If allowed, the charges would have spread like the omicron variant through the leasehold sector
But will future leases be drafted to include similar charges?
This case – and others – highlight concerns over the inequality of arms between leaseholders and landlords over legal costs
Pro-leaseholder peers draft Bills to address leasehold cost regime abuses and other loaded charges
On 24 October, the Court of Appeal handed down judgment in Avon Ground Rents Limited v. Stampfer [2022] EWCA Civ 1375. The case concerns Trinity Mews in East London. Avon Ground Rents, owned by Israel Moskovitz and his family, bought the freehold to the block in 2017.
In July 2019, Avon began charging a “ground rent collection fee” of £30 plus VAT (£36) to collect the ground rent. The ground rent was collected half-yearly, meaning a total charge of £72 a year, or around 25% of the £250 ground rent.
In 2021, Mr Stampfer and 10 other leaseholders at Trinity Mews brought an application in the First-tier Tribunal that the charge was not payable because it was an unreasonable administration charge. The First-tier Tribunal, having admitted last-minute evidence from a witness for the landlord, found that it was payable. Mr Stampfer appealed.
On 2 March 2022, the Upper Tribunal allowed Mr Stampfer’s appeal. The Upper Tribunal found that the terms of the lease did not permit the charge. The Upper Tribunal found that a notice under section 166 of the Commonhold and Leasehold Reform Act 2002 was required before rent came due. The lease did not permit Avon to charge for serving the section 166 notice. The Upper Tribunal also criticised the First-tier Tribunal for admitting last-minute evidence. Avon appealed.
The Court of Appeal heard oral argument on 18 October. In a rare move, the Court of Appeal dismissed the appeal as soon as Avon’s go-to barrister, Justin Bates, of Landmark Chambers, sat down. A written judgment giving reasons followed on 24 October.
Rebecca Catermole, of Tanfield Chambers, acted for free on behalf of Mr Stampfer and the other leaseholders in both the Upper Tribunal and the Court of Appeal. The Court of Appeal decided the case without Ms Cattermole needing to make oral argument in their favour.
The Court of Appeal agreed with the Upper Tribunal judgment of 2 March 2022. The Court of Appeal finds that the terms of the lease do not permit Avon to charge for serving a section 166 notice.
The Court of Appeal’s judgment is gentle in its criticism of Mr Bates’ legal arguments. Mr Bates conceded on questioning that a ground rent is not due until after a section 166 notice is served. Mr Bates attempted to reheat his Upper Tribunal argument that the 166 notice was part and parcel of collecting the rent.
When asked by Lord Justice Bean why a lease in 2010 had not reserved the kind of power Mr Bates said it contained, noting that section 166 came into force in 2005, Mr Bates replied that leases were conservatively drafted on the basis of older model forms.
The Court of Appeal judgment also doubts, without deciding the point, whether the charge of £36 per ground rent demand is reasonable. Giving the sole judgment, Lord Justice Nugee finds that whether a charge of £36 would be reasonable would depend on what work Avon actually did. There was no evidence or argument that it did anything.
It is astounding that an appeal over £72 a year in charges reached the Court of Appeal. Avon doubtless pursued the appeal in the hope that it would set a precedent for leases with similar wording that it could then use to impose the same charge elsewhere.
It is unclear if the Court of Appeal has yet made a costs order against Avon. Mr Stampfer and the other leaseholders would be entitled to seek such an order. The First-tier Tribunal refused to make an order preventing Avon from passing its costs on to leaseholders. The Upper Tribunal does not record whether it made such an order.
Perhaps the worst part of this case may yet turn out to be that Avon, having lost in the Upper Tribunal and the Court of Appeal, may yet be able to dump all its legal costs on leaseholders at Trinity Mews. The legal costs could run to many tens of thousands of pounds. Whether that happens depends on the terms of the lease.
Unfortunately, the Court of Appeal’s judgment today leaves the door open to future leases being drafted in a way that would allow such charges.
Under the Leasehold Reform (Ground Rents) Act 2022, from 30 June 2022 landlords of new residential leasehold properties are banned from including a ground rent other than one peppercorn. Landlords are also banned from charging to collect the peppercorn.
The Ground Rents Act does not prevent a landlord drafting a lease permitting it to charge for collecting service charges. LKP understands that FirstPort already charges leaseholders a fee of £24 a year for collecting service charges monthly by direct debit. Future leases may see more such charges included in lease terms.
Mr Bates, who is experienced in both leasehold and statutory drafting, is no stranger to appearing in the Court of Appeal. Mr Bates makes a good living from his roster of aggressively litigious residential freeholders, including Avon and John Christodolou’s Yianis Group.
In 2021, the Court of Appeal ruled against Mr Bates’ arguments over Yianis Group’s building, One West India Quay, in London’s Canary Wharf. In that case, the landlord admitted overcharging leaseholders for utilities to the tune of more than £160,000 between 2008 and 2012. The landlord continued to pursue litigation to force leaseholders to pay for meter reading charges related to the utilities.
Ordinarily, service charges must be collected within 18 months of being incurred by the landlord. In No. 1 West India Quay (Residential) Limited v East Tower Apartments Limited [2021] EWCA Civ 1119, the Court of Appeal confirmed that the 18-month time limit runs even if the landlord has not issued a valid service charge demand. If the 18-month limit expires before the landlord serves a valid demand then the charges are not recoverable, unless the landlord serves a section 20B(2) notice within the 18 month period.
