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You are here: Home / News / FirstPort jacks up accounting fees at St David’s Square by 80% … and then bodges accounts, leaving leaseholders overcharged by more than £17,500

FirstPort jacks up accounting fees at St David’s Square by 80% … and then bodges accounts, leaving leaseholders overcharged by more than £17,500

October 28, 2022 //  by Admin4

St David’s Square is a prime London Docklands site on the southern edge of the Isle of Dogs, opposite Greenwich. A full-scale, tribunal service charge dispute is to be mounted by leaseholders in January next year

FirstPort also bungled service charge demands overcharging leaseholders another £19,300

Auditor BDO missed accounting error and washes its hands of responsibility, leaving leaseholders out of pocket until mid-2023, or later

Freeholder has pocketed around £5 million in buildings insurance commission since 2017

Meanwhile … a FirstPort surveyor describes a five-storey building as an eight-storey building in seeking cash from the taxpayer-backed Building Safety Fund

… And Happy Christmas! Ground rents at St David’s Square double from 25 December 2022; the freehold’s value said to have rocketed 621% since 2003

Leaseholders at St David’s Square in London are horrified to find that they have been overcharged more than £17,500 due to an accounting blunder by FirstPort. The overcharge relates to an intercom system. The system, rented from Essex company Countryside Communications, cost more than £158,000 in 2021. The cost increased by 12% on 2020. The intercom accounted for 8% of the service charge at the site in 2021.

The 12% increase came from an accounting error made by FirstPort. In December 2021, Countryside sent an invoice in advance for the first three months of 2022. The invoice was for £17,531.32.

FirstPort’s accountants should have recorded a prepayment of £17,531.32 to reflect the fact that services had not yet been provided. The prepayment would have deducted £17,531.32 from the 2021 accounts and added it to the 2022 accounts. Making such an adjustment is standard accrual accounting practice.

Instead, FirstPort accounted for the December invoice as if it related to services provided in 2021, meaning leaseholders at the site were overcharged by £17,531.32 in 2021.

The error comes after FirstPort increased its fees for preparing the site’s accounts by 80% between 2020 and 2021. The 2021 accounts were also delivered a month later than usual.

The accounting error will not be corrected until FirstPort prepares the 2022 service charge accounts. The 2022 accounts are not due until mid-2023, leaving leaseholders out of pocket for 18 months, or longer.

The 2021 accounts were audited by BDO‘s Southampton Office. In August 2022, a leaseholder at the site wrote to FirstPort and BDO asking them to explain the intercom error.

FirstPort promised a response, but failed to deliver one. BDO took more than two months to respond. BDO replied only after the leaseholder wrote to Paul Eagland, managing partner of BDO in the UK, to ask why the BDO Southampton office had not replied.

In a letter seen by LKP, BDO partner David l’Anson admits that the 2021 accounts are wrong. The letter also makes clear that BDO only checked the accounting for the intercom rental after the leaseholder raised the issue, not during the audit.

BDO’s letter claims that because the accounts are out by less than £48,000, the level of error BDO considers material, it cannot be held responsible for the error. BDO also refused to refund the audit fee, saying that that was a matter for FirstPort.

An accountant approached by LKP to review the situation described both FirstPort’s accounting and BDO’s audit as “poor quality”. The accountant said, at the very least, BDO should have asked FirstPort to explain why such a large item of service charge expenditure had increased by 12%.

FirstPort also admitted overcharging leaseholders a further £19,303.60 in 2021 as a result of an error in service charge demands. FirstPort used the wrong number of flats to calculate some flat rate service charges at the site. Leaseholders were out-of-pocket for 18 months until an adjustment was to the end of year accounts, provided on 7 July 2022.

Even though FirstPort failed to raise service charge demands in accordance with the terms of the lease, it continued to charge late payment fees and refer files to its go-to solicitor JB Leitch.

Former CEO Nigel Howell admitted in a letter seen by LKP that the same error had been made in service charge demands “for a number of years”. In the same letter, Mr Howell admitted that FirstPort had corrected the error at each year end.

Leaseholders at the site believe it had been going on since 2003. The error was discovered by leaseholders only after a separate dispute over the costs of the intercom at the site.

FirstPort was informed of the service charge miscalculation error by a leaseholder on 6 August 2021. In December 2021, it sent leaseholders new service charge demands containing the same error. FirstPort backtracked when LKP patron MP Sir Peter Bottomley asked it to explain why the error had been repeated.

FirstPort’s accountants are not the only ones struggling with numbers.

In 2020, in an application for funding from the taxpayer-backed Building Safety Fund, FirstPort’s surveying manager mistakenly described one of the buildings at St David’s Square as being eight storeys tall when it is actually only five.

Fees come first for FirstPort: leaseholders billed at least £39,000 for applications to the Building Safety Fund … And so it begins

Despite botching the survey, FirstPort refuses to refund leaseholders the £228 it billed for the work.

Adding insult to injury, on 26 October 2022 leaseholders got an early Christmas present from the landlord: an e-mail saying ground rents at the site will double with effect from 25 December 2022. The increase is in accordance with the 25-year doubling schedule in the lease.

The freehold of the St David’s Square estate is owned by FCA-regulated investment fund ARC Time Freehold Income. In 2022, ARC Time collected more than £8.6 million in ground rents from a portfolio of around 65,000 leasehold properties. The fund also collected more than £2.5 million from premiums paid by leaseholders to extend their leases. After the fund’s costs, investors shared in dividends of more than £11 million.

According to recent promotional literature, ARC Time currently receives around £75,000 a year in ground rent from the St David’s Square site. The doubling will see the fund’s ground rent income increase to around £150,000 a year. ARC Time provides no service to leaseholders in exchange for the ground rent.

