Imperial Hall fights back … booting out Sterling Estates Management and the freeholder

Among the more bizarre incidents reported to the Metropolitan Police must be the destroyed caretaker’s toilet at Imperial Hall, a leasehold  block of flats overlooking Old Street’s “silicon round-about” just north of the City.

The debris still lies in an untidy heap in the basement of the grand Victorian building: testament to four years of bitter dispute between leasehold owners and their freeholder.

The toilet and washroom were destroyed by managing agent Sterling Estates Management, the residents claim, out of frustration that they had just won right to manage.

This is a claim that is denied by the managing agents, who are based in Stanmore, north London.

“Whilst the residents may claim or feel that our firm destroyed the ‘washroom’ out of frustration, as a result of the residents obtaining the right to manage of Imperial Hall, this is simply not accurate or reflective,” says Shalim Ahmed, the managing director of Sterling.

The incident (of which more below) was one of many disputes at Imperial Hall, a block of 63 flats and some shops converted in 1997 from the ornate Victorian Leysian Mission, which was once a celebrated Methodist mission for London’s poor.

The residents, mainly City professionals, have not only removed Sterling Estates Management as the managing agent, they are also celebrating getting rid of the freeholder, Columbia House Properties (No 3), having taken over the ownership of the Grade II listed building on April 10.

“This has been an absolute nightmare that has gone on for the last four years,” says Scott McCabe, a solicitor and RTM director.

“Like so many others involved in leasehold disputes we made some costly mistakes at first, but just by being determined and bloody minded we got there in the end.”

The result is that the predominantly owner-occupiers of the flats – with a bar, a dentist’s, a Starbucks and a shop on the ground floor – are in charge of their own destiny.

“The main lesson we learned: forget RTM. Just buy the freehold if you possibly can and then you are rid of these people.”

The freehold has cost the 49 residents who took part £404,000, – £571,000 including all costs involved –and the deal was concluded on April 10.

“It is amazing what we had to put up with while the former freeholder only had a measily £404,000 of value in our property,” says McCabe, who comes from Australia where English leasehold law does not exist.

“Nearly every flat in this building is worth as much or much more than that. This underlines the scandal of the whole leasehold business in this country.”

The disputes at Imperial Hall between leasehold homeowners, freeholders Columbia House Properties (No 3) and the managing agent Sterling Estates Management have been unusually bitter.

But the destruction of the caretaker’s toilet and washroom was the only occasion that involved the police, who recorded the incident.

“Destroying the basement area in April 2011 goes to the core of the mindset of those opposing us,” says McCabe. “The damage was done before I ordered the workmen off the premises [on April 13], and they have never been allowed to return.”

The basement area was of vital importance, as it is where the main power switches and water valves are accessed for the entire building.

But Mr Ahmed, of Sterling Estates Management, says “there was no formal caretaker’s washroom and toilet”, that the toilet was disused, it wasn’t destroyed in April 2011 and that the freeholder used the basement area for storage “at their discretion, as was their right”.

During the enfranchisement process, the residents had to compensate Columbia for a small storage cage area in the basement, but the rest of the area, the washroom and access to the valves and switches were not disputed.

“These were accepted as communal as we had always argued,” says Mr McCabe. “It is also incorrect to state that the washroom was not used by the caretaker. They were his only facilities and we had to replace them in the same place after they were pointlessly destroyed.”

Such disputes are surprising in a block of flats on the edge of the City, whose total value of the flats may be around £50 million.

The old Leysian Mission, bomb-damaged and derelict, benefited from the renaissance of Old Street round-about over the past 20 years, which has seen new blocks of flats sprouting beside Moorfields Eye Hospital.

Imperial Hall was created from the Leysian Mission in 1997 by freeholder Columbia House Properties (No. 3), of which Richard Noel O’Carroll is a director, and Irish developer David Anthony Kennedy, 35, is a CEO of the parent company, the Formation Group plc. Columbia House Properties (No 1) owned five flats, and still owns three in the building.

A headlease for the commercial properties was held by a Panama-registered company, Peppermint Investments Inc, which is now in liquidation.

By October 2006 the residents began to stir and founded an RTM company. Coincidentally, Columbia appointed Sterling Estates Management, under Shalim Ahmed, in the same month. It is evident that there were issues at Imperial Hall before the arrival of Sterling.

In April 2007 the residents’ first effort at an RTM backfired and they withdrew the claim at LVT and paid Columbia’s £700 costs.

But in February 2008 the matter surfaced again when Sterling Estates Management issued a demand for £474,637 in major works, with the commercial units apparently owing £23,731.

