£14,000 a year service charges
‘Second-hand car dealing in the car park’
‘Smells of animals’
Residents’ association abruptly de-recognised
‘Landlord’s mole at residents’ meeting paid out of service charges’
Knight Frank management a ‘disaster’
… but disgruntled leaseholders fail to persuade tribunal
A failed attempt to challenge service charges by 53 leaseholders at Chelsea Harbour has landed all 310 leaseholders with the landlord’s £300,000 legal bill.
The disgruntled leaseholders have in addition their own costs of £150,000 to pay up.
The long running saga at the riverside site, home to a host of celebrities such as Michael Caine and playwright Sir Tom Stoppard, was resolved in the summer, but it is only now that the fees are working through the service charge.
It has made for a distinct lack of Christmas spirit, as everyone has had to pay out £1,000 to their landlord, the Daily Mail reported on Christmas Eve
“This legal challenge was an utter disaster,” says one resident, who declines to be named. “It is completely unjust that those of us who were not party to the action should have to pay these legal costs. Why should we get lumbered with the bill? In what other area of law is such a thing possible?”
He blames the leaseholders’ solicitors Pemberton Greenish, one of the leading firms in landlord and tenant law, for messing up the case and says he has sent his £1,000 service charge to the them to settle. He provides no evidence at all that the lawyers were at fault, and the tribunal ruling instead criticises individual leaseholders.
The wrangle began in March 2014 when the 53 leaseholders applied to the tribunal complaining about service charges. Chelsea Harbour was built in the 1980s and includes 292 apartments in seven apartment blocks, 18 leasehold houses, commercial units, including the Design Centre beloved of interior designers, and a hotel. All are set around moorings for powerboats and yachts.
The tribunal conceded that “the service charges at the estate are substantial, even by London standards”. One leaseholder pointed out that he was paying £13,463 a year in 2010; £14,070 in 2011; and £14,258 in 2013.
The case was finally heard last summer over “five full days of hearing, in excess of 24 ring binders of documents (containing at a conservative estimate over 3,600 pages) and oral evidence from nine witnesses”, the tribunal noted.
It also grumbled that “It was a feature of the leaseholders’ applications throughout the process that they lacked some precision and particularity.” They also “modified their case”.
A number of interesting complaints were – disappointingly for the rest of us – struck out of the leaseholders’ case and not discussed fully in open tribunal.
It is surprising to find the disgruntled leaseholders claimed that Chelsea Harbour – home to the fancy Design Centre, luxury shops, restaurants and a hotel – has “smells of animals in another flat” and that there was second-hand car dealing in the car park.
There was also a claim of “lack of respect to a leaseholder” and “disrepair and infestation to buildings”.
Two leaseholders, “Messrs Brookson and Hales” were singled out for “too generalised” complaining or addressing issues “outside of the years in question”.
Nonetheless, Chelsea Harbour Limited did concede that its own management fees were too high and reduced them by 50 per cent – to the leaseholders who were party to the action (IE not to all the leaseholders who had paid the charges at Chelsea Harbour). This concession was made on the last day of the hearing.
The tribunal made clear that it would have reduced Chelsea Harbour Limited’s management fee in any event.
Chelsea Harbour Limited also admitted that there were delays in providing the accounts, service charges were charged in error, there should have been better managerial oversight, there “should have been a concluded management agreement with Knight Frank [the property managers for some of this period]”.
The tribunal noted: “Knight Frank’s tenure [as managing agent] was generally agreed to be a disaster”, even though paid £200,000 a year.
It was also unimpressed that its replacement PLM, part of Harrods Estates, but also did not have a written contract “until seven months into their tenure”.
There was no written contract with the security firm at Chelsea Harbour, Secure Residential Guarding Limited.
Even more serious from the point of view of leaseholders’ rights, was Chelsea Harbour Limited’s decision to de-recognise the residents’ association, which “could and should have been handled better”.
The tribunal said:
“We start by noting that we do not criticise Chelsea Harbour Limited for the de-recognition itself. It had justifiable concerns that Chelsea Harbour Residents’ Association did not represent the minimum number of the leaseholders at Chelsea Harbour.
“However, CHL despite a promise to remain open and co-operative, went on to act in a way that was unhelpful and obstructive.
“They sought to terminate recognition of the residents’ association with immediate effect rather than giving the statutory six months’ notice.
“They relied upon barren technical objections to notices served by or on behalf of the residents’ association and failed to answer correspondence from or on their behalf in a timely fashion.”
Another interesting, but unexplored point in the tribunal ruling, was a £1,008 payment part of which was payment for a “mole” within the residents’ association.
“The inference drawn by the leaseholders is that this is a reference to placing a “mole” in the residents’ association meeting,” said the tribunal. “This may or may not be correct, even if it were, the amount of the invoice is so small as to be insignificant.”
