Notting Hill Home Ownership Limited v N Samoail, R Issa & Ors

This is the Tribunal’s decision in two appeals brought by Notting Hill Home Ownership Limited (“NHHO”) against two decision of the First-tier Tribunal. The first decision related to service charges and was made on the application of 27 of the leaseholders of Block V1, Viridian Apartments, Battersea Park Road, London SW8 for a determination as to whether service charges were payable. The FTT decided that the majority of the service charges in question were not payable, because they were for services which the leaseholders could not access or enjoy (“the service charges decision”). The FTT’s second decision (“the variation decision”) was made on NHHO’s application for a variation of the leases in Block V1 under section 35 of the Landlord and Tenant Act 1987 on the ground that the leases did not make satisfactory provision for the payment of service charges. The 27 leaseholders who made the original application in relation to the service charges are the respondents to both appeals; NHHO’s application for a variation would, if successful, have affected all the leaseholders in the block but only the 27 chose to participate in the appeal.

The practical problem at the heart of this appeal is that NHHO’s headlease requires it to pay service charges calculated by reference to all eight blocks of Viridian Apartments, including costs incurred on services that its own sub-lessees are not allowed to use including the garden and the concierge. NHHO seeks to pass those service charges on to the sub-lessees, and asserts that the sub-leases should be construed, or varied, so as to enable it to do so.

NHHO was represented by Mr Stephen Evans and the respondents by Mr Sam Madge-Wyld, both of counsel, and I am grateful to them both.

There are three parts in this decision; in the first I set out the leasehold structure of Viridian Apartments and of Block V1 by way of background to both appeals, and explain how the challenge to the service charges arose. The second part is about the appeal from the service charges decision; the third is about the appeal from variation decision.

Viridian Apartments is a development on the former John Milton School, comprising eight blocks (V1 to V8) which form a snaky shape around a large communal garden, with an underground car park and bin store:

I refer to the whole of the freehold of Viridian Apartments, including the eight blocks and the outside areas, the car park, and garden as “the Development” (the term used with that meaning in NHHO’s head-lease).

These appeals are about Block V1, indicated on the plan. Block V1 has its own entrance; no other parts of the Development are accessible from it. NHHO holds a lease of the non-structural parts of Block V1, and the respondents hold sub-leases of individual flats.

The appellant is a housing association and a charity. In 2007 it took a 155-year lease (“the Headlease”) of Block V1; the FTT explained that Block V1 was designated for affordable housing. The Headlease is tripartite, made between the freeholder Barratt Homes Limited, the appellant, and the management company Viridian Residents Management Company Limited (“Manco”) which manages the whole of Viridian Apartments, not just Block V1. NHHO’s title to the Headlease is registered under title number TGL 300662; the leases to be construed, in order to determine the respondents’ liability for service charges, are the sub-leases, but I have to go through the terms of the Headlease first because the under-lease refers to NHHO’s registered title and so it is useful to see first what that title comprises.

The Headlease defines “the Development” as the whole of Viridian Apartments, being the landlord’s freehold registered under title number TGL248073. It defines “the Block” as the Block marked “V1” on the plan and “the Building” to mean the building that comprises the Property (see below) together with its structural and external parts. I did not hear argument as to whether “the Block” and “the Building” were the same but it seems to me that they must be.

The demised premises in the Headlease is “the Property”, indicated on plans and described in a Schedule. It is part of the Building, comprising only the 38 individual flats and the common parts within Block V1. The doors and windows of the flats are included, as are the plaster faces of the external or structural walls but not the structural walls, the interior faces of the ceilings up to the underside of the joists, the floors down to the joists, and internal non-structural walls. The structural walls, the balconies of the flats, the roof, and the roof patios are not included in the demise. Nor are the steps and ramp giving access from Thessaly Road.

The Headlease also grants a number of rights, some of them in common form such as the right to the passage of services and to structural support but also, importantly, the right to access the Building from Thessaly Road, the use of a balcony and patio for each flat, the right to a space in the car park for each flat, and the right to access the car park and to use the bin store in the car park, but not to access the garden nor any other part of the Development. The Headlease does not grant the right to use the garden or the gym, nor to access or make use of the concierge service which is run from an office between Blocks V3 and V4.

