Informed leaseholders increase LVT actions by 165 per cent

This is an informative article by Michael Lee of HML Shaw. The opinions in it are his own. LKP has strong – critical – views of the LVT process and the lacksadaisical quality of the written LVT rulings by some tribunal chairmen. The Ministry of Justice is undergoing consultations on improving the service, which will conclude in the autumn. The service will be  re-named the Property Chamber.

By Michael Lee
Managing Director
HML Shaw

The Leasehold Valuation Tribunal (LVT) is an accessible, informal, entirely independent and impartial tribunal service that deals with a wide variety of disputes including matters such as the liability to pay and reasonableness of service charges, insurance, the appointment of a property managing agent, lease variations and consultation requirements for major works. It is an expert tribunal with the panel applying their own knowledge and experience and acting judicially and fairly.

There are five regionally based LVT offices in England plus one for Wales. In England the offices and their percentage of the total national service charge disputes heard are: London (50.5 per cent), Southern (21.5 per cent), Northern (11.5 per cent), Eastern (11.5 per cent) and Midland (5 per cent).

The tribunal usually consists of a lawyer, who is often the chairman, and one or two surveyors. In order to make it accessible, proceedings are semi-formal with parties not having to be professionally represented. However, in cases involving substantial amounts of money with lawyers and experts, a traditional court practice is likely to be followed, although where surveyors/property managers are appointed or lessees represent themselves, a softer approach can be taken.

The Tribunal Service does not publish data regarding the type of cases. However, our research shows that the last three years alone has seen the number of service charge disputes determined by the LVTs in England increase by 165 per cent. Not surprisingly, by far the busiest region is London at just over 50 per cent (2010), an increase from 38 per cent in 2008. Interestingly, over this period the biggest regional growth has been seen in Northern and Eastern regions.

It should be noted that over 50 per cent of LVT case are leasehold enfranchisement matters which inflate the overall number of LVT cases.

From a sample of 50 cases taken from the busiest two regions, the top three disputes in London are: unreasonable charges (19per cent); insurance premiums (15per cent) and major works (14per cent), whilst in the Southern region they are: withheld service charges (41per cent); major works (27per cent) and unreasonable charges (14per cent). Managing agents’, administration and consultants’ fee disputes are generally low across the country.

Internet has informed consumers of LVTs

The increase in cases is thought to be mainly due to the increasing awareness of legislation and the availability of explanatory information on the internet, combined with ever increasing consumerism and cost awareness. The relative ease of access to the LVT and ability to self represent make it an attractive option for dispute resolution.

This does, however, have repercussions on resident management companies (RMCs) and property managers who may face non–recoverable costs in representation and attendance which will not affect a self-representing lessee. However, a recent case has opened the door for freeholders (as opposed to RMCs) in certain circumstances to recover their LVT costs.

In the event of a lessee withholding service charges, the LVT will be determining the reasons for non-payment (i.e. the liability to pay and reasonableness of those charges). Each party pays their own costs, save for the freeholders ability to now potentially recover costs. However, the costs of the landlord or RMC may be recoverable from service charges as it is fairly common in residential leases for the landlord’s legal costs in managing the property to be rechargeable.

These can include the costs of court or LVT actions, whether initiated by the landlord or the tenant. Section 20c of the Landlord and Tenant Act 1985 enables a tenant to seek an order that the costs incurred by the landlord from proceedings before the LVT are not to be included in the service charges. This allows a tenant to obtain judgement to avoid any reduction achieved in their service charges from being cancelled out by the landlord recharging the legal costs of an unsuccessful defence to the service charges. Tenants who are being taken to the LVT by the landlord/RMC can also make an application. The LVT will review the evidence presented before deciding what is appropriate.

It is therefore in the interests of RMCs and property managers to try to avoid the matter being referred to the LVT. It is also possible that decisions determining breaches of codes of practice may result in disciplinary action by property managers’ governing bodies. Property managers should therefore be encouraged to carry out some of the processes that an LVT would direct in their dealing with lessees in order to reduce the matters at issue, or hopefully to resolve the matter.

A lessee should not commence on what is nothing more than a ‘fishing expedition’ if they do not have any factual information to support their claim. They should start by seeking the information they are obliged to be provided with under the lease along with the summary of relevant costs relating to the service charges, payable under Section 21 of the Landlord and Tenant Act 1985. The starting point is to assess the case and prepare a summary setting out the elements to establish, the facts to establish and the available evidence in order to focus on what information is available to support the point you are trying to prove. This will soon highlight whether your case is strong and where the evidence in support of it is weak.  You can then devise an action plan in order to gather the necessary information.

LEASE mediation has closed

If the matter went to an LVT, a Pre-Trial Review would be held to assess the case and it is likely it would be directed that a joint meeting be required in order to produce what is known as a Scott Schedule (a table with columns showing a reference number, the matter at issue, the applicant’s comment, the respondent’s comment and a blank column for the LVTs decision). This process will hopefully result in some issues being agreed which should be shown and the matters at issue therefore reduced. This will reduce the time spent and costs incurred in the LVT.

A much swifter and cheaper method of resolution, the Leasehold Advisory Service (LEASE) Mediation Service, has been closed.

A small investment of time in communication and transparency between the RMC/Property Managers and the lessees is well spent when compared with the time and effort needed in taking the matter to the LVT which, by its very nature, can be unpredictable in its determination and, of course, costly.

However, in the Upper Tribunal (Lands Chamber), previously known as the Lands Tribunal (which is where LVT decisions are appealed), the issue of unreasonableness was dealt with in the case of  Shersby [Julian, who is also reported on the LKP site] where it held that to prove unreasonableness it had to be proven that a landlord (or RMC) acted unreasonably or improperly and that if it was within a range of alternatives then it had not acted unreasonably. This effectively widened the scope of what is reasonable. It is also fair to say that in reasonableness challenges, landlords/RMCs are favoured more than in any other area of Landlord & Tenant law.

If you find yourself with a service charge issue, a good starting point is the very informative LEASE website  (www.lease-advice.org) which also has a list of surveyors and solicitors who deal with such matters.