In spite of all these colourful details, the leaseholders failed to persuade the tribunal that they were being over-charged or that the commercial areas at Chelsea Harbour, which have been expanded since they were built in the 1980s, should pay more.
The tribunal said: “In any review of the matter we decided the applications substantially in favour of the respondent …
“The actual value of our decisions to the leaseholders is very small. … The applicants appear to have valued their various challenges in the millions; the value of the decisions made by this tribunal to the leaseholders who were applicants in the applications is put at a little over £27,000.”
But because the leaseholders won some points, and because Chelsea Harbour Limited only made concessions at the eleventh hour during the hearing, the tribunal did not award costs against the applicants. Instead, it allowed the landlord’s legal costs to be placed on the service charge of all.
The leaseholders asked for a 33 per cent reduction of the landlord’s costs, but only got only 8 per cent.
Of course, had the 53 leaseholders won their case, the non-participating leaseholders would not have benefited automatically. Theoretically, they would have had to go to the tribunal themselves to get any benefits passed on.
While Chelsea Harbour leaseholders may be furious at having to pay out for failed litigation by their neighbours, at St George’s Wharf, Vauxhall, where £1 million was paid back to the residents, non-participants were equally furious to be left out of the settlement.
LKP had a number of calls in 2013 from affluent flat owners wanting to know how they could get their hands on the payola.
Feeble excuses were offered for why they had not signed up to be participants in the tribunal action, the worst being “my wife forgot to send in the papers”.
The ruling can be read here: chelseaharbourBothRulings
The explanation of the case by Chelsea Harbour Limited is here: overview
Among the lessons to be drawn:
The leaseholders should join the residents; association, seek formal recognition, and have a proper democratic process before deciding on legal action.
Better still would have been to acquire Right To Manage. It’s not clear from the account if any part of the site could have done so. Failing which, a freehold enfranchisement would empower the leaseholders to deal with issues themselves.
The “mole” detail is interesting. Mole for whom? The managing agent or the landlord? This tactic has been used by one very large managing agent I know of. In one case it offered a bribe to the chairman of the residents’ association to withdraw an RTM claim (he didn’t). Elsewhere new kitchens and certain other works, even discounts on services charges, and plain old brown envelopes are not unknown. All are criminal offences. If a criminal offence has been committed here it should be reported to the police.
It would be interesting to know the residence status of the leaseholders. A problem with developments like this (and many like it in London) is that the vast majority of the owners are offshore investors who have no understanding of leasehold and little interest. Were the activist owners London-resident taxpayers?
Presumably those who joined the action came out ahead (50% discount on services charges exceeded their share of legal costs?)
In any case, surely those paying service charges at the levels indicated are not going to be greatly bothered by a £1,000 supplement for the landlord’s legal bill?
Thanks for your thoughtful comment.
Please do keep them coming. They are so important in making the site authoritative.
The “mole” allegation appears in paragraph 161. it is a shame it was not explored further, like the car dealing in the car park.
I think Martin Boyd’s analysis of this case is excellent (in the sidebar).
The tribunal ruling suggests it considered a minimum of the evidence, criticised leaseholders for rambling and inconsistencies in oral evidence, and then stiffed all with ludicrous legal costs.
This was a case beyond the competence of the FTT.
Paul Joseph you say:
“Presumably those who joined the action came out ahead (50% discount on services charges exceeded their share of legal costs?)”
That is not what happened . only management fees were reduced by 50% all the other service charge items were kept as charged. so even those who joined the action did not come out ahead.
This case surely highlights pretty much all that is wrong with the leasehold tenure.
It is unlikely RTM could be easily achieved given the recent decision on multiple blocks. Even an organized residents association appears difficult as it would seem most of the residents are happy to go along with the status quo of paying a substantial service charge but not worrying if they are being ripped off or not!!
So it continues, managing agents (ARMA members or not) are able unchecked to rake in loads of cash without giving a reasonable service or indeed any service at all at times. Solicitors collect their ‘dues’ on cases that should not even come to fruition and lastly tribunals reach decisions that do not affect them personally but can leave in their wake chaos for leaseholders!!
How grateful we are to LKP/Campaign against retirement leasehold exploitation and all the contributors who tell of their experiences and thus help us to see we are not alone. Will 2016 bring any change? I certainly hope so!
It is interesting that sometimes this site uses the Tribunal decisions as evidence against Landlords and agents , but when a decision criticises leaseholders and upholds the charges then the decision is frowned upon.
Well, we are partial in the sense that we think leasehold law is unfairly weighted against leaseholders (absolutely no one defends forfeiture yet it underlies all monetary threats to leaseholders), and that the cost regime of the property chamber is balanced in favour of the freeholder.
