1. This section allows a group of Leaseholders with the same Landlord to apply together to vary the terms of their Leases.
2. The leases do not need to be identical, and nor do they need to be in the same building.
On what Grounds can an Application be made under Section 37?
1. Three conditions must be satisfied in order for an Application to be made under Section 37:
i. It must be necessary to vary all the leases in order to achieve whatever purpose for which the variation is being proposed.
ii. If there are 8 or less Leases affected by the proposed variation, at least all but one of the parties must consent to the variation. The landlord counts as one of the parties. Which means in cases where 8 or less Leases need to be varied, if the Landlord does not agree 100% of the Leaseholders must actively support the application.
iii. If there are 9 or more Leases to be varied. At least 75% of the parties must actively consent to the Application, and no more than 10% of the parties must oppose it. Again the Landlord counts as one of the parties. Which means that if there are 9 leases, and the Landlord does not support the Application, at least 8 of the Leaseholders must support the Application and none actively oppose it.
2. For the purpose of points 2 and 3 above, each Lease is considered to be one ‘party’, even if there are several persons sharing ownership of a Lease.
Why make an Application under Section 37?
1. An Application under Section 35 of the Landlord and Tenant Act 1987 to vary a lease can only be made on the basis that the leases or leases involved are ‘defective’.
2. Section 35 provides a list of 6 ways in which (for the purposes of this section of the 1987 Act) a lease might be considered defective.
3. An Application under Section 37 does not need to be made to correct one of the 6 defects listed in Section 35; it can be made for other reasons such as to correct a perceived unfairness in the terms of the leases concerned.
Potential Difficulties for Leaseholders attempting to make an Application under Section 37
1. The principle difficulty is getting a sufficient majority of Leaseholders to agree to change the Lease in order to make use of Section 37.
2. It can be very difficult to get people to work together. Sometimes in these situations Leaseholders find that they whilst they feel strongly about an about an issue, their neighbours are more indifferent and unwilling to get involved.
3. The other problem is that varying leases can result in winners and losers amongst the residents of a building, and it may be difficult to persuade the ‘losers’ to join in. For example:
i. Imagine a building which split into two parts, but defined as a single building in all the Leases concerned. In one part of the building there is a lift, but in the other part of the building there is not.
ii. The Leaseholders in the part of the building without the lift may feel it is unfair that they are required to pay for the lift although they do not use the lift to access their flat.
ii. The Leases involved would be unlikely to be judged as defective under the terms of Section 35 of the Landlord and Tenant Act 1987 if the Service Charge contributions of all the residents (in both parts of the building) added up to 100% of the landlord’s costs.
iii. At the same time the Leaseholders of the part of the building without the lift may have great difficulties in convincing the Leaseholders in the part of the building with the lift to join their Application under Section 37 to split the building into two for the purposes of Service Charge billing. The reason being that the Leaseholders in the part of the building with the lift would end up paying up higher Service Charges as the cost of the lift would no longer be subsidised by the Leaseholders in the part of the building without the lift.
iv. In this type of situation the rules in Section 37 requiring that a large majority of the Leaseholders support the Application would effectively stop the Leaseholders who were disadvantaged (by paying for a lift they don’t use) from getting their Leases changed.
Relevant Case Law
See the section of our case law library on Applying to Vary the Terms of a Lease
Click on the link to read more about The Landlord and Tenant Act 1987