Case alert: Appeal case confirms RTM companies can apply to vary leases to include provisions for recovering costs associated with service charge arrears

In a landmark decision that could reshape lease enforcement across the property management sector, the Upper Tribunal has confirmed that the First-Tier Tribunal (FTT) holds the power to vary leases to include crucial cost-recovery clauses.

In the recent appeal case of 56 Westbourne Terrace RTM Co Ltd v Polturak & oths [2025] UKUT 88 (LC) the Upper Tribunal confirmed that the First-Tier Tribunal (FTT) has the jurisdiction under the Landlord and Tenant Act 1987 to vary a lease to introduce a costs-recovery clause. This would allow a landlord or an RTM company to recover costs related to enforcement actions for service charge arrears. The tribunal emphasised that the main issue is whether the lease provides satisfactory provisions for recovery of service charges, rather than whether the lease works as originally drafted. Specifically, under Section 35(3A), a lease fails to make satisfactory provision if it does not include a provision for recovering amounts due for unpaid service charges, such as through interest.

The Upper Tribunal provided guidance on how the FTT should approach an application to vary a lease under Section 35 of the 1987 Act. This includes determining whether the applicant is entitled to make the application, whether the lease fails to provide satisfactory provisions related to matters like repairs or service charges, and whether the variation would substantially prejudice any party. The FTT must also consider whether there are any other reasons preventing the variation. If the application meets these conditions, the FTT has discretion to grant the variation, with the Upper Tribunal suggesting that such variations should typically be approved.

In the case at hand, the Upper Tribunal agreed to introduce a provision for an administration charge to cover the costs of recovering service charge arrears and allowed the shortfall to be recovered through the service charge. This decision is significant because it confirms that RTM companies, which lack the power to forfeit leases, can apply to vary leases to include provisions for recovering costs associated with service charge arrears, ensuring they can take enforcement action to recover necessary funds for repairs.

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