Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

APPOINTMENT OF A MANAGER

We have recently seen a rise in the number of enquiries from long leaseholders dissatisfied with the management of their building. Often after the leaseholders have themselves taken over the management.

Many of our readers will be aware that the Commonhold and Leasehold Reform Act 2002 introduced Right to Manage (RTM). This was a non-fault ground that if the majority of leaseholders in a building wished to take over management then in effect they could do so. The process was thought to be straight forward but the rise in cases before the First Tier Tribunal Property Chamber and subsequent appeals to the Upper Tribunal are a clear indication that many freeholders will not give up management without a fight. Even when the process has been followed dissatisfaction can still exist with some leaseholders unhappy with the conduct of others.

So what other options are there? The Landlord and Tenant Act 1987 provides an alternative route. To follow this it is first necessary to show that in some way the body managing the development is not complying with its statutory duties and requirements under the lease. Any one leaseholder is entitled to follow this procedure.

Initially a Notice must be give to the freeholder and the person managing under section 22 of the 1987 Act. This notice needs to give details of what the perceived difficulties are and suggest how the manager can remedy the same. If the landlord and manager do not then remedy the breaches within a reasonable period of time an application can be made to the First Tier Tribunal Property Chamber inviting them to appoint a manager.

At the hearing the Applicant has to justify to the Tribunal that it is “just and convenient” to appoint a manager. Generally the Tribunal will want to be satisfied that the current appointee has not been complying with the lease and statute. The Tribunal will also take account the views of other leaseholders and the freeholder. The Tribunal will consider all points to try and determine if the imposition of a manager will improve the lot of the leaseholders to ensure good management of the building.

It is for the Applicant to source a person to be a manager. Generally the Tribunal will want to appoint a professional who can demonstrate that they fully understand what is required of them, will follow one of the approved statutory codes of management (such as the RICS Residential Service Charge Code), have sufficient professional expertise and hold insurance. The proposed manager will normally be required to attend any hearing and in effect be interviewed by the Tribunal to satisfy them as to the suitability. The reason for this is that the Manager (who may also be given powers as a Receiver) is an appointee of the Tribunal and answerable to them in the first instance rather than the parties to the leases. The management order will set out comprehensively the terms of appointment including prescribing the fees the manager can charge, the length of the appointment and other rights give to them. If anything is not covered or difficulties arise any party (including the manager) can then apply to the Tribunal for further directions. Typically an appointment will initially be for two or three years and before the Order lapses it is possible for the parties to apply for an extension of the same.

The benefit is that an entirely independent manager is appointed who is personally answerable (as the Order always names a specific individual) to the Tribunal. We have seen a rise in situations where the leaseholders have taken over management (either as a result of an RTM or collective enfranchisement) but issues have arisen. All too often we come across situations where factions arise who do not wish to strictly comply with the lease or statute. When such agreements are unanimous this can work but there are risks. In these circumstances the imposition of a manager may be better for all parties to resolve disputes. It is also worth noting that the leaseholder(s) who apply will themselves have no liability for the management. In forming and setting up an RTM their will be costs which the participating leaseholders are joint and severally liable for and those leaseholders whop become Directors of an RTM also have responsibilities under the rules and regulations governing companies.

These situations typically are complicated but appointment of a manager can be an effective method of resolving long residential leasehold management problems. We at PainSmith are happy to advise on any such matters, including assisting in finding managers prepared to accept such appointments.

Filed under: England & Wales, , ,

Phillips v. Francis: Permisssion to Appeal granted

At the end of last year we were all faced with the Judgement in Phillips v. Francis [2012] EWHC 3650 (Ch). No doubt those of you with an interest in long leasehold matters and particularly property management will recall that Sir Andrew Morritt, The Chancellor, in what is believed to be one of his final judgments, determined that the test for qualifying works requiring consultation under the Landlord and Tenant Act 1985 required all qualifying works to be considered together. If the total cost would exceed £250 then consultation was required.

He determined that it was a case of looking at qualifying works as a whole in the relevant service charge period and if the cost would exceed the threshold for consultation then the landlord/managing agent should consult. So if the cost of repairs (no matter what was included) in any one service charge period would mean that any one leaseholder would have to contribute more than £250 (the current threshold) then consultation should take place. Prior to this the practice had been that elements could be broken down and it was a question of looking at the particular works and consulting on those for which the contract sum would result in a charge above the threshold.

The Supreme Court in Daejan v. Benson offered some relief in its decision earlier this year. Here the Supreme Court determined that generally dispensation for a failure to consult should be granted although conditions may be attached. However the Francis decision continued to cause much consternation.

