Varying Defective Leases
Whilst leases are usually essentially the same throughout a single block of flats, they will be different from block to block. What they all have in common is the likelyhood that they will be defective in varying degrees. Leases before 2006 are likey to be written in legalese (a legal term), and can consist of a great number of pages which have to be read all the way through to find key points and they haven’t been able to keep up with the amount of legislation implemented since they were first written. Leases written after 2006 may not fare any better if they are badly written and missing key elements.
Some defects a lease can have are:
- No provision to repair or maintain parts of the property;
- No named person to provide buildings insurance;
- Service charge proportions which don’t add up to the correct percentage;
- No service charge collection dates;
- No incentives to pay arrears quickly;
- No provisions for advance maintenance contributions to be set;
- No limits on 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);
- No enabling of the managing agent fees to be an allowable service charge expenditure;
- No provisions for a reserve fund;
- No provisions for a sinking fund.
With most leases it is possible to take out an Indemnity Policy which a) would cover such defects and b) that the mortgage lender would accept. There are 3 categories that leases fall into with regard to the lender guidelines:
- Leases which do conform to the Guidelines;
- Leases which do not conform to the Guidelines but where a policy will normally be acceptable to a mortgage lender;
- Leases which do not conform to the guidelines and where the defect is so serious that indemnity policies will not solve the problem.
For our block, point 3 would certainly have applied due to the neglect the building had sustained for the best part of two decades which indemnnity insurance would not have solved. It is therefore supposed to be used as a last resort.
VARIATION OF THE LEASE
Leaseholders of two or more flats (where there is a consensus for the lease to be varied) from the majority of the parties to it have the right to apply to the First Tier Tribunal under s35 of the Landlord and Tenant Act 1987 to ask it to determine whether the lease should be varied. .For example, 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 be unilaterally imposed if the lease makes no provison for it.
This application is only applicable for leases over 21 years and grounds that can be covered are as follows:
- The repair and maintenance of the flat in question, the building containing the flat or any land or building which is let to the tenant under the lease or in respect of which rights are conferred on him under it;
- The insurance of the building containing the flat or of any such land or building;
- The repair or maintenance of any installations (whether they are in the same building as the flat or not) which are reasonably necessary to ensure that occupiers of the flat enjoy a reasonable standard of accommodation;
- The provision or maintenance of any services which are reasonably necessary to ensure that occupiers of the flat enjoy a reasonable standard of accommodation;
- The recovery of one party to the lease from another party to it of expenditure incurred or to be incurred by him, or on his behalf, for the benefit of that other party or of a number of persons who include that other party;
- The computation of a service charge payable under the lease.
Where the variation of one lease would affect other leases, then an application may be made to vary those other leases with parties affected by the variation being notified as per the FTT regulations. 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.
When the application is made, a draft of the wording of the lease variation must be provided abd if the FTT decides the lease can be varied it will either adopt that wording or substitute other wording that it considers appropriate.