The Headlease also defines “the Maintained Property” as “all parts of the Development which are not included within the demise of the Property” or any of the flats in the Development, and is said to be more particularly described in the second schedule. That schedule lists a number of items including the car park and the internal common parts of Block V1, but also:

“the structural parts of the Building (including the Car Park Structure) including the roofs, gutters, rainwater pipes, foundations, floors and walls…”

and

“all Service installations within the Development not used solely for the purpose of any individual dwelling together with any other parts of the Development which are not included in the demise of the Property or any individual property”.

but not the individual flats and the service installations serving them.

The lessee covenants to pay a proportion of the landlord’s costs specified in the sixth Schedule, which sets out “Block Costs”, a “Parking Charge” and a “Part C”. The “Block Costs” include the repair and maintenance of the balconies and patios in the Building, the lift in the Building and also the insurance of the Building and cleaning its windows, but also the repair etc of the Maintained Property including the accessways and service installations, the CCTV system, costs relating to the bin store, the costs of providing a 24-hour concierge, and the cost of providing heating and electricity to the Maintained Property and of maintaining the Service Installations that serve the Maintained Property, as well as maintaining the water feature. The car park costs are a proportion of the maintenance of the car park. The Part C costs are defined by reference to the Maintained Property and the Development and include third-party insurance, staff costs rates and taxes etc, the management and administration of the Development, and “all other expenses (if any) incurred by the Management Company in and about the maintenance and proper and convenient management and running of the Development…”

It will be seen therefore that NHHO has covenanted to pay a proportion of the costs relating to the whole Development, including repair and maintenance, management, and personnel costs. NHHO has therefore covenanted to pay a share of the cost of services which it has not been granted the right to use, in particular the garden and the concierge service.

The Headlease was of course granted in the expectation that NHHO would grant sub-leases, and it enables NHHO to sub-let the flats in Block V1 together with the rights to use the balcony and patios, to access the block, and to access the car park and bin store and to use a car parking space – but obviously not the right to use the garden or the concierge service, because NHHO does not have those rights.

The parties have referred to a sample lease of flat 218 in Block V1 and I take it that all 38 sub-leases are in the same form except for the identity of the flat. I refer to the “Sub-lease” to mean the sample and all the other sub-leases.

The Sub-lease is for a 125-year term. It provides for shared ownership and “staircasing”, so that the tenant initially owns a proportion of the value of the property and can acquire more later. The Sub-lease uses the following definitions:

The Sub-lease demises “the Premises”, and also grants the rights set out in the Third Schedule; they include “the right to use the Common Parts for all purposes incidental to the occupation and enjoyment of the Premises”, as well as rights of access, support, passage of services, the right to use the balcony and patio, and the right to use the parking space allocated to the flat.

By clause 5(2), (3) and (4) the landlord covenants to insure the Building or to procure that it is insured, to maintain and repair (etc) or procure the maintenance and repair of the structure of the Building and its service media and the Common Parts of the Building and of the Estate, and to keep or procure that the Common Parts of the Building are cleaned and lit.

By Clause 7 the tenant covenants to pay a service charge. The definitions are not very tidy; the particulars at the start of the lease define the service charge as “in respect of service provision relating to the Premises Estate Common Parts and Car Parking Space (if any) such reasonable and appropriate proportions as the Landlord shall determine”, whereas clause 7(1)(d) refers to a “Specified Proportion” which does not seem to be specified anywhere – but that does not matter for present purposes. What the tenant is to pay for is set out in clause 7(5), namely a proportion of the expenditure “reasonably incurred by the Landlord in connection with the repair management maintenance and provision of services for the Building and shall include [among other items not relevant to this appeal]… the costs of the performance of the landlord’s covenants contained in Clauses 5(2)(3), and (4)”.

It is not in dispute that what actually happens is that service charges are computed by Manco in relation to each flat, and then forwarded by NHHO to the Leaseholders.

NHHO’s position is that those charges are for “services for the Building” as clause 7(5) requires. But those charges include all the charges that NHHO is liable to pay under the Headlease including services that NHHO, and therefore its tenants, cannot use, such as the garden and the concierge; and it is demands for services of that kind that were in issue in the FTT.