Our point here is less the judgement itself than that the First Tier Tribunal should not be hearing cases of this magnitude. The leaseholders and freeholders laid out half a million quid for this case to be heard.
Read the ruling. Leaving aside the usual scrappy bureaucracy, the tribunal judge makes a few observations about the leaseholders’ oral testimony (note the leaseholder who complains about security yet has bought another flat at Chelsea Harbour because his wife likes the security) but then moans about the 3,600 pages in the bundles.
Things were obviously wrong at Chelsea Harbour – the lack of management contract, the lack of security contract – yet from the start the freeholder was likely to get back his costs. So why not buy in the best?
Fair enough on Tribunal ,but not on forfeiture. Forfeiture is an important tool. Take an example of a block when someone cant afford to pay the service charges. Who pays the shortfall? If only a money judgment could be obtained the defaulting leaseholder could end up paying £1 a month if that is all they can afford. If a leaseholder cant afford to contribute like others in a block they need to sell, and move on ,and not expect others to subsidise them. Lets face it forfeiture is rare ( and you have highlighted some extreme cases where leaseholders did not deal with issues promptly and allowed matters to escalate), and only happens after various judgment’s are made determining the debt. Forfeiture protects all leaseholders in the block who are genuine and who contribute ,and ensures that they don’t subsidise those who wont or cant pay .
We do not believe forfeiture to be that rare, and must renew our efforts to find out how many cases occur each year. Our guess is around 50, but when Emma Reynolds, former Labour communities shadow, raised a PQ on our behalf she was fobbed off as too expensive:
https://www.leaseholdknowledge.com/too-expensive-to-give-figures-on-leasehold-forfeiture-says-ministry-of-justice
It is not the forfeiture itself that is unfair, it is the cash windfall involved. Leases should be terminated in some circumstances, but the cash gained above and beyond what a court has determined should be returned to the former leaseholder.
No one we have encountered justifies this.
Agreed. The forfeiture should stay but the windfall after costs should be given back to leaseholder who has been re -possessed in the same way as any mortgage company which takes possession. Forfeiture should however remain a tool to ensure payment of service charges.
50 cases a year BTW is minimal.
LKP Admin: I don’t think it is minimal. Forfeiture is routinely threatened. That is, in any financial dispute between leaseholders and freeholds it exists. It makes the dispute unbalanced from the start. 50 cases is a guess; it could be double that.
We are frequently told judges go out of the way to avoid forfeiture. Not in our experience. Dennis Jackson lost his £800,000 Battersea flat in under 10 minutes, solely because his mortgage company’s solicitors messed up. You have 28 days to appeal, and it took the assorted efforts of Sir Peter Bottomley and Tidjane Thiam, the then CEO of Prudential, to have another go.
The judge hearing the case threw me and Martin Boyd out of his court because of mischievous request by the freeholder’s barrister (even though Dennis Jackson wanted us there and Prudential’s barrister registered no objection).
So, Mr Jackson’s fate, that is his destitution and homelessness, was decided in a closed court. The casualness with which the judge made this disgraceful decision to throw us out was almost as big a scandal as the forfeiture windfall.
More here: https://www.leaseholdknowledge.com/how-lkp-overturned-a-forfeiture-order-on-this-pensioners-800000-flat-after-a-7500-lvt-dispute
SO’K
LKP
In your excellent article you refer to forfeiture in relation to service charges but freeholders have a virtual smorgasbord of occasions to either try for or simply threaten forfeiture.
A freeholder can legally go for forfeiture on ground rent arrears that are over £350 or any amount at all that has been owed for over three years.
Also for certain ‘breeches’ of the terms of the lease or restrictive covenants can lead to a freeholder trying for forfeiture too.
There is a case currently where a group of flat owners were trying to buy the freehold of a block of flats in Brixton. Although there was a clause in the lease that said flats could only be rented out for a one-year period and then the flat owner must then be in residence, this had never been enforced before.
Once the freeholder heard about the flat owners trying to get the freehold, he got his wife to phone the flat owners to tell them that if they put their name on the Section 13 Notice, they would go for forfeiture of their flats as they have breached the terms of the lease.
Although it was highly unlikely that the freeholder would have been awarded forfeiture on these terms, the threat itself and the cost and uncertainty of the flat owners having their fate in the hands of the FtT meant these flat owners did in fact, pull out of the freehold purchase.
Forfeiture is one of the main tools of this feudal system of leasehold and it should be stopped immediately as it, or even just the threat of it, is used to bully flat owners into submission.
Nothing says ‘you don’t really own your leasehold property, you just rent it from me’ more than this antique feudal law that allows freeholders to gain another persons property for minor infringements.
The freeholder behind the case in Brixton needs to become better known.
