce e.g. installation of security equipment; or
- when the lease specifies the level of service but all of the parties wish to change the level e.g. changing from a resident scheme manager or caretaker to a visiting service. (Please see the LA information sheet 118 Retirement Housing).
What are the terms in leases needed to make satisfactory provision?
Under Section 35 of the LTA any party to the lease can make an application to a First-tier Tribunal (FTT) on the grounds that the lease does not make satisfactory provision for:
- the repair or maintenance of the flat, the communal areas and the grounds;
- the insurance of the flat, the communal areas and the grounds;
- the repair or maintenance of any installations which are necessary to ensure occupiers enjoy a reasonable standard of accommodation;
- the provision or maintenance of any services which are necessary to ensure occupiers enjoy a reasonable standard of accommodation;
- the recovery of expenditure incurred by the landlord or manager; and
- the computation of the service charge payable under the lease.
Even if an FTT is satisfied that the lease is defective in respect of one or more of the above matters set out in the LTA, it still has discretion whether to grant an order for an appropriate lease variation.
What if not all parties want to vary the lease?
If there is a significant majority in favour of a proposed variation, but not every party to the lease is enthusiastic, an application can be made to the FTT to vary all of the leases under Sections 35 to 40 of the LTA 1987.
Section 35 of the LTA sets out the grounds by which any party can make an application to the FTT on the grounds that the lease fails to make satisfactory provision. This only applies to the specific grounds set out in the Act and is intended to rectify deficiencies in the drafting of the lease. If any party wishes to vary the lease in any other respect they would need to apply to the FTT under Section 37 of the LTA.
Section 36 of the LTA allows other parties to apply to the FTT to have their leases varied accordingly where an order has been made under Section 35 to vary a lease in the block that is the same or similar to the lease relating to their flat.
Application to the FTT to have a number of leases varied
Under Section 37 of the LTA an application can be made to an FTT in respect of two or more leases for variation and the changes can only be achieved if all of the leases are varied to the same effect.
Where the application to the tribunal is in respect of less than nine leases, all leaseholders or all but one must consent.
Where it is in respect of more than eight leases, at least 75% of the leaseholders must consent and the application must not be opposed by more than 10%. For these purposes the landlord shall be regarded as one of the parties.
Orders varying leases
If an FTT considers all of the leases need to be varied it can make an order to confirm this subject to:
- whether the variation might be likely to substantially prejudice any party to the lease or any other party e.g. a tenant of a leaseholder;
- a further order for any party to the lease to pay compensation to any other person for any loss or disadvantage they might be likely to suffer as a result of the lease variation in question; or
- any other reason why it might not be reasonable to grant the order.
It can be concluded that it is very difficult to change terms in a lease unless 100% of the parties (which will include the freeholder) are in full agreement with any variation being proposed. Even if a significant majority are in favour there are several hurdles that may prevent a variation being achieved at an FTT.
Changes to services that do not require lease variation
There are many circumstances where a party to a lease might wish for a change to a service where a variation in the lease is not necessary to achieve this. An example might be where the lease states that there must be a manager or caretaker but does not specify whether they should be full-time or part-time. Even well-drafted leases will not cover every situation and a level of service may become established that is not specified in the lease. In these circumstances a variation in the service might be achieved through consultation between the landlord and the parties affected, and an application to a FTT would not be appropriate.
How the LA might help
If leaseholders wish to change the level of a service and the exact requirement for the service is not specified in the lease it would be a matter for consultation between the parties. The LA can help by suggesting what might be practical and by helping to facilitate discussion between the parties and perhaps reach agreement. In the leasehold retirement housing sector, the trade body the Association of Retirement Housing Managers (ARHM) publish a Government approved code of practice and Chapter 6 sets out guidelines for landlords and managers to follow. Similar to the legislation above, this chapter of the ARHM code attempts to protect a minority from a reduction or loss of an existing service unless a significant number agree to this.
The principles of this good practice could be applied to all leasehold housing and the LA would recommend that when any significant variation in a service level is proposed, documents are produced, consultation meetings take place, a ballot is carried out and the wishes of any significant majority are considered before the level of any established service is changed.
Clauses in leases that might allow the landlord or manager to vary services
Some leases will contain clauses that allow the landlord to vary services at their discretion or in circumstances where they believe it will benefit the leaseholders. These terms, often known as ‘sweeping-up’ clauses, usually have limited significance, as these general terms giving the landlord discretion over a wide area, cannot override substantive terms in the lease. If a landlord attempts to use these types of clauses as justification to make significant changes to a service you should seek specialist advice from the LA.
Please see the LA information sheet 101 Glossary for a precise explanation of the terms used in this information sheet.
Disclaimer: This is a very general explanation of the subject. Where issues are not governed by statute the information is our opinion or best practice. You are advised to seek professional advice before acting on the guidance contained herein. Whereas The Leaseholder Association endeavours to ensure that published information is correct, it does not warrant its completeness or accuracy. The Leaseholder Association assumes no responsibility or liability for any injury, loss or damage incurred as a result of any use or reliance upon the information and material contained herein.
Info Sheet: 110/2/15 ©Copyright