In the recent case of 56 Westbourne Terrace RTM Company Ltd -v- Polturak & others [2025] UKUT 88 (LC), the Upper Tribunal (“the UT”) delivered a crucial ruling that RTM companies may apply under Section 35 of the Landlord and Tenant Act 1987 (“the LTA 1987”) to vary leases (and even introduce new provisions) where those leases fail to make “satisfactory provision” for recovery of enforcement costs.

Our thanks goes to Counsel, Ceri Edmonds of Tanfield Chambers, who acted for the successful RTM Company in the case and brought the decision to our attention.

Background

56 Westbourne Terrace is a mid-19^th century converted terraced house in Paddington, consisting of eleven flats under long leases originally granted in 1983 and 1984.

In December 2018, the leaseholders established 56 Westbourne Terrace RTM Company Ltd (“the RTM”) and acquired the Right to Manage under the Commonhold and Leasehold Reform Act 2002. The RTM became responsible for the management duties within the leases, including the provision of services and collection of services charges from the leaseholders.

Two of the leaseholders, who owned three of the eleven flats, withheld service charges, alleging that the RTM had failed to adequately maintain the building.  This left the RTM with a significant hole in the service charges, impacting its ability to fulfil its maintenance obligations.

The cost provisions within the existing leases permitted recovery of the landlord’s costs “incidental to the preparation and service of notice under sections 146 and 147 of the Law of Property Act 1925”. RTM Companies cannot lawfully serve Section 146 Notices or forfeit leases, such right being reserved to the landlord, so that clause was ineffective for recovery of costs incurred by the RTM in any claim pursuing the unpaid service charges (or, indeed, for any other breaches of covenant).

The First-Tier Tribunal’s ("FTT") Decision

In order to bridge this gap, the RTM made an application to the FTT under Section 35 of the LTA 1987 to vary all eleven leases to:-

1. Enable recovery of the landlord’s (and therefore the RTM’s) reasonable costs and expenses (including solicitors’, surveyors’ and other professionals’ fees) incurred in enforcing the leaseholders’ obligations under the lease, as administration charges; and

2. Allow any shortfall in these costs, insofar as not recovered as an administration charge, to be recovered through the service charge.

The FTT rejected both proposed variations. It held that it lacked jurisdiction to introduce new administration charge provisions and viewed the leases as “clear and workable” as it stood, and therefore not in need of variation.

The RTM disagreed and appealed to the UT.

The UT’s Decision

The UT allowed the RTM’s appeal and overturned the decision of the FTT. The UT held that the FTT does have jurisdiction under the LTA 1987 to vary a lease to introduce a costs-recovery clause that will enable a landlord (and, by extension, an RTM company) to recover from a defaulting leaseholder the costs of enforcement action taken for service charge arrears.

The UT held the relevant consideration for the FTT was not whether the lease is “clear and workable” as currently drafted or whether the proposed variations alter the original contractual bargain between the parties, but rather, whether the tribunal’s jurisdiction is triggered where a lease fails to make “satisfactory provision” in relation to the matters specified in Sections 35(2)(a)-(f) of the LTA 1987.

As such, the UT made an order varying all eleven leases (albeit on slightly different terms to those originally sought by the RTM).

What should the FTT consider?

Within the decision, the Deputy President of the UT, Martin Rodger KC, identified a number of questions that the FTT should ask itself when dealing with applications to vary leases under Section 35 of the LTA 1987:-

1. Is the applicant entitled to make the application? i.e. a party to a long lease or a RTM company under the Commonhold and Leasehold Reform Act 2002?

2. Does the lease fail to make satisfactory provision under one of the grounds in Section 35(2) of the LTA 1987? These are repair, insurance, installations, services, recovery of expenditure and computation of service charges. If none of the these grounds are made out, then the FTT cannot make any order to vary the leases.

3. Would the proposed variation cause substantial prejudice to any person where such prejudice could not be compensated by payment of a sum of money (Section 38(6)(a) of the LTA 1987)?

4. Are there any other reasons why such variation may be unreasonable in the circumstances (Section 38(6)(b) of the LTA 1987)?

 Conclusion

This is a significant decision for RTM companies and confirms that RTM companies now have legal ground to apply to vary lease terms to introduce cost-recovery clauses, even if such clauses were absent at the time of grant of the lease.

As a result, leaseholders who breach the terms of their leases (whether by unlawfully withholding service charges or some other breach) may become liable for the RTM company’s enforcement costs (where the lease is otherwise lacking), by the introduction of new lease terms.

It goes without saying that any such application, and in particular the proposed variation(s), requires careful consideration and crafting, to satisfy the FTT that the four matters outlined by the UT have been made out. Any RTM company (or, indeed any other party), wishing to seek lease variations are best advised to seek specialist advice and assistance with their applications.

Disclaimer

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