It appears initially the Landlords did not appeal due to a lack of funds. It is understood that they have now gained support from interested parties including ARMA and RICS. An application for permission to appeal and an extension of time was made. This application was granted by the Court of Appeal yesterday, 18th November 2013, with Lord Justice Gloster giving Judgment.

The Court of Appeal accepted that there was a point of principle such as to satisfy Civil Procedure Rule 52.13. As a result time was extended and permission to appeal granted with the court taking account of the unprecedented industry interest and concern over the original decision.

It would appear the Respondents are concerned that the Appellants have assistance from various parties with the appeal yet supposedly no party has come forward to offer assistance to the Respondents. Various other arguments were raised which it is understood they will continue to pursue at any substantive hearing of the appeal.

It seems likely that the full hearing will come before the court at some point next year and so for the time being the position as to when to consult appears to be in a position of flux. As we learn more we will post updates.

We would like to thank Anneli Robins a pupil at Arden Chambers who attended the hearing and prepared a note and Justin Bates, also of Arden Chambers, for supplying us with a copy of the same.

Filed under: England & Wales, , , ,

Whose address? Sections 47 and 48 Revisited

We have heard on the grapevine that some agents are currently being advised that following the Land Tribunal ( Upper Chamber) decisions of Triplerose Ltd v Grantglen and Beitov Properties Ltd v Elliston Martin , they should not use an agent’s office and address as an address for service for the purposes of Sections 47 and 48 of the Landlord and Tenant Act 1987 (LTA1987). There have even been suggestions that tenancy agreements should be amended to require the tenant to serve notices on both the landlord and the agent. We disagree.

The Beitov and Triplerose cases concerned service charges, and the decision was crucial to long leasehold premises. We blogged on this here.

Section 47 of the Landlord and Tenant Act 1987 (LTA1987) provides that where any written demand is given to a tenant of residential leasehold property, then that demand must contain:
a) the name and address of the landlord and
b) if that address is not in England and Wales, an address for service.
and that any part of the amount demanded that consists of a service charge will not be treated as being due until such information is furnished by notice given by the landlord to the tenant.

The Beitov case decided that the wording of s47 means that where any written demand is given to the tenant the Landlord must put his or her actual address on the demand, not a care of address or agent’s address. A demand for service charges will be invalid without. The sanction for failing to give the actual landlords address in section 47 of the LTA 1987 is that service charges are not due.
However assured shorthold tenancies do not require the payment of service charges. The sanction for breach of section 47 is of no consequence.

By contrast, ASTs are affected by the provisions of s48 of the Act. The sanction for failing to comply with s48 is that rent is not treated as falling due BUT s48 requires only “an address in England and Wales at which notices may be served on him by the tenant”.

In short we disagree for two reasons:

1. Rent is covered by s48 – and where it is demanded the requirement is only to supply an address for service in England and Wales
2. Requiring tenants to serve notices on both landlord and agent is too onerous an obligation in residential AST lets. There is too much scope for the tenant to get confused and fail to serve on one or other address. Arguably such a term would be unfair and unenforceable, especially as Landlord only has to serve on the property.

Our position remains that it is fine to use an agent’s address for service in ASTs.

Filed under: England & Wales, , , , , ,

Leasehold Valuation Tribunals, are they no cost forums?

Over the past year or so we have read some of the debate that has been ongoing over the recoverability of legal costs at the Leasehold Valuation Tribunal (LVT).

The starting point as with most Tribunals in England and Wales is that they are a none costs shifting forum which in simple terms means that each party is responsible for their own costs and the Tribunal will not order the losing party to pay the other sides costs. This means that any costs which either side incurs will be for them themselves to pay. In the LVT under the current rules (which are due to change in July when the LVT becomes part of the new Lower Tribunal (Lands Chamber)) if a party has behaved vexatiously or unreasonably the LVT can order that that party pays to the other side up to £500 towards any costs which have been incurred. Such Orders are rare.

The situation is however muddied in that in disputes before the LVT, which will inevitably involve Leaseholders and Freeholders, there will be a contractual relationship between the parties being the lease. Often leases will include a clause allowing a Freeholder to recover legal costs in connection with disputed service charges as a management expense. If so it may be recovered under the service charge and so even though the Freeholder has perhaps “lost” at the LVT the costs they have incurred can be recovered from all the Leaseholders. Also some leases contain clauses that allow a Freeholder in certain circumstances to recover LVT costs directly from any one Leaseholder who sought to bring a challenge as an Administration Charge.

