Often it will be preferable to draw up a new lease incorporating the proposed changes although not only all the leaseholders but also all the mortgage lenders must agree to the variations. Sometimes the incentive of extending the term of the lease will assist in the negotiations when introducing other additional variations.

Where agreement with all the leaseholders cannot be obtained, there are a number of options to consider;

1. Vary only some of the leases: this may be possible if it is not essential to vary all of the leases. For example, whilst it is ideal to extend the term of all the leases at the same time it is not essential and some leases could be extended on one occasion and then the others at a later date. On the other hand, it would not be sensible to follow this course of action in respect of, for example, the provisions concerning the accounting year.

2. Apply to the Leasehold Valuation Tribunal to vary the leases: these variations are made possible under Part IV of Landlord and Tenant Act 1987(as amended by Commonhold and Leasehold Reform Act 2002) and the procedure is slightly different depending on the reason for the variation.

Where a lease fails to make satisfactory provision for repair or maintenance of the flat or building, insurance of the block, repair or maintenance of installations, the provision of services, recovery of expenditure or computation of service charge, the freeholder or even a single tenant can apply to the LVT for the lease to be varied to rectify one or more of these areas.

Where the lease is not defective as described above, it is necessary to have the consent of a majority of the leaseholders before an application to the LVT can be made in order to vary other provisions of the lease. The type of provisions which are varied under this procedure include provisions relating to parking facilities, to permit construction of additional flats, to alter the accounting year, to alter provisions for collecting advance payments of service charge and to set up a sinking fund. The grounds for the application must be that “the object to be achieved by the variation cannot satisfactorily be achieved unless all the leases are varied to the same effect”.

Before ordering a variation, the LVT has to be satisfied that the variation would be reasonable in all the circumstances and would not substantially prejudice any objector or anyone who is not a party to the application.

The Content of the Variation

It is often sensible to prepare a checklist of possible variations to the lease which can then be discussed further with your solicitors. The list below covers some of the more common variations.

Length of the lease term: where the variation of the lease either extends the premises contained in the original demise or extends the length of the original term, it is likely to be interpreted as a surrender of the original lease and grant of a new lease on the varied terms and as such is subject to the provisions of Landlord and Tenant (Covenants) Act 1995. The new lease will also be subject to Stamp Duty Land Tax and, if for more than 7 years, is registerable at HM Land Registry.

Ground rent: at first sight the need for ground rent appears questionable to some leaseholders where they have bought the freehold of the block. However, leaseholders do still own their flats under a lease and the RMC is now the freeholder. There are a number of reasons for retaining ground rent as it is difficult to foresee what expenditure the RMC may have to incur in the future. The service charge may be spent only on those items that as set out in the lease. The ground rent on the other hand, is the income of the RMC and can be spent as the RMC thinks fit. This could be very useful where there are non-participating leaseholders who require the service charge to be spent in accordance with their “old” leases or if the RMC wishes to raise finance against the security of the freehold.

Legal responsibilities: some leases may be unclear as to the division of responsibilities for e.g. repair and redecoration of windows and balconies or other parts of the block which could be the responsibility of either party.

Calculation and division of service charge: One of the primary variations is to ensure that the service charge includes the expenses of running the RMC and that a modern and sensible method exists for calculation and collection of the service charge i.e. that expenditure is estimated for the coming year, payments are made on a quarterly or monthly basis with the ability to charge a balancing payment at the end of the year. If the lease states that service charges are to be apportioned in proportion to rateable values it may be particularly important to adopt another formula as rateable values are no longer revised and it can be difficult to ascertain what they are. Floor area is commonly used as the basis for the apportionment calculation.

Insurance: when considering a variation to the insurance provision it is desirable that the lease require the RMC as freeholder to insure against “all usual risks” or “all risks which are from time to time commonly included in the insurance of blocks of flats” which makes it clear that the clause covers changing circumstances and extends beyond those risks that were commonly included at the time when the lease was varied. Insurance may also need to cover items such as directors’ liability insurance and the RMC should be allowed, within the service charge provision, to charge for the insurance that the directors deem it expedient to take out.

Sinking fund: sinking or reserve funds to cover expenditure which does not occur each year, for example, interior or exterior redecoration, replacement of carpets or lifts, can strictly only be collected if the lease has an express provision to that effect. It is generally desirable to be able to collect a sinking fund so that the costs of such works do not fall on leaseholders who happen to own flats when these items of expenditure occur and so that such works can be properly planned and funded.

Sub-letting: this is currently one of the most controversial areas as flats are often attractive as investment properties. Some blocks wish to amend the leases to include a term which prohibits sub-letting. This needs to be approached with caution because an outright ban would not, for example, allow an owner occupier to sub-let whilst working abroad for a few years or where an elderly owner has gone into residential care. Some mortgage lenders are not willing to lend on properties where sub-letting is completely prohibited and if any flats are already sub-let it is unlikely that their owners will consent to including such a provision.

Control over alterations: it is common for the lease to require the consent of the freeholder before making alterations. The scope and relevance of this provision is important because on a literal reading it could be drafted so widely as to include, for example, fitted cupboards. As well as leading to burdensome administration when the consent is requested, if there is a perception that the provision is trivial or onerous there may be a reluctance to seek consent. Some clauses therefore confine themselves to structural alterations or to alterations which might reasonably affect other owners.

This article provides pointers to start the process of varying a lease but it goes without saying that one form of lease or variation will not suit all circumstances. Conversions, multi-storey blocks and purpose built retirement accommodation will all have their own particular aspects which will need to be addressed by the leaseholders, the

RMC and their legal advisors.

Rowena Wilson is a Committee Member of The Federation of Private Residents’ Associations (FPRA).

FPRA receives many queries about varying the leases of flats and has published a guidance booklet on the subject. If you would like to buy the booklet it is available from FPRA by telephoning 0871 200 3324 or

emailing info@fpra.org.uk.

For more information contact FPRA, www.fpra.org.uk