Section 27A of the Landlord and Tenant Act 1985 gives the FTT jurisdiction to determine whether leasehold service charges are payable and in what amount, when, to whom etc. Whether a charge is payable is often a matter of construction of the lease; but section 19 of the 1985 Act also provides that a service charge is not payable unless the relevant cost was reasonably incurred.

In construing a lease the FTT will of course need to have in mind the well-known principles of construction set out in Arnold v Britton [2015] UKSC 36, and in particular paragraph 15 where Lord Neuberger said:

“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean , to quote Lord Hffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, para 14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions.”

Relevant to this appeal is the principle of remediation by construction, where there is an obvious error in the drafting which can be corrected in one obvious way: East Pantiles (Plant Hire) Ltd (1981) 263 EG 61, cited with approval in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101. Lord Hodge looked at some examples in paragraphs 69 to 71 of Arnold v Britton. Lord Carnwath (dissenting) commented on the principle at paragraphs 108 to 115, and at paragraph 108 pointed out the need to avoid a nonsensical result; at paragraph 110 he explained that the more unreasonable the result of applying a particular interpretation the more unlikely it is that the parties intended it.

At paragraph 25 in Chartbrook Ltd v Persimmon Homes Ltd Lord Hoffmann said:

“What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant.”

In the FTT the respondents sought a determination as to whether certain service charges were payable for the years 2018 to 2025 and, if payable, whether they had been reasonably incurred.

As I indicated above, the charges are calculated by Manco for services and management that Manco provides, and they are calculated for the individual flats even though Manco has no legal relationship with the respondents and their fellow sub-tenants; the demands are passed on to them by NHHO. By no means all of them were challenged in the FTT, even when they represented a proportion of a service provided for the whole Development; the respondents accepted that some of those services did amount to a service “for the Building” as clause 7(5) requires. But it was their case that a number of the charges were not payable because the services or facilities concerned did not benefit Block V1, including garden maintenance, the cost of the concierge, the cost of communal water and electricity, the cleaning of common areas to which they did not have access, litter picking, pest control, and directors’ and officers’ insurance relating solely to the Development.

NHHO’s argument had two strands. One was that services to which the respondents did not have access, such as the garden, nevertheless benefited them, because it was in their interests for the whole Development to be well-maintained. The other was that there is an obvious mistake in the Sub-lease, with an obvious solution: the term “Estate” in the sub-lease should be read so as mean “the Development” as defined in the Headlease, which would enable it simply to pass its service charge on to its tenants. The lease should be “rectified by construction” in the FTT’s jurisdiction to determine whether service charges are payable under section 27A of the Landlord and Tenant Act 1985. In case that argument failed, NHHO also made its own application for variation of the Sub-leases under section 35 of the Landlord and Tenant Act 1987 because they do not make satisfactory provision for the recovery of service charges. Hence the two decisions now appealed.

The FTT’s decision in the section 27A application presented the main issue before it as one of construction of the Sub-leases, namely whether they permit the appellant to recover as service charges the sums it pays to Manco under the Headlease. If it did not, the FTT was asked to determine what costs were recoverable. It was also asked to determine whether certain costs were reasonably incurred, some of those costs being among those that the respondents recognised as being recoverable in principle and the rest were those that the respondents did not accept were payable in case their argument about the construction of the ease failed. The parties prepared a detailed Scott Schedule; the appeal is about the construction of the Sub-leases in principle and so I am not going to discuss the individual charges, subject to one point about management charges dealt with at paragraph 63 below.

As to the issue of construction, the FTT found that the Sub-leases do not permit NHHO to recover as service charges the sums it pays to Manco under the Headlease; that while the Sub-leases were poorly drafted there was no clear mistake in them. The FTT said at its paragraph 102 “the leases do make sense and are not an obvious nonsense”, and found that it was not intended to provide for the tenants to pay for services from which they did not benefit; and that specific charges detailed at paragraph 109 of the FTT’s decision were not payable by the respondents.

The FTT pointed out that the sales particulars of the flats made it clear that certain services were not included, in particular the concierge and the gardens; it found that the parties’ intentions on entering the shared ownership Subleases was to maximise affordability by restricting the services that the tenants could access and would have to pay for, and that therefore the Estate was restricted to Block V1 and did not extend to the whole Development.

