Landlord and Tenant Act 1987
The Landlord and Tenant Act 1987 is the second statutory authority for regulating variable service charges, specifically under two sections:
- s42: (service charge contributions to be held in trust). Service charge monies are ‘trust money’ and all variable service charge payments should be held in ring-fenced designated bank accounts. Such accounts must contain the words ‘trust’, ‘client’ or the property name in the bank account title and they must not be mixed up with the business accounts of whoever is holding them. Unless required by the lease, there’s no obligation to put reserve funds into separate bank accounts and;
- s48 (notification by landlord of address for service of notices)
This Act is the second of the five Acts specifically concerned with the management of blocks of flats by building on the 1985 Act.
Other key sections of the Act are:
s5: (landlord required to serve offer notice to tenants) when disposing of the freehold interest known as the Right of First Refusal;
s22 (preliminary notice by tenant);
s23 (application to court for appointment of a manager);
s24 (appointment of manager by the court)
s25 (compulsory acquisition of the landlord’s interest by qualifying tenants);
s26 (qualifying tenants);
s27 (preliminary notice by tenants);
s28 (applications for acquisition orders);
s29 (conditions for making acquisition order
s30 (content of acquisition orders);
s31 (determination of terms);
s32 (discharge of existing mortgages);
s34 (discharge of acquisition order and withdrawal by tenants);
s35 (application by party to lease to vary a lease): any single party to a long lease of a flat (over 21 years) can apply to the First Tier Tribunal to ask it to decide whether the lease should be varied to correct any defects. The FTT regulations require anyone making such an application to serve notice of it on anyone likely to be affected by the proposed variation. This will include the freeholder (where they are not the applicant), or head lessee, the other leaseholders (if the change will affect them), and the mortgagee to the flat or flats. Failure to serve the notices will allow the affected parties to apply to the FTT for cancellation or change of the variation or, sometimes, to bring action for damages.
s36 (application by respondent for variation of other leases): An application may also be made for an order to vary two or more leases in the building, again to correct the same defect and providing the majority of leaseholders agree to the variation. The ground for the variation of two or more leases is that it cannot be satisfactorily achieved unless all the leases are varied to the same effect.
s37 (application by majority of parties for variation of leases): For example If the majority of leaseholders supported the insertion of a clause that penalized late payers of service charges (100% consent is no longer required to get a defective lease varied) then this variation could be applied for.
It cannot however be unilaterally imposed if the lease makes no provision for it.
Note: When an application is made to the FTT, a draft of the wording of the lease variation must be provided. If the FTT decides it will vary the lease it will either adopt that wording or substitute other wording that it considers appropriate. It may also make an order to vary the leases according to the application or as it considers appropriate. It may also make an order instructing the parties to vary the leases in accordance with that instruction, and the FTT can order any party to pay compensation to anyone considered likely to be disadvantaged by the variation of the leases. However, it cannot order the variation if it would cause a disadvantage to another tenant which could not be remedied by payment of compensation.
Note: s60 (general interpretation) defines technical terms.
The third of the five Main Acts of Parliament concerned with block management is that of the Leasehold Reform Housing and Urban Development Act. An overview can be found here.