Most damning LVT ruling ever made

This piece is a report of the staggering Leasehold Valuation Tribunal victory at Charter Quay in November 2011.

It is the most devastating criticism of a landlord and managing agent to be aired and judged in open court.

The full LVT ruling can be read here:

CHARTER QUAY LVT

 

The LVT ruling in November 2011 is perhaps the most
damning one ever made at an LVT.

November 27 2011: Property tycoon Vincent Tchenguiz and the property management group Peverel have been involved in a second massive defeat at a Leasehold Valuation Tribunal in as many months.

After a record £1 million pay-out to residents at ritzy St George’s Wharf in Vauxhall in September, last week Peverel’s legal team lost another £185,000 to leaseholders at Charter Quay in Kingston, Surrey.

The devastating Leasehold Valuation Tribunal ruling was unusual in the strength of language used to criticise managing agents County Estate Management, a Tchenguiz company of which Peverel took over operational control in summer 2008.

County Estate’s conduct was denounced as “disgraceful” for loading management fees, doling out contracts to other Tchenguiz-owned companies and loading the cost of insurance brokering.

Terms like “glaring failure” and “unacceptable behaviour” appear in the judgment.

The tribunal was astonished that between the Tchenguiz-owned landlord and the Tchenguiz-owned managing agents “there appears to have been no formal written contract appointing them at all”.

The tribunal contemptuously dismissed the obfuscated company ownership structure of the Tchenguiz family trust, with companies ultimately based in the British Virgin Islands. These were termed “quasi Biblical” in their length and complexity.

The pay-out to residents at Charter Quay, an upmarket riverside development of 239 flats and six town houses, is their third LVT victory.

In April 2010, the residents won a £65,000 ruling, which with further settlements rose to £240,000.

The latest LVT decision on November 22 piles is embarrassing for Peverel – which says although it had operational responsibility for County Estate Management, denies being involved in the negotiation of contracts at Charter Quay. Furthermore, it claims County Estate Management was never formally part of the Peverel group – although both were owned by Tchenguiz.

Last March, Peverel was placed in administration following the arrest of Vincent and Robert Tchenguiz by the Serious Fraud Squad. After more than a year, the charges were dropped.

Peverel has since been bought by venture capitalists. Before the purchase two blue chip housebuilders abandoned the management company: Berkeley Group says it has no plans to use Peverel in the future, and Barratt is setting up its own management branch.

The involvement of Peverel in Barratt East London schemes has deterred UK buyers from completing purchases there, according to a senior Barratt executive.

As is the case in all LVT actions, the respondents in the Charter Quay case were the landlords, Charter Quay Ltd, which is still a Tchenguiz-owned company, as is County Estate Management.

Nonetheless, as Peverel had operational responsibility for County Estate its in-house lawyer Claire Banwell-Spencer contested the action and employed counsel, as she did at St George’s Wharf.

“This is entirely normal practice for companies within the same Group,” said Peverel.

The Charter Quay ruling applied to County Estate Management from 2007 to August 2009, when the residents rid themselves of their services.

The tribunal drastically reduced the inflated management fees.

“Looking at matters in the round, in our judgment a 50 per cent deduction in 2008 is appropriate and a 75 per cent deduction in 2009,” it ruled.

When it was sacked as managers in August 2009 County Estate, then managed by Peverel, made no attempt hand over accounts to the new managing agents.

“County Estate’s behaviour was disgraceful,” said the tribunal. “We strongly suspect that they made a deliberate decision to be unco-operative because of their dissatisfaction at being replaced by an LVT-appointed manager.”

The tribunal also deplored the practice of signing up other Tchenguiz-owned companies for services.

Property manager Beth Lancaster was singled out for criticism for contracting Interphone, the Tchenguiz-owned intercom, satellite TV and radio distribution system, without:

1/ reading the contracts;
2/ obtaining quotations from other contractors;
3/ or making any attempt to negotiate the terms fees involved.

“In effect, she simply signed what Interphone put in front of her,” said the tribunal.

Mrs Lancaster claimed she did not know Interphone was a Tchenguiz company, “but it is clear that there were people at County Estate who did know that”.