What this means is that Leaseholders as we have said in previous posts need to carefully consider what the terms of their leases provide. If the lease does not allow recovery then the risk may only be the £500 if a Freeholder can satisfy an LVT that conduct was frivolous or unreasonable but care needs to be taken.

So what can Leaseholders do? It is important to remember that LVTs are simply creatures of statute and so have to operate within the framework that Parliament has laid down for them. Certain safeguards are in place. In particular it is possible for Leaseholders to make an application under section 20C of the Landlord and Tenant Act 1985 to seek limitation of the costs which a Freeholder can recover as a service charge expense. The LVT has broad powers and discretion. It is vital that Leaseholders make such an application and think carefully about the reasons. These do not simply have to be limited as to whether they win (since submissions will often be made before the LVT has issued its decision) but should explain why the application was necessary to be made or responded to and in what ways the Freeholder may have been unreasonable such as failing to enter into constructive dialogue etc.

The LVT can then look to make such an Order. This may prevent the recovery of whole or part or even fix the amount which can be recovered. This would then bind a Freeholder in respect of recovery via the service charges whatever the terms of the lease may provide. If however the LVT declines to make an Order the Leaseholder can still challenge the reasonableness although this challenge itself may incur costs.

With regards to recovery from a Leaseholder directly this would be an Administration charge and again can be challenged as to reasonableness and the payability via the LVT. For challenges of this type it is worth taking advice on the specific terms of the lease and what may be considered reasonable. This will involve looking at the specific lease terms and then going on to look at the circumstances as to how the costs were incurred and what work was undertaken.

As can be seen in terms of the rules of the LVT it is fundamentally a no costs forum (and the change in July to the new Tribunal is not likely to fundamentally change this). The problem is that everyone is bound by their lease terms as to what can be recovered. In the throes of purchasing a property all too little time is often given to looking at what can and cannot be recovered under a service charge. A good understanding as to the terms of your lease and your ownership can prove worth its weight in the long run.

Filed under: England & Wales, , , , ,

Read the Lease!

A recent decision of the Upper Tribunal (Lands Chamber) in Sadd v. Brown [2012] UKUT 438 (LC) stands to remind us that it is always important that you read and understand the terms of the lease.

The case was about the recoverability of an insurance premium. In the past all parties to the lease had assumed that it allowed the recoverability of the costs incurred by the landlord in insuring the building. At first instance the LVT decided that whilst the amount charged was reasonable on the true construction of the lease the premium was not payable by the leaseholder. It would appear that this point was not itself taken by the parties but raised by the LVT itself.

Once again the Upper Tribunal made clear to the LVT that it is not for them to take points and certainly not without referring the issue to the parties for their comments. If we stop there it is important that all parties in approaching the LVT bear in mind that panels are now less likely to raise issues of their own motion and so parties must make sure they have properly considered what points they may have in their favour. The Upper Tribunal has made clear over the past 18 months that the LVT should be slow to interfere and raise points if not raised specifically by the parties.

The above being said the Upper Tribunal took the view given the landlord as part of its appeal had put forward its arguments it was reasonable for the upper Tribunal to determine the issue. The landlord contended that it was unusual for a lease to not include a term allowing the landlord to recover the cost of the insurance. He relied upon the fact that until this application both parties had assumed that the lease did allow recoverability. The landlord invited the tribunal to imply such a term into the contract relying upon Liverpool City Council v. Irwin [1977] AC 239. The Tribunal took the view that given this was a lease containing detailed provisions regulating the parties relationship and on the face of it contained all terms it was not appropriate to imply such a clause. Further the Tribunal took the view that it was not necessary to imply such a term to give effect to any other terms of the lease in the way that often the term “reasonable” is implied. Finally the tribunal decided that it was not necessary to imply such a term to give business efficacy to the lease (although we are sure the landlord did not agree with this!).

As a result the appeal was dismissed and the landlord could not recover the cost of insurance as the lease did not allow recoverability. As we have said before it is vital that a careful review of the lease is made. Anyone taking on block management should always ask to see all the leases and check with the Land Registry that no variations have been granted. Only when you have done this will you be sure as to what can and cannot be recovered as any failings are likely to find themselves laid at the managing agent’s door if they have not previously been drawn to the freeholder’s attention

Filed under: England & Wales, , , ,

Consultation for Repairs on Long Leaseholds

We all await the Supreme Court ruling in the Daejan v. Benson case which hopefully we will receive judgement on soon. Shortly before Christmas the High Court Chancery Division got in on the act. It ruled in the case of Phillips v. Francis [2012]EWHC 3650 (Ch).
In brief the facts are that this related to a holiday park consisting of various chalets let on long leases. A dispute had arisen over charges levied by the freeholder. From the point of view of this article the interesting point was whether the consultation requirements imposed by the Landlord and Tenant Act 1985 as amended applied to “repair” costs. The issue was what are “qualifying works”.