Land Registry records show that ARC Time bought the freehold to the St David’s Square estate from developer Berkeley St George, paying £483,752 on 22 May 2003.

On 31 March 2022, ARC Time’s standing valuer – BNP Paribas Real Estate valued the freehold at £3.49 million, an increase of 621% on the 2003 price.

ARC Time’s accounts for the past six years show that the fund appears to have received more than £5 million in commission on buildings insurance, including £843,000 in 2022 alone. All of that commission income has been paid for by leaseholders, by including the commission in the insurance premiums paid from service charges.

The insurance commission has been used to increase the profits paid to ARC Time’s investors. ARC Time’s promotional literature brags that, over the past five years, the fund’s investors have enjoyed virtually risk-free returns averaging 6% a year.

Returns to the fund’s manager, Alpha Real Capital LLP , have been even greater. The LLP’s accounts show that in the year ending 31 March 2022, Nigel Ashfield – who is a partner in the LLP and the manager of the ARC Time Freehold Fund – shared in more than £23 million paid to the 13 partners who own Alpha Real Capital, an average of more than £1.4 million per partner.

The highest paid partner of Alpha Real Capital LLP, believed to be chief executive Philip Rose, received more than £7.8 million in 2021. Alpha Real Capital LLP runs several other investment funds apart from the ARC Time Freehold Income fund.

People – Senior Management | Alpha Real Capital

An experienced management team, deep localmarket knowledge and an extensive investment sourcing,financing, asset management and realisation track record.

The fund delegates its landlord functions to Freehold Managers PLC, a company ultimately owned by Vincent Tchenguiz’s BVI-based family trust.

In recent times, Freehold Managers – which only manages ARC Time properties – has enjoyed net profits of at least £2 million a year, a profit margin of around 50%. All of this profit has been paid out in dividends to other companies in the Tchenguiz empire.

Freehold Managers receives a management fee of roughly £1.4 million a year from the ARC Time Fund. It also receives other income, such as a 15% cut of buildings insurance commission and a share of any increase in value when freeholds are sold on by ARC Time.

Freehold Managers is also allowed to pocket permission fees it charges to ARC Time’s leaseholders. These fees range from £42 for permission to keep a pet, £195 for permission to install a new boiler and £240 for a pre-sale information pack.

Michael Gaston, managing director of Freehold Managers, is also managing director of E&M. E&M is the property management arm of the Consensus Business Group, which has told MPs that it employs 200 staff.

Consensus administers Vincent Tchenguiz’s heavily mortgaged portfolio of residential ground rent investments.

According to accounts for Fairhold Services, a company within the Consensus Business Group employing the group’s directors, in the year ending 31 December 2020 the highest paid director received total remuneration of just shy of £2.4 million. The highest paid director is believed to be William Kenneth (“Bill”) Procter. According to the same accounts, the three other group directors received a total of around £1.3 million between them, around £450,000 each.

Property manager E&M is a founder member of the Residential Freehold Association a new lobbying group for so-called professional freeholders.

Mick Platt, CEO of Wallace Estates, is the current spokesman for the Residential Freehold Association.

Mr Platt’s message is that professional freeholders, such as his business, are required because they are the only parties providing “long-term custodianship” of the buildings. Following Parliament’s passing of the Building Safety Act earlier this year, Wallace Estates has started quietly to sell-off its interests in cladding-affected buildings.

Report from Tchenguiz Family Trust, Long Harbour and Wallace Estates seeks to side-line leasehold reforms by fear-mongering over fire safety

More on Wallace Estates here

In January 2021, the government promised to enact the Law Commission’s recommendations to make it easier for leaseholders to throw out large managing agents like FirstPort. The Law Commission also recommended changes to make it cheaper to extend leases, among other reforms.

The Residential Freehold Association is understood to be quietly lobbying senior politicians to water down any law enacting the Law Commission’s recommendations.

Leaseholders must hope that Michael Gove’s resurrection as Secretary of State responsible for leasehold will tip the balance in their favour.

With telephone number salaries being paid to freeholder fat cats, it is no wonder they and their agents, together with their friends in surrogate bodies such as The Property Institute – formerly Association of Residential Managing Agents (ARMA) and the Institute Residential Property Managers (IRPM) – want you to believe that leaseholders would not survive without them.

The truth is that the rest of the world manages perfectly well without a gravy train of freeholders being involved in residential property. It is high time England and Wales joined them.

If any of the companies or individuals named above would like to issue a public response to this article, LKP will publish it in full

Related posts:

99% of FirstPort’s 3,800 service charge accounts are up to date St David's SquareFirstPort faces leasehold rebellion over service charges at St David’s Square St David's SquareFees come first for FirstPort: leaseholders billed at least £39,000 for applications to the Building Safety Fund … And so it begins French resi service group Emeria clears out FirstPort management in take-over Mr Spender goes to war over St David’s Square service charges … and landlord caves in over more than £100,000 buildings insurance commissions on eve of tribunal

Category: JB Leitch, Latest News, NewsTag: Alpha Real Capital LLP, ARC Time Freehold Income, ARMA, BDO, Berkeley St George, Building safety fund, Consensus Business Group, Countryside Communications, FirstPort, Freehold Managers, IRPM, JB Leitch, Mick Platt, Residential Freehold Association, St David's Square, Wallace Partnership Group, William Kenneth Procter

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Comments

  1. SK

    November 12, 2022 at 4:34 pm

    How the Leasehold Reform can be speed up? FirstPost is making lots of wrongdoings and looks like it is very hard to pin them down. It is because many estates hold a large number of residents, who are very hard to organized and management does whatever they like. Such as holding contact details of residents and do not share information to anyone, which is against them in any circumstances.

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