Deed of Variation: Fixing a Defective Service Charge

A deed of variation is the standard way to change a long lease after it has been granted, and the usual reason a block needs one is that the service charge apportionments are defective. If every party to the lease agrees, the change is made by deed and recorded at HM Land Registry. If they do not all agree, a party to the lease can apply to the First-tier Tribunal under section 35 of the Landlord and Tenant Act 1987, and the tribunal can impose a variation that binds everyone, including future owners. The two routes differ sharply in cost and risk.

What a Deed of Variation Can and Cannot Do

There is no prescribed form. HM Land Registry’s practice guide 68 confirms that a deed varying a registered lease may take any form the parties consider appropriate, provided it is clear which parts of the original lease are being changed.

One limit matters more than the rest. A deed cannot simply lengthen the term or add land to the demise. HM Land Registry treats a deed that purports to do either as a surrender of the existing lease by operation of law and the immediate grant of a new one, whatever the deed calls itself, which has consequences for any mortgage over the flat. That is why term extensions are handled as a separate process.

Almost everything else is open to agreement: the definition of the block, the repairing covenant, the service charge year, and above all the proportion each flat pays.

The Apportionment Problem, and Why It Does Not Fix Itself

Defective apportionments take a small number of recurring forms:

• The fixed percentages add up to less than 100 per cent, so part of the expenditure is not recoverable from anyone.
• They add up to more than 100 per cent, so more is collected than is spent.
• Some leases give a fixed fraction while others say “a fair proportion”, with no mechanism for deciding what that is.
• The lease apportions by reference to a block or estate that does not match the building as built, or that silently includes a commercial unit nobody is charging.

A shortfall is not a drafting curiosity. It is a hole in the budget, met either by whoever holds the reversion or, more often, by leaseholders asked for sums their leases do not require them to pay. Demands based on a percentage the lease does not support are vulnerable, because the tribunal’s task under section 27A of the Landlord and Tenant Act 1985 is to decide what is payable under the lease as it stands, not what would have been sensible.

First Check: Does the Lease Already Allow Re-Apportionment?

Before anyone drafts a deed, read the service charge clause properly. Many leases already contain a power for the landlord or the management company to vary the proportions, often worded as “such other proportion as the landlord may reasonably determine”.

Such clauses were long treated as partly void, because section 27A(6) of the 1985 Act voids an agreement purporting to provide for a question to be determined in a particular manner. In Aviva Investors Ground Rent GP Ltd v Williams [2023] UKSC 6, judgment given on 8 February 2023, the Supreme Court held otherwise. Where the lease lets the landlord trigger a re-allocation and decide the revised apportionment, and obliges it to act reasonably, section 27A(6) does not remove that power. What it prevents is a clause making that decision final and binding so as to oust the tribunal, whose question is whether the re-apportionment actually made was reasonable.

So if your lease contains such a clause, you may be able to correct an unfair split by exercising it carefully and recording the reasoning, with no deed and no application.

Route One: Agreement, Consent and the Register

A consensual variation is a contract, so it binds only those party to it. Everyone with an interest in the lease being varied has to join in or consent, which in a typical block means more people than directors expect.

Lender consent is where consensual variations most often stall, and HM Land Registry treats it as part of the application rather than a courtesy. The registry records a variation by altering the landlord’s and the tenant’s titles, on a certified copy of the deed showing execution by landlord and tenant, together with the fee. Where a relevant title is charged, the chargee’s consent must be lodged unless the change benefits only that title, for example the grant of an easement in its favour, or the lender confirms in a letter that its charge is not adversely affected.

If consent is required and not produced, the registry notes on the register that the proprietor of the charge was not a party to the deed and that no evidence of its consent was produced. That note stays there, and the next buyer’s conveyancer will raise it in the management pack. Small blocks manage all this. Where forty leaseholders have to sign, one refusal ends it.

Route Two: The Tribunal Under Sections 35 to 38

Part IV of the 1987 Act gives any party to a long lease of a flat the right to apply for an order varying it. In England that means the First-tier Tribunal; in Wales, a leasehold valuation tribunal. A long lease is, in the main, one granted for a term certain exceeding 21 years. Part IV does not apply where the lease demises three or more flats in the same building, or where it is a business tenancy under Part II of the 1954 Act.

Section 35(2) sets out the grounds, and they are gateways rather than remedies: the lease must fail to make satisfactory provision for repair or maintenance, insurance, installations, services, the recovery by one party from another of expenditure incurred for that other party’s benefit, or the computation of a service charge.

Two gateways matter for apportionments. Section 35(2)(f), computation, is defined exhaustively by section 35(4): the charge is a proportion of the landlord’s expenditure, other tenants are also liable for proportions of it, and the aggregate would either exceed or fall short of the whole of that expenditure. The test is binary. If the percentages total exactly 100, that gateway is shut however unfair the split feels. Section 35(2)(e), recovery of expenditure between the parties, is broader, but it needs evidence that the lease genuinely fails to make satisfactory provision, not merely that the landlord would prefer different numbers.

Under section 37 each tenant counts as one of the parties concerned, a tenant under several of the leases counts as a corresponding number of them, and the landlord counts as one. The fees come from the First-tier Tribunal (Property Chamber) Fees Order 2013, which applies in England, and remission is available under its Schedule 2.