The court considered the definition of “qualifying works” set out in the Act which provides that these are “works on a building or any other premises..”. Consideration was also given to a case decided prior to the current legislative framework being Martin v. Maryland Estates [1999] 2 EGLR 53 but this case was discounted as being of relevance.

Whilst only a High Court decision, the decision itself was given by the Chancellor of the High Court . He determined that all works should be bought into the account to calculate the contribution and then apply the limit. In essence what this means is that all repair works carried out in any service charge period should be lumped together and then if any one leaseholders contribution exceeds £250 then consultation should be undertaken. The Judge said it is not appropriate to simply break the works down into what he termed “sets of qualifying works”.

This means that where a leaseholder has been presented with a service charge account with any item over £250 including for repairs undertaken in a twelve month period they may be able to challenge this to have a cap applied. Typically repair costs in an account may be made up of various relatively minor ongoing maintenance issues which have arisen during that period none of which it was imagined individually would require consultation.

For Landlords this poses a dilemma. For past charges they need to see if challenged. If so Landlords will then need to consider whether they look to make an application for dispensation from consultation. Currently, whilst the outcome of Daejan is awaited, this is certainly not a forgone conclusion. Alternatively every year they will need to consult on the process they will seek to adopt for repairs, although practically it is difficult to see how this can properly be undertaken. It may be that this decision itself will be appealed.

What is clear is that this year is going to see much debate on the question of consultation. It appears to us as the regulation over consultation grows and becomes more complex it is likely that the costs charged by Managing Agents (either for management in general and consultation in particular) are likely to rise to take account of the increased work and the risks involved in providing this service.

Filed under: England & Wales, , ,

Service charges: Reasonableness of charges caused by breaches of other leaseholders covenants

An interesting case recently came before the Upper Tribunal (Lands Chamber) relating to what is the position when service charge costs have risen because of the breach by some leaseholders of their covenants.

 In the case of Liverpool Quays Management Limited v. Carol Ann Moscardini [2012] UKUT 244(LC) The President of the Upper Tribunal considered these points and various other points on appeal from the LVT.

 The facts were that this development in Liverpool was directly adjacent to the Liverpool Echo Arena which opened in 2008.  As a result of this and the fact that the development was experiencing problems from short term lettings of the flats the cost of providing security for the estate escalated significantly with the costs approximately doubling.  The Respondent challenged these sums and the LVT at first instance disallowed part reducing the amount to that of previous years stating that there had been “excessive increases over previous years”.

 The leases contained no covenant against short term letting although they did contain the usual provisions re nuisance and covenants that the properties only be used as private apartments and not for trade or business.  There was a covenant for enforceability by the management company but Mrs Moscardini had not exercised this.  Mrs Moscardini submitted that the real reason for the increase was as a result of the management company not properly policing and controlling short term and hotel type lettings leading to various problems including a large number of incidents involving the police.

 Invoices were produced by the management company and a director explained how the contractor had been chosen.  The President was satisfied that the increase was due to the opening of the arena and the problems with the short term lets.  He was satisfied that the response was adequate and the service provided was of a reasonable standard.  Whilst he recommended that the management company did look at taking some enforcement action he did accept that there response in increasing security was proportionate (and recoverable under the lease) and even if they had taken action this may not have successfully dealt with the problem during the period in question. Such action was a long term solution and would not alter the need for security.

 What is clear is that the President in reaching his decision was trying to balance the invidious position the management company found themselves in.  This is a not unusual situation where leaseholders are faced with a proportion of leaseholders not sticking to the terms of the lease.  For the management company they may not have funds available to take action directly themselves without some mandate from the leaseholders.  Most leases today have a mutual enforceability covenant which can be relied upon although as in this case it may require the leaseholder to offer some form of costs indemnity.   It would have been interesting to see if the decision would have been different if Mrs Moscardini had looked to exercise this or the application was supported by a wider group of leaseholders who could show a pattern of complaints to the management company.  The implication is that it might have been different if the management company had not then acted to deal with this nuisance. 