By December, 54 leaseholders had issued an RTM claim notice, which was vigorously contested. One counter-argument, which failed, was that Imperial Hall did not qualify as the commercial units were greater than 25 per cent – once the outdoor car park had erroneously been included.

Although the building works were completed in the summer, the residents won their RTM in October 2010 and took over the building in April 2011.

Sterling Estates Management says relationships with 33 of the residents soured after severe cracks were found under the flooring of two flats.

This was not covered by the building insurance, nor found to be a defect of the building’s conversion.

The freeholder successfully argued in a Leasehold Valuation Tribunal that ruled in September 2009 that the money be obtained through the service charges. The ruling noted the applicant’s “sensible approach” in raising 75 per cent of the money before commencing the building works. The case reference is LON/00AU/LSC/2009/0249.

Major structural works were also required to the exterior of the building, and the movement towards right to manage gathered pace.

Such were the feelings in Imperial Hall that Sterling Estates Management claims: “During this process and leading up to the same, our firm found the management of Imperial Hall to becoming [sic] increasingly untenable due to a number of actions of those lessees who were disgruntled.

“Such lessees began to frustrate our management of Imperial Hall. At such time little could have been done to appease those lessees given our firm had to proceed to undertake the required structural works to the two affected flats and the external major works. …

“The fact of the matter was management of Imperial Hall was becoming uneconomical and to effect good management of a property co-operation is needed by all parties. Our firm was concerned by the manner in which matters were deteriorating …”

It was not long after the RTM that the residents were off to the Leasehold Valuation Tribunal in November 2011 disputing bills (LON/00AU/LSC/2011/0520). McCabe was backed by his fellow RTM directors, chemical engineer Dr Basel Asmar, media executive Patrick von Sychowski and accountant Peter Burditt, but the residents did not deploy a barrister, unlike Sterling / Columbia.

McCabe argued that Sterling Estates Management had placed a large insurance contract just days before being replaced by the RTM company, which resulted in Imperial Hall having double cover.

He also claimed that the management fees were too high, that the freeholder’s solicitor had been wrongly compensated £5,000 from the service charges for being unable to use a parking space during the works, and that Sterling Estates Management was using an inter-related company, GRS Maintenance Limited, for repair works at inflated costs.

The Leasehold Valuation Tribunal found in favour of the residents over the insurance. “For the respondents [Sterling Estates Management] to argue however that until the date of the hearing they were unaware that the RTM company had effected insurance is clearly wrong.”

The residents were awarded back £13,708.

But they lost the argument over compensation for the loss of car parking, as well as the argument that Sterling Estates Management had a close relationship with GRS Maintenance Limited, with some works being invoiced but not carried out.

“If this was the case it would mean that the invoice and job sheet were falsified and that either the contractor concerned, or some other party, was guilty of fraud and liable to criminal proceedings. They [the applicants] further refer to apparently missing VAT numbers inferring that VAT has been charged unlawfully. The burden of proof of such allegations is rightly high and in our opinion has not been met.

“… With the exception of a substantial reduction in respect of insurance the applicants have been largely unsuccessful in their application. It may have been that this could have been agreed by negotiation but we consider that the parties were so entrenched due to the RTM proceedings that this was unlikely.

“The applicants have not assisted the conduct of the case by their somewhat unfocussed evidence, but on the other hand the respondent has made the hearing of the case more difficult by the submission of much additional evidence within Mr [Shalim] Ahmed’s witness statement provided only shortly before the hearing.”

But the Leasehold Valuation Tribunal did issue a section 20c order limiting the freeholder’s legal costs to £3,500.

The residents claim that two years after the handover of the management on 4 April 2011 all the leaseholders are still waiting for the refund of the £13,708 and are still waiting for final handover accounts.

In August 2012 it was the residents who were taken to the Leasehold Valuation Tribunal as Sterling Estates Management claimed £16,488 in expenses connected with the right to manage applications (LON/00AU/LCP/2012/0003).

The figure was re-submitted as £15,036, and the tribunal noted that VAT had been added at 20 per cent throughout the period, rather than at the rate applicable during those years.

Shalim Ahmed claimed he had done 90 per cent of the work involved.

“The hours claimed in the initial and revised invoice were inconsistent with the oral evidence of Mr Ahmed in respect of the person undertaking the work. His evidence was that 90% of the work was carried out by him as a director, which is inconsistent with the hours claimed in respect of the property manager in the revised invoice. Overall, the evidence of Mr Ahmed was that the hours, and therefore the sums claimed by multiplying these with the rates charged, had been ‘assessed’ by SEM and Columbia, rather than reflecting an accurate claim for identifiable items of work. No full breakdown of the costs in issue was provided as required by the Tribunal’s directions.