Two features of an order make this route attractive where unanimity is impossible. Under section 38(4) the tribunal may order the variation applied for or such other variation as it thinks fit, and under section 39(1) the variation binds the parties for the time being and other persons, whether or not they took part in the proceedings. It also binds a surety, who is taken to have guaranteed the obligation as varied.

What the Tribunal Will Not Do

Section 38(6) is the real filter. The tribunal must not order a variation if it appears that the change would be likely substantially to prejudice a respondent or a non-party and that compensation under section 38(10) would not be adequate, or that for any other reason it would not be reasonable in the circumstances.

Tower Hamlets Community Housing Ltd v Leaseholders of Painter House [2024] UKUT 37 (LC), decided on 9 February 2024, shows both stages. Twenty-two leases each paid one thirty-eighth of the expenditure on a block that also contained a large commercial unit occupied by the landlord, and two more paid “a fair proportion”. The Upper Tribunal held that “proportions” in section 35(4)(b) is not limited to numerical proportions: a descriptive share such as “a fair proportion” counts, so the section 35(2)(f) gateway was open. The judge called that gateway a blunt instrument, because passing through it does not entail a successful application.

The variation was refused all the same. The landlord wanted the 24 residential leases changed to one twenty-fourth each, making the flats responsible for the whole cost of insuring and maintaining the landlord’s ground floor offices. That would substantially prejudice the leaseholders and would be unreasonable. An assurance that the landlord would not actually charge those costs made no difference, because the varied leases are what a future buyer and a future freeholder would have to live with. The tribunal decides on the words you ask for, not on your intentions.

What It Costs, and What to Do Next

The published fees are small and checkable: £200 and £300 for a section 35 application, £114 and £227 under section 37, and £20 per application to alter the register by electronic means, or £40 by post, under the Land Registration Fee Order 2024. Practice guide 68 states only that the requisite fee is payable, so confirm the fee for your transaction before you lodge. The variable cost is legal work, driven by the number of leases, how far they differ and how much opposition there is. Anyone quoting a fixed figure without having read the leases is guessing.

Legal costs are rarely shifted between the parties. The tribunal can order costs only for wasted costs or where a person has acted unreasonably in bringing, defending or conducting proceedings, though it can order one party to reimburse another’s fee. The live question is whether the landlord or management company can put its own costs through the service charge. A leaseholder can apply under section 20C of the 1985 Act for an order that those costs are not relevant costs, and in England under paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 to reduce or extinguish liability for litigation costs charged as an administration charge. Budget on the basis that the costs may stay with the company.

One point of timing: section 53 of the Leasehold and Freehold Reform Act 2024 will replace “service charge” with “variable service charge” in section 35(2) and (4), but it was not in force at Royal Assent and takes effect only when commencement regulations are made. It changes terminology rather than the test.

Start with evidence rather than drafting. Get a copy of every lease in the block, tabulate the stated proportion for each flat, add them up, and note which leases use a descriptive share. Compare the total with what has actually been demanded. If there is a gap, take advice on whether the lease already permits re-apportionment before spending anything on a deed, and minute the board’s reasoning, because directors are deciding something that affects the company’s ability to recover its costs at all.

Plymouth Block Management works from the leases rather than from habit, which is how apportionment shortfalls usually surface. Our fee is fixed and agreed in advance and we take no commission on contractor invoices, so a view on whether a variation is worth pursuing is not tied to the work it would generate. If you want that view on your block, speak to us.

Common Questions

The questions directors ask most often once a shortfall has been identified.

Sources

Everything above is taken from these, not from a summary of them:

1. Landlord and Tenant Act 1987, section 35 legislation.gov.uk
2. Landlord and Tenant Act 1987, section 36 legislation.gov.uk
3. Landlord and Tenant Act 1987, section 37 legislation.gov.uk
4. Landlord and Tenant Act 1987, section 38 legislation.gov.uk
5. Landlord and Tenant Act 1987, section 39 legislation.gov.uk
6. Landlord and Tenant Act 1987, section 59 legislation.gov.uk
7. Landlord and Tenant Act 1985, section 27A legislation.gov.uk
8. Landlord and Tenant Act 1985, section 20C legislation.gov.uk
9. Commonhold and Leasehold Reform Act 2002, Schedule 11 paragraph 5A legislation.gov.uk
10. First-tier Tribunal (Property Chamber) Fees Order 2013, Schedule 1 legislation.gov.uk
11. Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, rule 13 legislation.gov.uk
12. Leasehold and Freehold Reform Act 2024, section 53 legislation.gov.uk
13. Practice guide 68: amending deeds that effect dispositions of registered land HM Land Registry
14. Practice guide 28: extension of leases HM Land Registry
15. HM Land Registry: Registration Services fees HM Land Registry
16. Land Registration Fee Order 2024, Schedule 3 legislation.gov.uk
17. Tower Hamlets Community Housing Ltd v Leaseholders of Painter House [2024] UKUT 37 (LC) Find Case Law, The National Archives
18. Aviva Investors Ground Rent GP Ltd v Williams [2023] UKSC 6 Find Case Law, The National Archives
19. Leasehold property: extending, changing or ending a lease GOV.UK

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