 Clearly if you are faced with a situation where you believe service charges are increasing due to breaches of covenant pressure should be bought to bear upon the management company to take action.  You should try and involve other leaseholders for them also to complain and require action by the freeholder or management company.  Records should be kept.  Whilst some freeholders will then take action if asked for an indemnity or some money on account it would always be wise to take advice to check what your liability is going to be or what action you can expect.

 One of those situations where perhaps it is important to understand fully your lease not just for what you can do but what you can prevent other doing!

Filed under: England & Wales, , ,

Appeals from the LVT and the Upper Chamber (Lands Tribunal)

Applications to the LVT appear to be on the rise.  Whilst currently the rules for these Tribunals are subject to consultation pending the formation of the Lower Tribunal (Lands Tribunal) it is worth reminding everyone about the current rules.

 Once you receive a decision of the LVT you have 21 days from the date when it was sent to apply for leave.  The Tribunal has produced a standard form for making such an application although this is not mandatory.  This time scale is quite short and it is open for a party within this period to request an extension of time together with reasons which the LVT will then need to consider.

 Generally as with most applications for leave to appeal the original panel will be reluctant to grant leave unless it is a clear cut case or there is some particular point of principle.  The reasoning behind this is that generally it is felt that the appellate court should determine what work it is hearing.

 If leave is granted the appeal continues to the Upper Tribunal.  If not granted it is then open to the parties, again within 21 days, to renew the application to the Upper Tribunal who will have the final say.  It is worth remembering that appeals to the Upper Tribunal can be by way of re-hearing in appropriate cases.

 Once a decision has been made by the Upper Tribunal this in effect is a final determination.  The Court of Appeal has recently considered the matte3r in the case of The Wellcome Trust Limited v. 19-22 Onslow Gardens Freehold Limited [2012]EWCA Civ 1024.  In this case the Court of Appeal reiterated that there was no right of appeal to the Court of Appeal. A challenge to the decision should be made by way of application for judicial review in the Administrative Court.

 So that is the process if you need to appeal.

Filed under: England & Wales, , ,

Forfeiture of Residential Long Leases

For sometime there has been debate as to whether a County Court default Judgment satisfied the requirements of Section 168 of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) and section 81 of the Housing Act 1996 (“the 1996 Act”)

The section of the 2002 Act provides that a Landlord cannot serve a forfeiture notice in respect of a tenant’s breach of covenant until a Court or Tribunal has determined that the breach has occurred. The 2002 Act introduced a special procedure for the Leasehold Valuation Tribunal (“the LVT”)to determine breaches of covenant. The 1996 Act provided that there needed to be a final determination or agreement before forfeiture could take place.

Many landlords continued as part of their debt collecting processes to issue proceedings in the County Court and obtain default judgements which they then relied upon to seek forfeiture. If claims for service charges in the County Court are defended then often they will be transferred to the LVT for a determination. Until recently it was not clear as to whether a default judgement was a final determination with two results in cases, one saying it was a default judgement and the other the opposite.

In Church Commissioners v. Koyale Enterprises and Thaleshwar [2012] 21 EG 96 at first instance the District Judge determined that a default judgement was not a final determination and therefore section 81 of the 1996 Act was not satisfied. The landlord appealed.

The matter then came before HHJ Dight at Central London County Court. He ruled that where a default judgement had been entered the issues were to be treated as “determined” between the parties and that for the purposes of section 81 of the 1996 Act a default judgement was a determination.

In his view the leaseholders had been provided with an opportunity to mount a challenge to the charges if they had chosen to do so. Simply deciding that a default judgement was a “final determination “did not prevent the leaseholders form subsequently challenging (e.g. making an application to set aside the judgement). The judge was concerned that requiring an actual hearing in circumstances where no defence was filed would be unfair on landlords and increase pressure on the courts. For all of these reasons the judge decided that a default judgement was a final determination.

It seems that the judge was perhaps swayed by the practical difficulties that would arise if a default judgement was not a final determination. This may require landlords in service charge cases to require the Court to hold a hearing even when the leaseholders had not looked to defend. Clearly at a time when the Court Service is under enormous pressure this was not appealing particularly given the whole process of seeking a judgement does allow the defendant an opportunity to appeal.

What this case means is that in respect of service charge arrears recovery freeholders and landlords can rely upon County Court default judgements as the basis for forfeiture. For landlords this system is seen as relatively quick and user friendly for the majority of claims which are not defended. If a landlord thinks a matter may be defended they may still wish to consider whether to use the County Court or the LVT and both options are open. Hopefully we do now have some clarity on this difficult issue although the Courts still remain reluctant to forfeit a residential lease for what are often modest service charge arrears when considered against the value of the leasehold interest.