It also found that the management charges demanded of the respondents were too high and “should be reduced appropriately for all the years in dispute to reflect the limited service provided.”

The FTT made orders under section 20C of the Landlord and Tenant Act 1985 and paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 preventing NHHO from recovering its costs of the proceedings as service or administration charges.

NHHO has permission, granted by the FTT, to appeal on five grounds, which I can summarise as follows:

Furthermore NHHO sought clarification of the decision about management fees, paragraph 33 above, which left the parties without a decision as to what the tenants had to pay.

I take grounds 1 to 4 together. I have summarised them above, because they are expressed in numerous paragraphs in the grounds of appeal; my summary reflects the way Mr Evans argued the grounds at the hearing. Taken together, the grounds say that the FTT got it wrong, there is a clear mistake in the lease, and the principle of rectification by construction means that “the Estate” should mean the whole development – equivalent to “the Development” in the Headlease. That would make it obvious that NHHO could simply pass on to the respondents the charges it pays to Manco. NHHO does not shrink from the proposition that therefore the respondents are in principle liable to pay for services to which they do not have access, such as the communal gardens, although Mr Evans conceded at the hearing that there might be an issue as to how much the leaseholders were required to pay for such services.

The starting point of the doctrine of rectification by construction is that there must be a clear and obvious mistake in the lease, and that is how NHHO characterises the definition of “the Estate” as the “land and buildings” in NHHO’s leasehold title. First, “the Building” and “the Estate” are separately defined and should mean something different; but “the Building” is said to be “erected on the Estate”, and yet if “the Estate” is NHHO’s demised premises then that is smaller than the Building – see paragraph 17 above. NHHO holds only the inside of the flats, without any structural elements, so it cannot be right to say that the Building is built on the Estate.

Second, the rights granted over the “Common Parts of the Estate” are otiose because the Estate, being smaller than the Building, can have no common parts separate from the Common Parts of the Building.

Third, the Common Parts of the Estate appears to include matters that are outside Block V1, in particular the access to the block and to the car park and bin store, which makes no sense unless the Estate is bigger than the Building. Mr Evans argued that the definition of the Estate means that NHHO has not granted the leaseholders the easements they need. Its land extends only to the insides of the flats; it has not been able effectively to grant easements over the entrance to the Block or the underground car park or the bin area; reading “the Estate” as the land demised to NHHO “rendered the rights in relation to the “Common Parts of the Estate” nugatory”.

He gave as an example the bin store, which is part of the Maintained Property under the Headlease and for the maintenance and cleaning of which it pays. The tenants use the bin store and were obviously intended under the Sublease to do so; but it is not a Common Part of the Building. It should be read as one of the “Common Parts of the Estate” as NHHO says it should be.

The obvious solution, Mr Evans said, was to define “the Estate” as the freeholder’s title, not NHHO’s, so that it becomes equivalent to “the Development” under the Headlease. NHHO would be able to grant the easements the tenants needed. It would be able to pass on to the tenants the charges it pays to Manco, because it performs its covenants under clause 5 (2) to (4) of the Sub-lease (which extend to the maintenance of the Common Parts of the Estate) by paying Manco’s charges, and the description of the tenant’s liability for service charges in clause 7(5) is wide enough to cover its service charge payments to Manco. In addition Mr Evans argued that “the Property” (not “the Estate”) should be defined to mean such land and such of the Building as is registered in title number TGL300662 and “Common Parts” in the third schedule (see paragraph 17 above) should be interpreted as “Common Parts of the Building and of the Estate.”

Mr Evans argued that the drafter of the Sub-lease should be presumed to have been aware of the terms of the Headlease, including the existence of the Development and NHHO’s liability for service charges.

Mr Evans stressed that whether a tenant benefits from a service is irrelevant to whether it is contractually liable to pay for it. He added that the fact that these are shared ownership leases is a neutral factor. NHHO is a charity and cannot have been assumed to be willing to meet costs payable under the headlease . But in any event the tenants benefit from a well-maintained Development, and from the view of the well-kept garden from their windows, and the value of their flats is enhanced as a result; their own lack of access does not mean they do not receive a benefit which they should pay for.

The FTT’s reference to the sales particulars at its paragraph 98 was, Mr Evans said, irrelevant; but in any case a prospective purchaser reading the particulars and seeing reference to services that were not provided would not conclude that he was not going to have to pay for them.

