Lease Variations

Deed of Variation

Sometimes, one or more of the parties to a residential long lease will be unhappy with a lease term or terms. The problems may be obvious, causing longstanding disputes between the parties. A common example is the failure of the lease to apportion service charges or where the combined payments by the leaseholders are less than or more than 100% of the landlord’s expenditure. Other times, the problems might only be revealed during a sale, and the purchaser’s lender is refusing to lend unless the lease is altered.

If all parties agree, the landlord can draw up a deed of variation for signature. Irrespective of the parties’ agreement, we strongly advise tenants to take specialist legal advice at an early stage and certainly before signing a deed of variation.

Consideration should be given as to whether the change will affect other leaseholders. It is preferable for all the leases to be varied simultaneously to maintain uniformity and to avoid the landlord being in breach of a covenant requiring the leases to be in the same form.

It will also be necessary to obtain your mortgage lender’s consent to the variation before proceeding.

“The insights that you provided have been very helpful and confidence boosting.” MG

What if the parties do not agree?

If the proposed variation is not agreed, a leaseholder, management company, Right to Manage company, or landlord can apply to the First Tier Tribunal (Property Chamber) for an order that the lease terms be varied.  There are two ways an application can be made to the Tribunal.

Section 35 Landlord and Tenant Act 1987

Any party to the lease can apply to vary the lease under Section 35 if the lease fails to make ‘satisfactory provision’ for one or more of the following:

• repair or maintenance of the flat or building;
• insurance of the building;
• repair or maintenance of any installations;
• the provision or maintenance of any services;
• the recovery by one party to the lease from another party to it of any expenditure incurred or to be incurred;
• the computation of a service charge payable under the lease.

However, the Tribunal will not agree to vary all poorly drafted leases. Where the leases unfairly apportion the leaseholders’ contributions towards service charges, the Tribunal may refuse to order they be varied, if the service charge contributions in all the leases in the building add up to 100%.

If the application succeeds, it is usual that any other party can apply to the tribunal to vary other leases if they contain the same defect.

Section 37 Landlord and Tenant Act 1987

If a variation is required which does not fall under one of the ‘satisfactory provisions’ listed above, or more than two leases are defective, an application can be made under Section 37 to vary the lease if supported by a minimum number of parties.

Where there are more than nine flats, at least 75% of the leaseholders must agree to the variation and no more than 10% can oppose the variation. If there are fewer than nine flats, then all, or all but one, must agree to the proposed variation.

How much does a deed of variation cost?

The cost of varying a lease term or terms will depend largely on the amount of work involved. If both parties agree in principle to the variation, then the cost should be limited to taking advice and thereafter drafting the deed. If an agreed variation is at the request of the tenant, the landlord may require the tenant to meet both parties’ legal costs.

If an application to the First Tier Tribunal proves necessary, costs will understandably be higher.