Filed under: England & Wales, , ,

Are In House Solicitors Costs recoverable as service charges or administration fees?

In OM Property Management Limited v. Mr Olajide Olaleye [2012] UKUT 102 (LT) the Upper Tribunal (Lands Chamber) had to consider whether legal costs incurred by an in house solicitor of dealing with an application to the Leasehold Valuation Tribunal (“LVT”) could be recoverable as a service charge. At first instance the LVT determined these were not a “cost” and therefore the legal costs were not recoverable. The respondent appealed this decision. They sought to rely upon Re Eastwood (deceased) [1985] 1 Ch 112 which set out the principle that the costs of an in house solicitor are to be dealt with on the same basis as if the costs were incurred by an independent solicitor. The Upper Tribunal agreed there was no reason to depart from this authority. As a result the costs incurred by the in house solicitor were recoverable.
What this decision means is that whilst a person is entitled to challenge the rate charged for work carried out, it will be up to the solicitor to demonstrate how the rate has been calculated and that it is fair. It is not correct or acceptable to say no costs are payable because an in house lawyer is used. Whilst this decision applied to a service charge dispute it seems there is no reason why this cannot apply to all matters under which costs may be an issue in a matter heard before the LVT. This decision is likely to apply to Leasehold Reform Housing and Urban Development Act 1993 claims for costs of enfranchisement or lease extensions made by a freeholder. Simply because a freeholder or managing agent decides to use in house expertise will not necessarily prevent them from recovering the reasonable costs of such an arrangement.

Filed under: England & Wales, ,

Beginners guide to Long Residential Leases

For many people the first property they buy is a long leasehold flat. This is, of course, the most complicated form of home ownership yet many people get little or no explanation of the realities of what is involved.

As a long leaseholder you are a type of tenant. Fundamentally you are bound by the terms of that tenancy which are are set out in the lease subject to the various statutory rules and regulations. Whilst very few leases are identical in form (even within the same development often) they will have various common elements and it is these that we intend to cover. There is however no substitute to obtaining proper comprehensive advice on your lease terms when you purchase and a good lawyer will do this.

The basics are how long is left on the lease and the rent. The first element is important since this can have a bearing on the cost of obtaining an extension ( see our blog post on this topic) and also how saleable the lease is. Generally in our experience a lease with less than 80 years remaining can now be difficult to sell. It is then important to know the rent. You should also check if there are any rent review provisions and make sure you understand these. It is important to bear in mind that the amount of ground rent will have a significant effect on the price of any extension.

The next important sections to understand relate to repairs: who is responsible for repairing in leases. Often you will be responsible for all internal repairs and redecorations and the landlord for all external. It is important to make sure these clauses are comprehensive and clear to prevent dispute later. Elements that are often worth checking are things such as who is responsible for repair and replacement of windows particularly if you are on a raised floor of a block.

Insurance: this will usually be the landlords responsibility subject to you repaying the costs. Again best to check although if you are getting a mortgage your lawyer should have checked this.

Service charges: often in practice for people living in a flat cause the most problems. It is important that you fully understand the clauses relating to these. Normally there will be a mechanism for determining the total service charge and then how this will be divided up and when you will be notified. Often theses clauses are detailed and require the landlord to jump through various hoops before the service charge is payable. Understanding these and what sums may be charged such as reserve funds will help you better understand one of the major liabilities of living in a flat and one which many leaseholders have no control over. Remember it is often for the freeholder to plan the schedule of works with little regard for the leaseholders personal circumstances.

Can I sublet and alter the flat? Again most leases will have specific provisions as to what is required. Many leases require you to obtain the consent of the freeholder in advance and you are likely to have to pay the freeholders costs. Again if this is an issue make sure you check and make enquiries of your freeholders.

The other thing that people often make assumptions about is what they are buying and rights they have over communal areas and grounds. Again it is best to check to make sure you are getting what you thought such as parking spaces and garages. Just because there is for example a garden does not automatically mean you will have right of access. Things like this should be explained to the lawyer who can check. Remember if you do not ask you may not get an answer!

This article provides an overview of what practically can be the important points for someone buying. Leases are often complex even for lawyers and so do not be afraid to ask. It is vital that you do understand this document since even in blocks where leaseholders own a share of the freehold you are required to comply with your lease.

Filed under: England & Wales, ,

Can the freeholder recover costs incurred in pursuing me at the LVT as service charge?