In response Mr Madge-Wyld acknowledged that the drafting of the Sub-lease is poor. He thought that the definition of the “Estate” might have been a mistake; but he argued that it was not a clear mistake, and moreover that the solution to the mistake was not obvious. There could therefore be no place for rectification by construction; the conditions for that doctrine were not made out. He agreed that “the Common Parts” in the Third Schedule should be read to mean the Common Parts of the Estate and the Building together; whereas if “the Estate” meant the Development then the Sub-lease would grant rights that NHHO could not grant because it did not have them, the garden being the obvious example. There is no evidence that the draftsman had any other registered title than NHHO’s in mind when drafting the lease and there is no basis for bringing in references to the whole Development. And the commercial context of the Subleases, as shared ownership leases, makes it unlikely that the tenants were intended to share the cost of maintaining the non-social housing, particularly the parts they cannot access and do not benefit from.

Even if there were an obvious mistake, the respondents’ case is that there is no single obvious solution. It would be possible to limit “the Estate” to those parts of the Development to which NHHO had access, for example.

In any event, service charges are defined by reference to the Building, not the Estate; that indicates that charges not relating to the Building are not recoverable.

The Sub-lease refers to the Property and the Building (which appear to be equivalent and to correspond to the Building in the Headlease), and to the Estate (the “land and buildings” held under the Headlease). It makes no mention of “the Development” and one would not be able to guess from the words of the Sub-lease that there were any other blocks or that the Property/Building was part of a larger development. Any argument that the Sub-lease should be construed so as to create a reference to the larger development would appear far-fetched.

In my judgment there is no mistake in the definition of “the Estate”. NHHO’s argument overlooks the fact that the Estate is defined so as to be co-extensive with NHHO’s title:

“all the land and building registered under title number TGL300662”

I fail to see that that means anything less than what is registered under that title number, namely the physical demise of the insides of the flats in Block V1 together with the appurtenant rights to use the access to the Block and also to access and use the car park and the bin store. Both the physical land and the appurtenant rights comprise NHHO’s registered land, in accordance with the usual legal meaning of “land” (for example as defined in the Law of Property Act 1925 to mean both physical land and incorporeal hereditaments). That both physical property and rights are intended follows from the reference to NHHO’s registered title, which comprises both. The idea that NHHO has somehow failed effectively to grant those rights, because “the Common Parts of the Estate” refers only to the insides of the flats in the Block, is untenable. The rights granted to the lessee under the Sub-lease were capable of being sub-demised, as NHHO admits (paragraph 8 of Mr Evans’ skeleton argument), and the point of defining the “Common Parts of the Estate” was to refer to those rights that NHHO holds and can pass on. I agree that the “Comon Parts” in the Third Schedule refers to the Common Parts of the Estate and the Common Parts of the Building together. The appurtenant rights in the Headlease have thus been sub-demised to the sub-lessees.

The FTT found that the Sub-leases “do make sense and are not an obvious nonsense”, and indeed they make perfect sense so far as the definition of the Estate is concerned.

I agree that there are some small drafting muddles, but the meaning of “Common Parts” in the Third Schedule appears to be common ground, and no-one has suggested that the duplication of the definition of the tenant’s proportion of the service charges (paragraph 20 above) has given rise to any practical problem.

Accordingly there is no “obvious mistake” as contended for by NHHO, and no question of an “obvious solution”.

I would add that NHHO’s suggested construction of the Estate as the Development would give rise to a new problem: the definition of the “Common Parts of the Estate” (paragraph 17 above) would refer to the whole Development. NHHO would therefore in the third Schedule be granting rights that it did not have and could not grant, because the Common Parts of the Estate would include the garden and access to the other blocks. It would find itself in breach of its covenant for quiet enjoyment, unless it could persuade the freeholder to give its tenants those additional rights.