“It is astonishing that County Estate had no system in place to warn employees that if they were going to enter into contracts with other Tchenguiz companies they needed to ensure that the terms were reasonable.

“The result of entering these contracts has been extremely damaging financially, because the break clauses are so onerous. .. The simple fact is, however, that in our judgment the 2007 and 2008 contracts should never have been entered on those terms.”

Similarly, an £84,000 insurance contract was placed through another Tchenguiz vehicle, Estates and Management Ltd, which charged a 23.5 per cent commission of the fee.

This was “excessive”, the LVT ruled, and the commission was reduced to 10 per cent.

“There is no evidence that any attempt was made to test the market for brokerage services,” the tribunal noted.

In conclusion, the tribunal stated that the landlords had not only lost the case, but had “substantially lost” the case, and were therefore not allowed to obtain their costs from service accounts.

But the victory has come at a price for the Charter Quays Residents’ Association. Their three cases have involved 15 days of LVT hearings and £20,000 in legal fees, with eight months preparation for each case.

“Given the complexity of the process and the costs involved, a retirement home or smaller development may find it impossible to undertake such a case,” said a spokesman.

“In our experience, challenging a landlord through the LVT is a difficult, expensive and time-consuming process. At best, even if you win, you can only recover a proportion of the unjustifiable service charges.”

Since replacing County Estate Management with  HML Andertons management charges at Charter Quay have tumbled by 18.25 per cent in 2011 – despite the increase in VAT rates.

In a statement on the ruling, Peverel said: “It is important to note the Peverel Group was not involved in the contracts.

“These were put in place before the Peverel Group was given operational responsibility for County Estate Management in the summer of 2008, by which time it was clear the relationship between CEM and the Charter Quay Residents’ Association had broken down.”

ENDS

St George’s Wharf

In September residents in the landmark St George’s Wharf, in Vauxhall, central London, where penthouses have been sold for £7 million and service charges even for a two-bedroom flat start at £5,000 a year, accepted a record £1 million in settlement of an LVT action.

The respondents were assorted freehold companies, but the grievances surrounded Peverel’s management outfit for upmarket estates Consort. The bulk of the complaints in fact pre-dated the Tchenguiz takeover of Peverel in 2007.

The residents – who have included John Major and Chelsea Clinton – were bound by a confidentiality agreement, but I gave it full exposure in the Mail on Sunday on September 18. [SEE LINK]

The article prompted the developer, Berkeley Group, to issue an unprecedented apology to residents.

“This should not have happened and the residents should not have had to fight this for four years. We should have admitted this earlier and publicly, and apologised to the residents,” said Rob Perrins, chief executive of the Berkeley Group.

 

The comments from Peverel

Q1
If there was, as you claim, operational separation between CEM and Peverel at this time, why was the action defended by Claire Banwell Spencer and the Peverel legal team?

When the first LVT application was brought by the Charter Quay Residents’ Association (CQRA) in December 2008, the Peverel Group had just been given operational responsibility for County Estate Management (CEM).

Our in-house legal department was asked to represent the landlord company in the tribunal. This is entirely normal practice for companies within the same Group.

Also, three former CEM employees, including Mrs Lancaster who is strongly criticised in the LVT ruling, are now employed by OM Peverel.

In April 2010 CEM ceased to operate. All County Estate Management employees were invited to apply for positions within the Peverel Group.

It would appear the management of this scheme was passed from Peverel to CEM in Dec 2006, and later in 2007 CEM was in the process of being absorbed into the Peverel management structure.

Your timeline is incorrect.

The Tchenguiz Family Trust (TFT) purchased the landlord company, Charter Quay Limited, in 2006 and transferred the management of the Charter Quay development to CEM from 1 January 2007.

Prior to May 2007, when it was purchased by the TFT, the Peverel Group had no relationship with any business owned by the Tchenguiz Family Trust. It did not have any involvement in or relationship with CEM until it assumed operational responsibility for CEM in the summer of 2008.

Q2
Will Peverel being repaying the leaseholders at Charter Quay for the over-charging carried out by CEM?