The above question is one which frequently arises when a claim has been made by a freeholder to the LVT to determine the reasonableness of service charges.

Obviously it is always open to the tenant to request that the LVT in determining the application will exercise it’s discretion and make an order under Section 20c Landlord and Tenant Act 1985. If such an order is made the LVT can order that no costs will be added to the service charge accounts or limit the amount/proportion that may be recovered. If the freeholder is generally successful in their application often the LVT will not make such an order and so then the costs may be recoverable.

As various articles have said it is then important to look at the terms of the lease. Unless the lease allows recovery the freeholder will not be allowed to recover these costs.

Recently the Court of Appeal had to consider the interpretation of the lease in Freeholders of 69 Marina, St. Leonards-on-Sea –Robinson, Simpson and Palmer v John Oram and Mohammed Goorun [2011] EWCA Civ 1258 .

In this case the freeholder had brought proceedings in the LVT to determine the reasonableness of the service charge and subsequently looked to recover the costs. Proceedings were issued in the County Court who determined at first instance that the costs were recoverable under clause 3(12) of the lease which said:

“pay all expenses including solicitors’ costs and surveyors’ fees incurred by the landlord incidental to the preparation and service of a notice under section 146 of the Law of Property Act 1925 or incurred in or in contemplation of proceedings under section 146 or 147 of the Act…. and to pay all expenses including solicitors’ costs and surveyors’ fees incurred by the landlord of and incidental to the service of all notices and schedules relating to wants of repair of the premises…..”

The District Judges findings were upheld at first instance by the Circuit Judge but the leaseholders appealed to the Court of Appeal. The appeal was dismissed as the Court of Appeal determined that clearly the Landlord had incurred costs in undertaking repairs etc and under section 81 of the Housing Act 1996 an application to the LVT is a necessary pre condition of the forfeiture process.

An interesting decision making clear that the Court will give a broad interpretation to these clauses to allow Landlords to recover costs

Filed under: England & Wales, , , , , ,

Enfranchisement: can you bring multiple claims?

Recently the High Court has ruled on the case of Westbrook Dolphin Square Limited v. Friends Provident Life and Pensions Limited.

The Leasehold Reform Housing and Urban Development Act 1993 expressly considers the position which may arise when a Notice (whether for enfranchisement or a lease extension) has been validly served but is not proceeded with whether by way of an express withdrawal or a deemed withdrawal when a party does not comply with the time limits under the Act. In those circumstances the Leaseholders are then barred from issuing a fresh Notice for a period of 12 months from the date of withdrawal. The participants will also be liable to pay the Freeholders costs. Thus the Act envisages that multiple Notices may be served.

In The Westbrook case a Notice was originally served and a negative counter notice was served and proceedings issued which had reached the stage of being a couple of weeks form the date fixed for hearing when Westbrook withdrew the Notice and the claim supposedly due to the fall in property values. Westbrook made clear when serving Notice that they would take further steps to acquire the freehold on what they felt would be more advantageous terms. Friends Provident indicated at this stage that they felt if Westbrook did this under the Civil Procedure Rules they would need the Courts permission. Westbrook duly paid Friends Provident the costs of the Court proceedings.

A new Notice was duly served (after the 12 month moratorium period had expired). This Notice contained a different purchase price, date and manner of signature of the participating tenants. Friends Prov served a counter notice and proceedings were issued by Westbrook without permission of the Court being sought in advance. Five out of the six grounds raised by Friends were the same as the earlier proceedings. Friends submitted that the second claim was an abuse of process in that there was a public interest in the finality of litigation and that no party should be vexed by the same cause of action twice. Westbrook submitted that it did not require permission and if they did they should be granted permission as the possibility of successive claims was a feature of the Act.

Mr. Justice Arnold struck out the claim. He decided that the principle of finality of litigation and that a person should not be vexed twice should inform the courts approach. The claim amounted to an abuse of process. The facts were substantially the same. Whilst withdrawing the Notice was acceptable they should not have discontinued the claim and then looked to in effect bring a second claim on substantially the same facts. They should have pursued the Court claim and had that adjudicated upon and at that stage, if they had been successful, they could have withdrawn the Notice.

It seems that if you receive a negative Counter Notice before issuing proceedings you need to consider whether you wish to go through with them. Once proceedings are started if you then withdraw serving a Notice again on the same basis will be difficult without permission of the Court which it seems may not be given. If therefore you have a block where there may be issues over the right to enfranchise tenants need to be committed to going all the way through with proceedings and if in doubt need to be prepared to withdraw the Notice at an early stage. In practice this probably applies to a minority of claims and seems to be the Court expressing annoyance at corporate participating tenants looking to exploit the system as the judge saw it. Yet more case law deriving form LRHUDA 1993!