“… In the circumstances, having considered the evidence as a whole, the Tribunal finds that Columbia has not shown that the costs claimed have been incurred or that the reasonableness test has been met.

“The Tribunal concludes for the above reasons, that no sums are awarded in respect of the revised invoice dated 21 March 2012.”

Sterling / Columbia are appealing this decision with a hearing date set for January next year.

A third Leasehold Valuation Tribunal hearing was heard in September 2012 with Sterling / Columbia demanding in restated handover accounts as at 4 April 2011 (LON/00AU/LSC/2012/0232):

• £7,500 compensation for loss of rent for the car parking spaces
• £75,000 for a compensation reserve fund through service charges
• and £3,150 in management fees.

This time the leaseholders did employ a barrister. In negotiations before the hearing the residents agreed to pay the £3,150 in additional management fees, and Sterling / Columbia dropped the £7,500 car parking compensation claim.

The demand of £75,000 related to a damages claim by a leaseholder who was unable to occupy a flat for approximately two years owing to repair works. The LVT determined that such sums were not recoverable as service charges under the lease.

Sterling / Columbia requested leave to appeal, but were refused.

In a final observation, Mr Ahmed claims that since obtaining right to manage the service charges have “increased substantially (by approximately £100,000 a year).”

Mr McCabe dismisses this as “simply not correct and a comical assertion”.

“Indeed, we are saving over £40,000 pa on minor repairs alone since Sterling left. Also Sterling regularly levied balancing charges (sometimes as high as 50% of the total service charge expenditure) at the end of the service charge year.

“Sterling were also insuring the property for an insured value of £10M (premium £24,000).  When the RTM took over we obtained an insurance valuation at £26M.  In the first year our premium rose from £24,000 to £75,000.

“Nonetheless, we were far better off even after paying an extra £50,000 in insurance premium, without increasing the service charge at all.”

Mr Ahmed has addressed wide-ranging issues in this dispute on behalf of the freeholder. Nonetheless, if Columbia House Properties (No 3) wishes to make a statement, LKP would be happy to publish it.

Comment

The freehold of Imperial Hall was worth less than a single flat in the building, yet for four years ordinary homeowners, who have far better things to do, have had to turn themselves into leasehold law experts, trawl the building’s accounts and go to court on multiple occasions.

As an example of leasehold being a flawed form of property tenure it is difficult to equal.

The leaseholders mentioned above are happy to be consulted by others who find themselves in a similar predicament. They can be contacted via LKP.

LVTs at Imperial Hall

LON/00AU/LSC/2009/0249

LON/00AU/LSC/2009/0248 Sept 24 2009

LON/00AU/LRM/2010/0009 Oct 28

LON/00AU/LAC/2010/0033 Nov 30 2010

LON/00AU/LSC/2011/0520

LON/00AU/LCP/2012/0003 Aug 20 2012

LON/00AU/LSC/2012/0232 Oct 26 2012

The full statement of Sterling Estates Management

(This version of events is strongly disputed by the residents)

The caretakers washroom and toilet:

Kindly note during our clients ownership and our firm’s management of Imperial Hall, there was no formal ‘caretakers washroom and toilet’.

It is understood for the purpose of this correspondence the area that you are referring to, is the area located in the basement of Imperial Hall, in which there was located a disused toilet and storage areas. Such did not form part of the communal area and any of the lessees’ demise.

With regards to the recent enfranchisement process, an additional premium was in fact paid for this area.

The toilet had not functioned for some time and was not in use. This area/the toilet was not destroyed in or around April 2011 as suggested by yourself/the residents. This is a fact. Any suggestion to the contrary is simply not true or accurate.

Whilst the residents may claim or feel that our firm destroyed the ‘washroom’ out of frustration, as a result of the residents obtaining the right to manage of Imperial Hall, this is simply not accurate or reflective. (Please note my comments below under the heading ‘Right to Manage process’).

Given this area formed part of the landlord’s retained area, the landlord sought to redevelop this area to capitalise on potential income stream. This is not unusual. Historically the landlord used this area to store personal items at their discretion, as was their right.

Whilst the landlords tradesmen were undertaking works on site it is understood that the lessee(s) attempted to frustrate the landlord’s ability to undertake such works and the police were called to the site. However given that this matter was a civil issue the police had no authority in dealing with this matter. Neither did the lessee/Mr McCabe order the contractors of the site, given he had no authority to do so either as the lessee or as the Director of the RTM Company. It is understood the landlords contractors completed their works.

