Public interest request to advance the dispute to Upper Tribunal as other sites may also have similar budget omissions was declined
The First Tier Tribunal was asked yesterday why subsidies from the Energy Bill Relief Scheme were not included in the annual energy budget set by FirstPort at the prime site St David’s Square in London’s Docklands.
The government’s Energy Bill Relief Scheme delivers the same level of financial benefit to commercial gas and electricity users as the Energy Price Guarantee delivers to domestic gas and electricity users.
Mains gas and electricity supplies to common areas – corridors, lifts etc – in residential blocks of flats are subject to commercial electricity contracts rather than price-capped domestic arrangements.
FirstPort places its contract for the supply of gas and electricity for the 5,500 sites it manages via a broker, EnergyCentric. FirstPort and EDF have refused repeated requests to disclose the commission earned by EnergyCentric on the contract.
From the figures leaseholders can see, total expenditure on electricity at St David’s Square is estimated to increase from £104,830 in 2022 to £265,784 in 2023: an increase of £160,954. Yet the service charge demand does not explain how the increase has been calculated.
It amounts to 154% increase overall.
Some parts of the electricity budget have been increased by 210%.
FirstPort has twice refused to provide leaseholders with the full budget and twice refused to explain how the figures have been calculated. The site’s total electricity bill could be near £600,000 for 2023.
The issue is being disputed by Liam Spender, a City solicitor and an LKP trustee who earlier this year mounted a four-day case over the service charge demands at St David’s Square, for which a ruling is still awaited:
A case management hearing was held at the First tier Tribunal yesterday morning in front of Judge Vance.
Mr Spender argued that application to the tribunal “is necessary only because the Respondent (ie FirstPort) has refused a perfectly reasonable request to re‐calculate service charge payments on account to give credit for the Energy Bill Relief Scheme subsidy received in the period 1 January to 31 March 2023”.
Accounting for the Energy Bill Relief Scheme subsidy would knock off roughly 30% of the costs of electricity between January and March 2023, perhaps equivalent to between £40,000 and £60,000.
Mr Spender also asked for the case to be transferred to the Upper Tribunal as an important public interest issue involving other sites, arguing that FirstPort “has made no effort to comply with its obligations as an intermediary under the Pass‐Through Regulations, including its continuing failure to perform any of its duties under Regulations 3, 4 and 5. The same has apparently occurred at all FirstPort sites, under this Respondent and other landlords. This is plainly a matter of wider public importance.”
However, this request was declined, and instead a hearing in the FTT is set for 17 May.
The LKP has seen reports of various sites, managed by FirstPort and other managing agents, with huge increases in gas and electricity budgets that also appear not to have taken into account the government subsidies.
Mr Spender first raised the issue of the electricity budget with FirstPort managing director Kully Sahdra on 12 December 2022 after receiving a service charge demand that was 19% higher than in the same period in 2022.
He wrote: “Total expenditure on electricity is estimated to increase from £104,830 to £265,784, being an increase of £160,954, or 154%. The service charge demand does not explain how the increase has been calculated. Please explain by return how the increases have been calculated.”
Mr Spender also questioned why FirstPort had apparently not taken into account the Energy Bill Relief Scheme, which was included in the 25 October 2022 Energy Prices Act 2022, which came into force subsidising commercial consumers’ energy bills from 1 October 2022 to 31 March 2023.
On 27 October 2022, the government made the Energy Bill Relief Scheme Pass-Through Requirement (England and Wales and Scotland) Regulations, which came into force on 1 November 2022. These made FirstPort, as a “relevant intermediary”, subject to a requirement to effect pass-through to end users.
Mr Spender pointed out that FirstPort had had five weeks to consider the Pass-Through regulations before issuing its service charge budget at St David’s Square.
Although not relevant to the energy issue, Mr Spender’s letter to Ms Sahdra also included reference to the 20% increase in insurance costs at St David’s Square and FirstPort’s own 7% increase in management fees.
Mr Spender added in his letter:
“It has become your practice to refer routine correspondence of this nature to JB Leitch [solicitors based in Liverpool]. FirstPort is paid a significant management fee to manage the site, now in the region of £175,000 a year. Having made a service charge demand with insufficient information to justify the large increase demanded, you are obliged to answer the questions set out in this letter. In the event that you choose to refer this correspondence to JB Leitch, be advised that the costs of that will not be reasonably incurred and should not be passed to leaseholders.”
FirstPort, rather than JB Leitch, subsequently replied that the EBRS only applies between 1 October 2022 and 31 March 2023.
“At present, there is no information about whether any discount will be available after 31 March and we have been advised that a decision is not likely to be forthcoming for some time. As a prudent property manager, we do not consider it appropriate when setting budgets for 2023 to assume that the discount will continue for the full year. It is not in the interests of residents to run the risk of a deficit arising as the year progresses.
“For the above reasons, we consider the budgeted increase of 154% for the year as a whole to be reasonable.”
The letter did not confirm whether the subsidies had been factored into the 2023 budget or not.
At today’s hearing, Judge Vance ordered the landlords – which are part of NatWest Trustee and Depositary Services – to hand over copies of electricity bills received between 1 October 2022 and the date of the service charge demand. The landlords were also ordered to say when the electricity contract was signed and to provide a copy of the full 2023 service charge budget.
The site’s landlords hold the freeholds of the site on trust for ground rent investor the ARC Time Freehold Income Fund. In turn, the fund uses the Tchenguiz Family Trust owned Freehold Managers plc – part of the Consensus Business Group – to administer a portfolio of roughly 60,000 ground rents.
The case illustrates the lengths leaseholders have to go through to get even basic information about service charges, even after the government has made regulations requiring this information to be provided.
The landlords were represented at yesterday’s hearing by JB Leitch and barrister Miriam Seifert, of Landmark Chambers.
The case continues.