Filed under: England & Wales, FLW Article, , , , , ,

Is it reasonable to expect tenants to pay large service charges?

The Upper Chamber Lands Tribunal recently considered whether in determining if costs have been reasonably incurred account should be taken of the financial impact on tenants and whether major works should be phased (Garside and others v. RYFC Ltd and others [2011] UKUT 367). The case involved an estate of 5 blocks with 54 flats which as a result of historical neglect had a manager appointed by the LVT after an application by some of the leaseholders.

The Manager appointed set about arranging for outstanding works to be carried out. However a number of the leaseholders became concerned as to their ability to pay due to the significant increase in service charges these works would cause.

The leaseholders agreed that the scope of works was acceptable but queried whether it was necessary to carry out the bulk of the works at once. They suggested that the works should be phased to spread the costs over a longer period. The costs were likely to be in the year 2010 £7,600 or more and it was said that some Leaseholders would be forced to sell their flats.

The LVT rejected the argument that consideration should be given to the individual leaseholders ability to pay in determining the reasonableness of the costs. The LVT determined given there was no argument over the reasonableness of the costs, the specification or the ability of the Manager to recover the costs in advance and therefore in the LVTs opinion section 19 of the Landlord and Tenant Act 1985 only related to the reasonableness of the works and costs and not the ability of the leaseholders to pay.

The leaseholders appealed to the Upper Chamber Lands Tribunal. HHJ Robinson determined that the 1985 Act did not limit what is reasonable. In her opinion “reasonable” should be given a broad meaning in accordance with Ashworth Frazer v. Gloucester City Council [2001] 1 WLR 2180. Thus in her opinion the financial impact and whether works could and should be phased was a material consideration in determining whether costs have been reasonably incurred under section 19 of the 1985 Act.

The Judge said that a wide consideration had to be given of all the issues including the urgency of the works. These were all matters of fact and judgment for the LVT to determine. She did emphasis that the LVT could not alter a tenants contractual liability to pay whatever the hardship.

The lesson here is that if Leaseholders are faced with consultation over major works and they are concerned over the ability to pay they must raise this. This would be a legitimate matter to raise and for the person undertaking the works to have regard to and whether the works can be phased. Certainly something all property managers should be alive to particularly when drawing up specifications of works.

Filed under: England & Wales, FLW Article, , , ,

Service Charges….or not

The Court of Appeal in Morshead Mansions Ltd v Di Marco distinguished between service charges payable under a long lease and the liability of a member of a company to pay that company under its Articles of Association.

The claimant company owned the freehold and undertook the management and administration of the block of 104 flats. All the flats were under long leases, with each lease containing provision for the payment of service charges. The leaseholders also owned a share in the company.

Under the company’s Articles of Association, the company was permitted to establish and maintain capital reserve, management funds and sinking funds to pay or contribute to fees costs and other expenses for such things as maintenance of the block and the provision of services. The Articles allowed the company to require the shareholders to contribute to such reserves or funds in a manner approved by the shareholders at a general meeting.

At the general meeting, the shareholders approved the establishment of a recovery fund for the purpose of raising some £400,000 to redecorate the exterior of the block and to finance the provision of services. It was resolved that each leaseholder would contribute £4,000.

The defendant was a leaseholder and a shareholder in the company and refused to contribute to the recovery fund. The company issued proceedings to recover the funds and the defendant contended that such funds were service charges as defined by s.18 of the Landlord and Tenant Act 1985, and that the company was not entitled to summarily decide to collect service charges which could be recovered under the terms of the lease.

The Court held that there was a distinction between the liability of a tenant to his landlord to pay a service charge, to which s.18 of the Landlord and Tenant Act 1985, applied, and the liability of a member of a company to pay similar sums under the Articles; the claim bought by the company related to the company’s right to recover money owed by the defendant as a member of the company and had no bearing on his position as a leaseholder, s.18 of the 1985 Act was irrelevant.

The key point to note here is that it is important for companies to be clear as to which of the two positions they are seeking to recover monies under and equally, leaseholders need to make sure they are not shareholders of the company if they plan to contest such payments.

The Government has recently consulted on default Articles for Right to Manage companies such as that in the Morshead case and we have previously posted on this issue.

Filed under: Uncategorized, ,

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