You rightly say:
I raised this last point at an important stakeholders’ meeting at the Leasehold Advisory Service in December. That is, to ensure that it is clear when selling these leaseholds for flats that purchasers remain only a tenant in law, with all the vulnerabilities involved.
Curiously, the meeting split about equally between those who agreed with me – including some pugnacious critics of LKP – and those who thought that telling flat owners that they weren’t property owners would undermine the entire property market.
To which my reply is, if it is built on widespread misunderstanding, it needs correcting.
There is a lot of consumer rights legislation this year, and it is an area where we will be active.
SO’K
LKP / Campaign against retirement leasehold exploitation
Interested,
Forfeiture for financial disputes is totally unjustified. So if a leaseholder fails to pay service charges it should be treated like any other debt.
So a court judgement could be made, followed by recovery action, as is normal in any debt situation. In extreme cases, the leaseholder could be made bankrupt..
So weighted .against the leaseholder is forfeiture, that it encourages rogue freeholders to not resolve an issue in a sensible manner, knowing what a huge financial prize awaits them. They also use escalating costs as a tactic.
Perhaps you are not aware, that if unknown to the purchaser of a leasehold property, the previous owner left whilst disputing service charges, the innocent purchaser, can have their lease forfeited for a debt that wasn’t theirs?..
Michael
Treating as regular debt will only cause cash flow issues for service charges. Read what I wrote above if treated like regular debt. Who will fund the shortfall while the process of bankruptcy is pursued ? What will bankruptcy resolve ? What about debts where courts allow it to be paid for as little as £1 per month. Regular debt will cause hardship to those leaseholders in the block who pay the service charges Forfeiture must stay and this is not a financial dispute. Forfeiture only arises when dispute if any is determined as payable. Freeholder can’t forfeit before such determination. I think that the windfall that comes with it to Freehokder is wrong ,and forfeiture must be treated in the same way as any mortgagee who takes possession , but forfeiture as an ultimate tool to recover legitimate service charges must remain . Let’s not create false headlines : Forfeiture is rare and only in cases where a court or Tribunal determine the service charge as reasonable and payable. Freeholder can’t just forfeit a lease for disputed service charges before such determination.
When are people going to wake-up to the fact they are dealing with companies and as such to start using company law. Look at SIC codes and record keeping as to who audits what. This is an invaluable avenue not explored and yet it is there to be used. When you hit them in their wallets by taking a different direction will you start to see change. It’s almost as if the desolate waste land that is Leasehold, with its swing doors and tumbleweed, needs to be radically overhauled. Lawyers need to go back to Law School and retrain in LAW! Break these cartels and give back the ownership rights to the Leaseholders. Either strike-off or disbar the legals for noncompliance of their own damned rules.
Interested,
The threat of forfeiture is so great, how many people with a genuine dispute will take the risk of standing up to a combination of ruthless exploitative freeholders and legal stooges?
The normal route of debt collection would work just as well. Remember, a charge can be put on the property if payment is not made.
How many properties are in the end forfeited is not known. However,whatever that number actually is it is dwarfed by the number of threats to forfeit. It should be noted that the threat of forfeit is often made at the beginning of any dispute, not after it has been escalated..
Michael Epstein
The threat of forfeiture is not relevant if there is a dispute. First the court or Tribunal must determine the amount payable. this could also be appealed and takes time. This process at best without appeal takes 6 months. after the decision becomes final ( which is generally 28 days after decision) the Freeholder has to wait another 28 days before serving a 146 section. In essence after decision leaseholder has two months to sort out the service charge which has been determined as payable by court or Tribunal. The 146 section gives an extra 14 days. Only then can Freeholder apply to court for forfeiture and getting a date takes several months. At any point leaseholder can pay the service charge ( which we must remind ourselves is reasonable as determined by court or Tribunal) and avoid the forfeiture hearing. At the hearing the judge will usually, even if granting forfeiture will allow 28 days to the leaseholder to pay. How is this stacked up against the leaseholder? only a non responsive leaseholder who does not take responsibility seriously ends up in this situation. Forfeiture must stay and no doubt will stay to protect the recovery of service charges. What must go is the windfall a Freeholder might make from forfeiture . A landlord who has such a windfall must be made to sell the leasehold interest in a similar way to a mortgage lender and any balance left after paying off debt should be given to the leaseholder in default.
What is your view on forfeiture when is used as blackmail tool? For example our freeholder (who is also a well known group of property lawyers) used to communicate with the leaseholders with legalese letters, demanding money. If our responses were not phrased properly (which can happen, as we do not all have legal training) it was interpreted as if we admitted the “arrears”. Then our mortgage provider was contacted and the money (with an additional ‘legal’ fee was simply taken from our mortgage account, since the bank did not want to get into a dispute over a couple of thousand pounds. These are documented cases. Any suggestions?