Various LVT determinations as referred in your email 10 June 2013:

Needless to say you may draw your own conclusions and or interpretations from such LVT determinations once you have reviewed the same. In this regard I do not intend to provide to you our firms commentary on each determination. Rather should you have any questions concerning such determinations we would be happy to review and if applicable provide our responses.

I would however make the following general comments.

It is unfortunate but relations between the landlord/our firm and some of the lessees did deteriorate substantially following an incident in which contractors identified severe cracks underneath the flooring of 2 flats.

Contractors were attending two affected flats following an escape of water incident which gave rise to replacement of the those flats affected floor areas. When the flats’ flooring was lifted, it was noted that there were severe cracks that went throughout the flats’ floor.

Once the contractors reported the cracks in the flats’ flooring, the matter was fully and efficiently responded to and investigated by our firm. This included additional attendance and investigation by a reputable firm of Chartered Building Surveyors and also the Local Authority.  During this period general correspondence was issued to all the lessees at Imperial Hall.

Unfortunately there were a number of lessees at Imperial Hall that felt the costs to undertake the necessary repairs to these two flats’ flooring, should be a cost payable by the landlord and not a service charge item.

Those lessees believed the cracks were a result of defective conversion works and or poor building practices undertaken by the developer when Imperial Hall was converted to the 63 self contained flats. This stance was not accepted by all the lessees at Imperial Hall.

At the time when these cracks were discovered, the final consultation stage had been completed for some external major works. Such major works being required to be undertaken to ensure compliance with the lease covenants. We understand that prior to the management of Imperial Hall by our firm, the former agents had attempted to undertake a major works program but with little progress on their part.  Accordingly during our management our firm acted proactively to remedy the same in line with the lease covenants.  The fact is that such major works, along with the need to undertake the necessary structural works to make good damage to those two affected flats, was a source of discomfort to a number of the lessees at Imperial Hall. Obviously due to the fact the service charge costs for that period would increase, in part unexpectedly.

Despite our firm attempting to explain that the cost of such structural works were a service charge item, a number of lessees refused to accept the same. The lessees retained a firm of solicitors to represent them in this regard. Having no alternative our firm made the appropriate application to the LVT to seek a determination as to whether such costs to make good the structural issues being suffered by those two affected flats and the external major works along with the general service charges were in fact reasonable and service charge items.

In this regard we refer to the LVT determination relating to reference number LON/00AU/LSC/2009/0249. You will note the LVT ratified the position being adopted with regards to service charge liabilities and the reasonableness of such costs along with the pragmatic approach by both our firm and the landlord. Following such determination a number of the lessees were disgruntled and unhappy that such costs would have to be paid by them as a service charge. Certain lessees simply did not accept this fact and the LVT ruling on the matter.  No doubt you will also note the various positive commentaries given by the LVT in relation to the policy and practices being adopted by the applicant, (the landlord) and their agent, (our firm).

Despite the LVT determination regarding this matter of liability, to provide relief to the lessees our firm proceeded to negotiate payment terms which allowed the structural works to make good the two affected flats to be undertaken and also commencement of the external major works. In this regard a number of the lessees were represented by the same firm of solicitors who represented them at the LVT hearing. Despite payment terms being agreed with the solicitors representing the lessees a number of the lessees reneged on such terms which resulted in our firm having no alternative but to instigate recovery proceedings. As you can appreciate such action was interpreted negatively by a number of the lessees.

It is unfortunate but such action had to be undertaken to ensure that the landlord’s obligations to maintain the freehold property to a reasonable and satisfactory standard were complied with. Should such action have not been undertaken, those lessees who had paid their service charge liabilities, would then have an action against the landlord for failing to maintain amongst many other remedies. Also the structural works were urgently required to ensure the building remained structurally secure.

Given a number of the lessees were unhappy with the above referred LVT determination those lessees then proceeded to canvas and undertake an application to acquire the right to manage Imperial Hall under the prescribed right to manage legislation.

Right to Manage process.

Given the dissatisfaction that a number of the lessees felt regarding those matters referred above, a right to manage application was undertaken by some of the lessees.

(Historically a previous right to manage application was made by a number of the lessees prior to our firm being appointed. Our firm subsequently dealt with such an application, the latter being unsuccessful).