The use of the “Estate” as defined in the Sub-lease is clearly deliberate. Whilst I agree that the sales particulars cannot be used to construe the Sub-lease, if there were any ambiguity in the scope of the respondents’ obligations (which to my mind there is not) it would be legitimate to keep in mind “all the background knowledge which would have been available to the parties” (Lord Neuberger’s words quoted at paragraph 25 above), including the fact that this was supposed to be affordable housing. The reason why the respondents do not have access to certain attractive services is the need to keep the arrangement affordable for them. They do not have access to the garden so that they do not have to pay for it and likewise the concierge. It was suggested at the hearing that in fact the respondents, or some of them, have used the concierge service, in that parcels have been left with the concierge for them; that may be so, but the sub-lessees have no right to that service nor even to step inside the concierge’s office. The fact that an informal arrangement may have been made on occasions does not change the meaning of the Sub-lease.

None of this detracts from the principle that the respondents could be contractually liable for something from which they do not benefit; but in the absence of plain words making them so liable it is extremely implausible to rectify the lease by construction so as to make that the case. As Lord Carnwath said (paragraph 25 above), the more unreasonable the result of applying a particular interpretation the more unlikely it is that the parties intended it.

NHHO’s argument that the respondents derive a benefit from the fact that the garden etc is kept in a good condition for other people to use, and so should pay something towards such facilities, is deeply unattractive. NHHO’s concession that the respondents could challenge the reasonableness of the expenditure does not mend matters; NHHO wants to recover the whole of what it pays to Manco, yet the amendment for which it argues would simply mean that the argument about what the respondents pay would be transferred from “contractual liability” to “reasonableness”, and all the charges now in dispute in principle would be disputed on the ground that they were not reasonably incurred.

In conclusion, the FTT was right to say that the Sub-leases make sense. NHHO’s argument for rectification by construction fails.

The real problem here is that the plain words of the Headlease make NHHO liable for services that cannot benefit it or its sub-lessees. Why it entered into a lease in those terms is unknown, but its attempt to visit the consequences of that decision on its Sub-lessees cannot succeed.

NHHO seeks to challenge the FTT’s orders under section 20C of the 1985 Act and paragraph 5A of Schedule 11 to the 2002 Act on the ground that it did succeed in some issues before the FTT (for example the FTT found that the respondents were required to pay a proportion of the lift maintenance service, and a charge in respect of balconies).

There is no substance in this challenge. The FTT’s decision is well within the bounds of its discretion; the respondents succeeded on the major issue of principle before the FTT, and on other points, and it is unsurprising that these orders were made.

Paragraph 114 of the FTT’s decision (see paragraph 33 above) required an unspecified reduction in the management charges. I have heard neither argument nor evidence about the point and this issue is remitted to the FTT for decision.

Section 35 of the Landlord and Tenant Act 1985 says this, so far as relevant:

“(1)

Any party to a long lease of a flat may make an application to [the FTT] for an order varying the lease in such manner as is specified in the application.

(2)

The grounds on which any such application may be made are that the lease fails to make satisfactory provision with respect to one or more of the following matters, namely—

…

(e)

the recovery by 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;

(f)

the computation of a service charge payable under the lease …”

NHHO’s application for a variation of the Sub-lease was made in case the FTT was against it on the construction of the Sub-lease. In that case, it said, the Sub-lease should be varied so that the “Estate” is defined to mean “the Development” or “the Maintained Property under the Headlease”, or such other form of wording to enable it to recover the service charge it pays under the Headlease.

In order to persuade the FTT to make that variation, NHHO first had to get through the gateway of section 35(2)(e) or (f); only if it could do so did the FTT have to determine whether to make a variation and if so in what terms. NHHO argued that the lease failed to make satisfactory provision for the recovery of service charges because it could not recover all the charges it paid to Manco.

NHHO failed on the gateway provision. The FTT’s findings were briefly expressed and echoed the submissions made for the respondents by Mr Madge-Wyld: that the fact that NHHO in the Headlease had contracted to pay for services from which it received benefit did not make the Sub-leases unsatisfactory. The FTT noted that Block V1 was well-maintained and that NHHO had other resources from which it could pay the service charges which it could not recover.

In the appeal NHHO did not pursue its argument under section 35(2)(f) and focussed on 35(2)(e), under which it must show that the lease fails to make satisfactory provision for the recovery by NHHO of expenditure it incurs for the respondents’ benefit. The appeal relates only to this threshold provision; were the appeal to succeed then NHHO’s application for a variation would have to be remitted to the FTT for a decision.

