Camden LBC v Morath  UKUT 193 (LC)
29th November 2019
The First-tier Tribunal had been correct to refuse a local authority landlord’s application under the Landlord and Tenant Act 1987 section 35 to vary 28 subleases granted to the occupiers of flats. The fact that those sublessees made a lower contribution by way of service charges to the landlord’s expenses than the sublessees of other flats in the same development did not mean that their subleases failed, for the purposes of section 35(2), to “make satisfactory provision” for the recovery of expenditure.
The landlord held a long lease of part of the Brunswick Centre, a mixed-use development of residential flats, shops and a cinema. The demised premises were two buildings, namely Foundling Court and O’Donnell Court, which contained 210 and 185 flats respectively. The flats were let to residential sublessees. The subleases fell into three groups. Two groups, known as the Type B and Type C leases, required the sublessee to pay the landlord a proportionate part of what it had paid towards the freeholder’s expenditure. However, the leases that the landlord had applied to vary, known as the Type A leases, did not. They provided for the sublessee to pay to the landlord a proportionate part of its reasonable expenses incurred in meeting its obligations under the sub-lease. Those obligations related only to the building in which the relevant flat was situated (Foundling Court or O’Donnell Court as the case might be). There was no provision for the landlord to be reimbursed for what it had paid to the freeholder under the terms of its own lease except insofar as the freeholder’s expenditure related to the individual building where the flat was situated. The landlord’s case was that, for the purposes of section 35(2), the Type A leases failed to “make satisfactory provision” for the recovery of expenditure incurred for the benefit of the sublessee, justifying a variation of those leases.
The landlord argued that its intention when taking the lease in 1982 must have been to recover from the sublessees any costs that it had to pay to the freeholder; the omission in the Type A leases of the wording now sought to be inserted must have been a drafting error; and it was not fair for some but not all of the sublessees to contribute to the freeholder’s costs in respect of the whole of the development, particularly when it (the landlord) had to pick up the shortfall.
The question was therefore whether this amounted to the leases “failing to make satisfactory provision” for the recovery of expenditure, and whether section 35 of the 1987 Act was thereby engaged.
The primary case before the FTT was the construction of the lessee’s lease, with the Landlord arguing that the lessee did have to make the contributions as sought and there was no need to vary the lease. The Judge rejected that construction, and his ruling was not appealed.
The FTT also rejected the Landlord’s alternative argument regarding variation of the lease. The Judge held that the provision was clear and perfectly workable, and although the Type A lessees may get some benefit at the expense of the Landlord, that did not rent the provisions in those leases as “unsatisfactory”. Whilst it could make commercial sense to vary the leases, the effect of doing so would be contrary to the contract/ bargain entered into between the parties. It was against this decision that the Landlord appealed.
Decision on appeal
The Upper Tribunal rejected the Landlord’s appeal.
The meaning of “make satisfactory provision” had been considered in Triplerose Ltd v Stride  UKUT 99 (LC),  4 WLUK 209 and Cleary v Lakeside Developments Ltd  UKUT 264 (LC),  7 WLUK 170. Those decisions established that, when determining an application to vary a long lease of a flat, the tribunal would consider whether the wording of the lease as it stood was clear and whether the term sought to be varied was workable. If it was clear and workable, it would not be unsatisfactory. Section 35 did not enable the tribunal to vary a lease on the basis that it imposed unequal burdens, or was expensive or inconvenient. It would be very strange if it did, in view of the law’s general resistance to the temptation to interfere in or improve contractual arrangements freely made. In the circumstances, the First-tier Tribunal had been correct to refuse the landlord’s application as it had clearly applied the test established in Triplerose and Cleary. As in Triplerose and Cleary, there was here a perceived inequity in the bargain made between the parties. Why it was so made was not known, but it was clearly made and the provisions were workable. The Landlord did not seek to argue that those cases were wrongly decided, and there was no evidence that the Landlord could not meet its own contributions. There was therefore no basis on which to vary the leases.
This case affirms the recent case of Triplerose Ltd v Stride. Although the Landlord attempted here (unsuccessfully) to distinguish that decision on its facts, there was no challenge to the decision itself. That case therefore remains good clear and a clear exposition of the relevant principles.
The Upper Tribunal also made a passing reference to the fact that there was no suggestion that the landlord could not meet its own contributions – this was a point made in the Triplerose case itself, namely that if a Landlord sought to vary the leases on the basis of unequal contributions between lessees, they would need to provide sufficient evidence that a lack of adequate contributions rendered the lease unsatisfactory. Landlords should therefore bear this in mind if seeking any such variation, and ensure that they have sufficient proof to back up their application.
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