Upon receipt of the new right to manage application, the landlord provided instructions for our firm to serve a counter notice challenging such a right. In short the grounds for challenging such a right were as follows:

• Uncertainty as to whether the property qualified. This being a matter which the landlord raised at the previous right to manage application in which the LVT stated should the lessees wish to pursue any future application it would be sensible that the parties undertook and agreed a survey to answer this question. This was never addressed by the lessees.
• Failing to comply with prescribed obligations before exercising and serving such a claim notice. Such as serving on all qualifying tenants necessary notice of participation and ensuring all members of the RTM company had in fact agreed to be members of the RTM company. Our firm had received from a number of the lessees at Imperial Hall, confirmation that they had not received the required notice of participation, and a number of lessees were noted as being a member of the RTM company when in fact they had not agreed to become a member in accordance with the RTM company’s Memorandum and Articles of Association.

A counter notice was served. As is usual in such circumstances, the RTM company applied to the LVT to seek a determination as to whether the RTM company did in fact have the right to acquire the management of Imperial Hall.

These proceedings became lengthy and costly for both parties. The LVT issued directions, to which each party proceeded to comply with the same.

During this process and leading up to the same, our firm found the management of Imperial Hall to becoming increasingly untenable due to a number of actions of those lessees who were disgruntled. Such lessees began to frustrate our management of Imperial Hall. At such time little could have been done to appease those lessees given our firm had to proceed to undertake the required structural works to the two affected flats and the external major works.  Such sentiments not being reflective of all the lessees at Imperial Hall.

Despite the RTM company failing to demonstrate whether the property qualified or compliance to the mandatory process before exercising such a right, our firm recommended to the landlord to consent to the RTM Company acquiring the right to manage the residential parts of Imperial Hall. The fact of the matter was management of Imperial Hall was becoming uneconomical and to effect good management of a property co-operation is needed by all parties. Our firm was concerned by the manner in which matters were deteriorating.  The Landlord did not want to appoint an alternative managing agent.

It was on such terms brokered and negotiated by our firm that in fact facilitated the RTM Company acquiring the right to manage Imperial Hall and the necessary Consent Order being drafted that aided the same.

To state our firm destroyed the washroom/toilet out of frustration is simply, as stated above, factually incorrect, and nonsensical. Given also it was our firms actions which facilitated the RTM Company being able to acquire such a right.

We would note for the record that since the RTM company acquired the management of Imperial Hall, the service charges have increased substantially, (by approximately £100,000pa). Also there has been a failure by the current managing agents employed by the RTM Company to produce the required finalised end of year accounts regarding such service charge expenditure. We have issued correspondence regarding this to which has simply been ignored.

Conclusion:

It is unfortunate but the relationship at Imperial between a number of the lessees and landlord deteriorated following the determination of the LON/00AU/LSC/2009/0249 hearing. Such deteriorated feelings being passed onto our firm.  As a result of such determination by the LVT our firm was unable to placate or build bridges with those lessees who felt disgruntled despite every effort being made.

Our firm acts on behalf of a number of right to manage companies in fulfilling their management functions once they have acquired the management of a property/estate. Our firm also offers the service of facilitating exercising such rights under the relevant right to manage legislation. Often where possible, when exercising such a right, we employ negotiation and discussion with the landlord to facilitate the process for the betterment and improvement of the relationship between the landlord and lessee.

Our firm also acts and assists on behalf of a number of lessees in making applications to the Leasehold Valuation Tribunal in challenging the unreasonable service charges against landlords and their managing agents.

As discussed Friday last, our firm very much welcomes and would encourage leasehold reform and development to ensure clearer understanding and an equal balance of power between lessee and landlord.

Whilst your email makes reference to reporting on the acrimonious disputes which took place at Imperial Hall and the residents view that this was an example of the worst leasehold practices, I would state that this is not the case when you delve beneath the surface of the issues and perceived disputes and note the facts that gave rise to such disputes. Also the pitfalls with the relationship between landlord and lessees which in some instances encourages disputes as apposed to mediation.

It is unfortunate but such disputes will arise when there is a difference of opinion with regards to who is liable for the costs to make good a particular issue(s).  Regardless of the relationship between landlord, lessee and managing agent at the time, the fact of the matter is, when undertaking estate management practices and policies, you have to employ practical strategies in compliance with the lease covenants and legislation which seeks to provide guidance. When employing such strategies, whilst a practical approach is being employed these are in some instances not accepted or appreciated by lessees who view their flat as a home as apposed to an investment or a legal obligation which must be satisfied.

I hope I have provided to you our firms perspective and would invite you to consider the same and raise any questions you feel necessary so that you can report on this matter in an impartial way. This will encourage sincere debate in relation to the issues faced by landlord, lessee and the managing agent. Our firm has not sought to or intended to create ill feeling with the lessees.

Shalim Ahmed FCILEx AssocRICS MIRPM
Managing Director
Sterling Estates Management