Mr Evans acknowledged that a lease that could have been better or more explicitly drafted does not thereby fail to make satisfactory provision. He referred to the principles set out in Cleary v Lakeside Developments Ltd [2011] UKUT 264 (LC) which he summarised as follows:

He also referred to Triplerose v Stride [2019] UKUT 99 (LC) where the Tribunal said that there are benefits in having an orderly lease, and one that provides fully and fairly for the recovery of service charges. A lease may be “clear and workable” yet not make satisfactory provision (56 Westbourne Terrace RTM Co Ltd v Polturak [2025] UKUT 88 (LC)).

Mr Evans focused on the words of section 35 and said – entirely correctly - that the question was whether there was unsatisfactory provision for recovery by NHHO of the sums it is required to pay under the Headlease which benefit the sub-tenants.

He said that the lack of clarity in the Sub-lease was a problem. He suggested that the fact that the respondents did not challenge all the charges on this occasion meant that they recognised that they derived benefit from some expenditure, such as the access roads and pathways in the basement car park. Moreover (if I have understood correctly) in the past the charges for the concierge had not been challenged. And in any event the sub-lessees receive a benefit from a well-maintained development – and in particular from the gardens - and the value of their flats is enhanced.

Mr Evans argued that the FTT failed to look at the “serious lack of clarity of the subleases and the historic and future likely problems caused or to be caused by the same.” He suggested that the FTT failed to have regard to Polturak and the principle that it is not enough for a lease to be clear and workable.

In response Mr Madge-Wyld argued that if the “clear mistake” argument failed in the service charges appeal, the variation appeal should equally fail. He did not accept that there was anything unsatisfactory about the fact that the Sub-lease does not permit the landlord to recover every penny it pays to Manco. And the FTT did not apply the “clear and workable” test; it referred to and was obviously aware of Polturak.

In my judgment the appeal against the variation decision has no hope of success. The Sub-lease makes provision for the sub-lessees to pay for “all expenditure reasonably incurred by the Landlord in connection with the repair management maintenance and provision of services for the Building”. Those clear words make satisfactory provision for the recovery of expenditure that benefits the respondents. Insofar as NHHO relies upon the idea that the respondents are benefited by services that they cannot enjoy and do not have access to, then those are not services provided “for the Building” within the terms of the Sub-lease and are not incurred “for the benefit of the respondents” in the terms of section 35.

That result cannot be avoided by arguments about indirect benefit - which I have to say I find implausible. I agree that it is nice to have one’s neighbours’ gardens well-maintained; but that does not mean one has to pay for that pleasure, and in my judgment that is far too indirect a benefit to fall within what section 35 requires to be provided for. The same can be said of one’s neighbours’ concierge service, or of other benefits to one’s neighbours’ property.

At the hearing Mr Evans stressed the need to prevent arguments in the future. The current respondents have not challenged some of the charges, but there is a concern that other sub-lessees may challenge more of the charges on principle in the future. I agree that there may be future challenges. It is not difficult to see for example that the residents of Block V1 benefit from, and should pay a proportion of the cost of, the management of the whole estate; but other charges, on this occasion and no doubt it in the future, are less obvious. There may be argument about whether a particular programme of works has been provided “for the Building” or about whether a particular general service benefits the Building. That is the result of the fact that this Development has been set up to accommodate residents of different statuses, some of whom get and pay for the whole package and some of whom do not, which has meant that the service charge provisions for the affordable housing block have to be different from those in the other blocks even though Manco manages the whole development. The sub-lessees in Block V1 pay only for what is provided for their building. But that does not, in my judgment, mean that satisfactory provision has not been made for the residents to pay for what is spent for their benefit, even if there is room for argument about the benefit conferred by specific items.

On that basis there is no room for any argument about NHHO’s means to pay; the question does not arise.

As in the service charges appeal, the root of the problem is not the Sub-lease but the Headlease, whose service charge obligations do not match those of the Sub-lease. The service charge provisions in the Sub-lease are satisfactory, and there is no basis on which they can be amended to solve the problems that arise for NHHO from the startlingly different provisions in the Headlease.

The appeal from the variation decision fails.

NHHO’s appeals from the FTT’s decisions fail on all grounds. However, the matter of the management fee at paragraph 114 of the FTT’s judgment is remitted to the same panel of the FTT for it to complete its decision.