Flat leases: modification of defective lease terms in new leases under Leasehold Reform, Housing and Urban Development Act 1993

Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) gives the tenant of a flat the right, subject to paying a premium, to be granted a new lease of the flat as a replacement for the existing lease, for a term expiring 90 years after the last day of the existing lease.

Section 57, “Terms on which new lease is to be granted”, provides:

“(1) Subject to the provisions of this Chapter (and in particular to the provisions as to rent and duration contained in section 56(1)), the new lease to be granted to a tenant under section 56 shall be a lease on the same terms as those of the existing lease, as they apply on the relevant date, but with such modifications as may be required or appropriate to take account:

(a) of the omission from the new lease of property included in the existing lease but not comprised in the flat;

(b) of alterations made to the property demised since the grant of the existing lease; or

(c) in a case where the existing lease derives (in accordance with section 7(6) as it applies in accordance with section 39(3)) from more than one separate leases, of their combined effect and of the differences (if any) in their terms.

(6) Subsections (1) to (5) shall have effect subject to any agreement between the landlord and tenant as to the terms of the new lease or any agreement collateral thereto; and either of them may require that for the purposes of the new lease any term of the existing lease shall be excluded or modified in so far as

(a) it is necessary to do so in order to remedy a defect in the existing lease; or

(b) it would be unreasonable in the circumstances to include, or include without modification, the term in question in view of changes occurring since the date of commencement of the existing lease which affect the suitability on the relevant date of the provisions of that lease.”

In the United Kingdom Upper Tribunal (Lands Chamber) case of Rossman v The Crown Estate Commissioners [2015] the main issue was whether, under section 57 of the 1993 Act, the term of an existing lease, of Flat 124A, which apportioned the lessee’s liability to a service charge contribution on a fixed percentage basis ought to have been modified in the new lease to be instead a fair proportion based on the floor space of the flat, given that the aggregate of service charge contributions for which the lessees were currently liable under their existing leases was well in excess of 100% of landlord’s expenditure! Quite simply the existing lease of Flat 124A, and others, entitled Whitehall Court (Investments) Ltd., as landlord, to collect from the tenants of Whitehall Court almost 30% more by way of service charges than it was actually spending on services.

So there had been a voluntary abatement scheme, which operated, without the force of contract, to reduce Mr Rossman’s liability for service charge contributions to a percentage figure materially below the figure in his lease. The scheme had a similar effect on the corresponding provisions in the other Whitehall Court leases too.

Here the Tribunal had little difficulty in finding that there was a defect in the existing lease of Flat 124A, and it was a sufficiently serious defect to require a remedy.

To include in the new lease a term replicating the provision for a fixed 0.8% service charge contribution in the existing lease would be wrong.

It could not be right for a defect of that nature to be incorporated into the new lease of Flat 124A. To do that would run contrary to Parliament’s evident intention in section 57(6) of the 1993 Act.

In summary:

The term in the existing lease of Flat 124A, which required from the lessee a fixed service charge contribution of 0.8%, was a defect of the type contemplated in section 57(6)(a) of the 1993 Act, and a modification of that term was required in the new lease.

It might also be that, in view of changes which had occurred since the commencement of the existing lease, the inclusion of that term, unmodified in the new lease, would be unreasonable in the sense contemplated by section 57(6)(b). So the disputed term must now be modified under that sub section too.

So, the case should go back to the First-tier Tribunal so that it could determine, in the light of full evidence and submissions, how the service charge provision in Mr Rossman’s new lease should be formulated.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.