2012 seems to be a bumper year for cases under s.37, Landlord and Tenant Act 1987. Having had (so far as I can tell) none in the previous 20-odd years, we’ve now had two. The first was covered by us here and the second has just been handed down by the Upper Tribunal.

For those who don’t spend their spare time reading little-used statues, the 1987 Act provides the LVT with power to vary residential leases. There are two distinct routes. The first (s.35) is predicated on the leases containing one or more specified defects. The second is a broader power which isn’t tied to any particular defect, but simply requires a qualified majority of leaseholders not to oppose the variation (s.37). In each case the power to vary is discretionary and cannot be exercised if to do so would cause substantial prejudice to a party which cannot be adequately met by a payment of compensation.

Shellpoint and another v Barnett and others [2012] UKUT 245 (LC) is a very complicated case and it’s hard to draw a clear line between decisions on the facts of the case and wider points of law. If you read the decision, you’ll see the sorts of criticism that are made of the landlord and it seems clear that these criticisms played a signifcant part in the decision.

In outline, the landlord was seeking two “classes” of variation under s.37. The first related to a communal heating system that he wanted to remove and to replace with individual boilers in each flat; that in turn necessitated variations to the service charge provisions, insurance covenants, etc. That application had been granted by the LVT and did not arise for consideration on appeal.

The appeal focused on the variations which the LVT had refused. In broad terms, these sought to dramatically extend the scope of the landlord’s powers to recover legal and professional costs under the lease so as to include not just the costs of management but also of enforcing all covenants and all forfeiture proceedings. The LVT had declined to make these variations; although the landlord had suggested that these were the quid pro quo of the boiler variations, the evidence had not borne this out nor had it explained why they were necessary at all.

The UT dismissed an appeal. When approaching a case under s.37, the first issue for the LVT is to identify the “object” or “objects” to be achieved by the proposed variation which it should usually do with reference to the applicants evidence and submissions. The evidence should show what problems have arisen and how these address them.

The LVT should then go on to consider whether the object can be achieved without varying the lease. It should ask itself whether the variation achieves the object and, if so, whether all the leases need to be varied. Again, the applicant must adduce evidence to make good this point.

Then the LVT should consider whether to make the variation sought (or some modification). The fact that a majority of parties do not oppose the application is not determinative; s.37 does not exist to allow the re-writing of leases merely because that is the will of the majority or even simply because the variations are sensible.

In the present case, the appellants had not adduced evidence to make good its application. The arguments on the appeal were characterised as a “complete re-working” of the case as presented to the LVT. There was no evidence of any problems that needed to be remedied by extending the costs recovery powers and, in any event, the lease already made provision for certain costs to be recovered.

Even if those problems had been overcome, it was clear that a hugely extended costs recovery clause would cause substantial prejudice to the leaseholders and they could not be adequately compensated (s.38). There was a distinction between recovering costs of pursuing service charges and of costs associated with all other covenants. The danger was that there would be never-ending litigation as the leaseholders would have to apply to the LVT again and again for orders under s.20C, Landlord and Tenant Act 1985, to prevent them from being lumbered with the costs of pursuing other leaseholders.