A recent case that reached the Upper Tribunal (UT) confirms that Right to Manage (RTM) companies can seek to vary leases that do not provide for the recovery of enforcement costs.
Reporting on the Case: 56 Westbourne Terrace RTM Co Ltd v Polturak and others [2025] UKUT 88 (LC) WHN’s property law expert Eleanor Longworth, based in our Bury office, outlines how the leases may be varied and the key points in the case.
Lease variations
Part IV of the Landlord and Tenant Act 1987 (the Act) provides that a party to a long lease of a flat can issue proceedings in the First tier Tribunal (FTT) to vary the terms of a lease.
The FTT can make such an order if it is satisfied that it fails to make satisfactory provision for various matters, including “the recovery of expenditure by one party for the benefit of others”.
The background to the case
56 Westbourne Terrace RTM Co Ltd acquired the Right to Manage (RTM) in 2018. It is now responsible for management of the building under the leases which were originally granted in 1983 and 1984.
The leases only allowed the landlord to recover costs incurred of and incidental to the preparation and service of notice under Sections 146 and 147 of the Law of Property Act 1925. An RTM company cannot forfeit a lease and cannot therefore, serve a Section 146 notice. The legal costs incurred in connection with recovery of service charges were not therefore, recoverable under the leases.
The RTM Company was in dispute with two leaseholders relating to non-payment of service charges. It applied to the FTT to vary the leases to provide for recovery of costs from a leaseholder, as an administration charge and by way of the service charge.
The FTT refused the application. The RTM Company then appealed to the Upper Tribunal (UT).
What was the outcome of the Upper Tribunal decision?
The UT outlined the steps a tribunal may follow when deciding a variation application:
- The applicant must be a party to a long lease of a flat. An RTM company can apply as if it was a party to the lease (paragraph 10, Schedule 7, CLRA 2002).
It then went on to consider various factors, including the following in relation to each proposed variation:
- whether there are grounds under section 35(2) of the Act for making the variation, which include that the lease fails to make satisfactory provision for repair, maintenance, insurance, recovery of expenditure or computation of service charges.
The application focused on the “recovery of expenditure”.
- whether the variation would substantially prejudice any person,
- if so, whether money would be adequate compensation for that prejudice; and
- whether for any other reason it would not be reasonable in the circumstances for the variation to be effected.
The UT decided that the leases failed to make satisfactory provision for the RTM Company to recover service charges. There had been substantial statutory changes since the leases were first granted.
The UT made an order varying the leases to provide for a new clause allowing for the recovery of costs incurred in connection with the recovery of arrears, as an administration charge from the defaulting leaseholder and by way of the service charge, if the costs cannot be recovered from the leaseholder.
Conclusion to the case
Many leases include a costs recovery clause linked to service of a section 146 notice. However, without the cooperation of the freeholder these do not generally assist an RTM company, who does not have the right to forfeit a lease.
This means that an RTM company – which does not have any assets other than service charge funds – may struggle to take enforcement action against a leaseholder who refuses to pay their service charges.
This decision confirms that RTM companies have the option of applying to vary leases to include provision for costs recovery, either through the administration charge or the service charge, or both. We may see more applications by RTM companies in the future.
You can read further information regarding the Right to Manage in WHN’s article: Right to manage pros and cons: essential guide
You can also download our latest Right to Manage guide.
Eleanor Longworth specialises in residential long leasehold dispute resolution matters acting on behalf of landlords, management companies and leaseholders.
For more information on applying for the right to manage or any other long leasehold dispute matter please contact Eleanor on 0161 761 8082 or by email: eleanor.longworth@whnsolicitors.co.uk