No. All costs will be borne by the owners of County Estate Management (CEM).

Please note that CEM has never been owned by the Peverel Group.

The Peverel legal team’s bill has been estimated at £350,000 in fighting this action. Is this correct?

No. This is a totally inaccurate and exaggerated assessment.

Q3
As Peverel were in operational control of CEM from summer 2008, then this criticism of the tribunal is directed at Peverel management. Correct?

No.

The overwhelming majority of the criticisms in the LVT were about decisions made prior to Peverel’s operational responsibility.

CEM was a standalone business with its own management. The Peverel Group was only able to implement necessary administrative and operational improvements in mid-2009, well after the relationship between CEM and the Charter Quay Residents’ Association had broken down.

When it was sacked as managers in August 2009 County Estate made no attempt hand over accounts to the new managing agents. “County Estate’s behaviour was disgraceful,” said the tribunal. “We strongly suspect that they made a deliberate decision to be unco-operative because of their dissatisfaction at being replaced by an LVT-appointed manager.”

The original tribunal required handover to take place within a two week time-frame when the industry standard is three months, a standard recommended by the Association of Residential Managing Agents (ARMA).

Our request to the tribunal to agree to a sensible handover period was declined. This inevitably led to a rushed handover process with insufficient documentation and poor communication.

Statement for Sebastian O’Kelly – 30 November 2011

Now the determination has been received, the owners of County Estate Management (CEM) are reviewing their next steps.  Please note that CEM has never been owned by the Peverel Group.

It is important to note the Peverel Group was not involved in the contracts you refer to. These were put in place before the Peverel Group was given operational responsibility for CEM in the summer of 2008, by which time it was clear the relationship between CEM and the Charter Quay Residents’ Association had broken down.

We offered to resolve the problems via independent mediation on a number of occasions but the Residents’ Association chose not to accept this.

The Peverel Group and its operating property management businesses have robust tendering and procurement processes that fully comply with legislation and industry best practice, including codes and standards outlined by The Royal Institution of Chartered Surveyors (RICS) and The Association of Residential Managing Agents (ARMA).

Comments from Tchenguiz Family Trust

Charter Quay – For background:

Vincent Tchenguiz is not the owner of any of the companies referred to in the LVT findings.

The Tchenguiz Family Trust (“TFT”) is (or has been) the ultimate beneficial owner of a number of the companies mentioned.

Vincent Tchenguiz is Chairman of Consensus Business Group – the principle investment advisor to the TFT.

The TFT has made significant investments in residential freeholds and related service companies.  These are investments – the TFT is not (and has not been) actively involved in the day to day management of the companies.  Therefore, whilst the TFT owns the equity, they do not “control” the companies’ day to day activities.

The original Interphone contract was entered in to by St George (the developer – a division of the publicly quoted Berkley Group Holdings PLC) at the time of construction of the development.

Both St George and Berkley used Interphone extensively – they are one of the larger market players in the entry phone industry.

Interphone was acquired by the TFT at the end of 2005.

The TFT purchased the landlord company (and with it the head lease for the development), Charter Quay Limited, in 2006.  The management of the Charter Quay development passed to County Estates in January 2007.

At the time the initial contract was entered in to, Interphone was not owned by the TFT.  The contracts were renewed in 2007 & 2008 at the discretion of the property manager.  Given the infrastructural/proprietary nature of the Interphone systems, this is unsurprising.

The individual responsible for the management of Charter Quay was unaware of the ultimate beneficial ownership of Interphone at the time of the renewals.

Following the acquisition of County Estates by the TFT, numerous shortcomings were identified and its operational role in property management was assumed by Peverel in 2008.

Quotable response:

A spokesman for Consensus Business Group, the principle advisor to the Tchenguiz Family Trust said:

“To keep this award in perspective – the award was for only 18% of the total sum claimed.  82% of the costs claimed for were found to be completely reasonable.

“The original Interphone contract was entered in to prior to the company’s acquisition by the TFT.

“Estates & Management, on behalf of the TFT, the ultimate beneficial owner of the head lease of Charter Quay, is considering its options regarding the ruling.”