Defective Leases and How to Vary Them
The key question here is what actually makes a lease defective? It is safe to say that leases written before 1996 certainly fall into that category because they have not been able to keep up with the legislative changes that have occurred since they were written. Many such leases are written in legalese (an old legal convention) with no puncutation whatsoever and running into 50 or more pages, but even newer leases that are better written (and shorter) can still be defective.
So, in the area of service charge provisions a lease is defective if it has the following omissions:
- No service charge collection dates;
- No incentive for arrears to be paid up quickly. If service charges are the only form of funding then this can cause a serious knock on effect as arrears increase and work can’t be carried out as expected. It’s also a particular problem for those that do pay their service charges on time, not least from a fairness perspective;
- No provision for advance maintenance contributions to be set – before expenditure, service charges are sometimes only equal to the ground rent that can be collected so funds won’t last very long;
- Does not limit flats to pay for what they reasonably use. For example, a flat on the ground floor might have to pay for the maintenance and repairs of the lift even though they don’t use it or a flat with a private front door may find themselves having to pay towards redecoration of the internal communal entrance;
- Doesn’t enable the fees of a managing agent to be an allowable service charge expenditure item;
- No provisions for a reserve fund which is designed to even out normal day to day service charge expenditure;
- No provisons for a sinking fund to cover large areas of expected (or unexpected) expenditure that comes as the building ages.
Varying a Lease
Under s35 of the Landlord and Tenant Act 1987 (application by party to lease for variation of 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.
An application may also be made for an order to vary two or more leases in the building under s36 of the Act (application of respondent for variation of other leases) 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.
So, if the majority of leaseholders supported the insertion of a clause that penalized late payers of service charges then this variation could be applied for.
It cannot however be unilaterally imposed if the lease makes no provision for it.
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: Under this Act, 100% consent is no longer required to get a defective lease varied.