In the same case, Mr Bates also attempted to persuade the Court of Appeal to allow the landlord to dump all its legal costs for years of litigation on leaseholders. The Court of Appeal refused, finding that the terms of the lease were not specific enough to enable the landlord to pass on its legal costs.
In August 2022, another of Mr Bates’s clients in the Yianis Group, Riverside CREM 3, which owns the Canary Riverside development, was ordered to pay £67,000 in costs to leaseholders following another unsuccessful appeal.
Mr Bates landed his client with the costs order after attempting to argue that the landlord was no longer bound by a previous order of the First-tier Tribunal appointing a manager to oversee the Canary Riverside site.
Mr Bates irked the Upper Tribunal by attempting to raise the point for the first time on appeal. During oral argument in that case, the judge suggested that Mr Bates lacked proper respect for the Upper Tribunal.
In ordering Mr Bates’ client to pay £67,000 of costs to the leaseholders, Deputy Chamber President Martin Roger, wrote:
“The [landlord’s] decision to [pursue the appeal] can only have been taken with a view to impressing on the [the S24 Manager and tenants] the [landlord’s] determination not to back down, whatever the cost, thereby to harass and intimidate some or all of them.
“This litigation is being conducted with the intensity and expense and in the style of commercial litigation, the [landlord] has full access to the FTT and to the [Upper] Tribunal and appears to be prepared to spend whatever it takes to promote its interests through litigation. The proposed [costs] order is not required to punish the appellant but to protect the respondents from its unreasonable conduct.”
Surely we have arrived at the point after sagas such as Trinity Mews, Canary Riverside and One West India Quay that it is high time leasehold was reformed to stop landlords using leaseholder money to retain Mr Bates and colleagues to engage in litigation to suit their own corporate purposes.
We can expect to see much more of this one-sided litigation as the Tribunal system begins to grapple with applications under the Building Safety Act 2022. LKP is aware that several applications have already been issued by leaseholders without legal representation.
The one-sided nature of costs in the Tribunal system no doubt informed Avon’s thinking in pushing a case involving £72 of charges to the Court of Appeal. The law allows landlords to dump their legal costs on leaseholders, meaning leaseholders can be made to pay.
The courts and tribunals have powers to limit the landlord’s costs, but this is hit and miss and usually in the landlord’s favour. Tribunals have proven reticent to use their power to limit costs because of fear of depriving landlords of their contractual rights under leases.
This reticence to interfere with the landlord’s rights is born out of the legal fiction that the terms of leases are negotiated freely between landlord and tenant. This is unlikely ever to have been the case; terms are often imposed by the landlord on a take it or leave it basis. Lease terms are also unlikely to be renegotiated on the sale of a flat from one leaseholder to the next.
Any order made limiting the landlord’s costs only protects leaseholders participating in the proceedings. In 2013, Mr Bates took an appeal to the Upper Tribunal to prove that point.
The topsy-turvy costs regime means it is perfectly possible for, say, 50 of 100 leaseholders to win a service charge case, obtain an order protecting them from the landlord’s costs and for the landlord to then dump 100% of its legal costs on to the other 50 leaseholders. The landlord is also not obliged to account to other 50 leaseholders for any of the service charges disallowed. The landlord wins despite losing the case.
It is not unheard of for landlords to ignore orders made by the courts and tribunals altogether. At the FirstPort managed St David’s Square site in London, the landlord stuck leaseholders with around £25,000 of costs and damages it was ordered to pay under a disrepair claim. The landlord, ARC Time Freehold Income Fund, eventually partly backed down when leaseholders became aware of the issue, but is continuing to claim it can dump around £5,000 on leaseholders.
Last week, Baroness Hayman of Ullock, a Labour peer, tabled a private members bill in the House of Lords attempting to impose tougher controls on the leasehold costs regime. You can read Baroness Hayman’s bill here: https://bills.parliament.uk/bills/3337
Non-Affiliated Peer, Baroness Kennedy of Cradley has also tabled a bill that would require landlords to account to all tenants if service charges are found to be unreasonable. You can read that bill here: https://bills.parliament.uk/bills/3319
Lord Kennedy of Southwark, Labour’s Chief Whip in the Lords, has also tabled a bill that would require landlords to disclose all commission and other remuneration received from insurance. The bill is here: https://bills.parliament.uk/bills/3321
It is hoped that some or all of these bills will receive a second reading in the Lords in the new year. The bills stand little chance of becoming law, but will allow the House of Lords to continue to press the government to address the one-sided nature of residential leasehold litigation.
The Court of Appeal’s decision in Stampfer is here: https://caselaw.nationalarchives.gov.uk/ewca/civ/2022/1375
Or here: https://www.leaseholdknowledge.com/wp-content/uploads/2022/10/Stampfer-v-Avon-Ground-Rents.pdf
The One West India Quay decision is here: https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWCA/Civ/2021/1119.html
The costs order in Riverside CREM 3 is here: https://static1.squarespace.com/static/583dc2681b631b930031188a/t/630e2d78b6535f7993acd0fb/1661873528809/LC-2021-000301+Costs+Order+dated+26+August+2022.pdf
The Upper Tribunal judgment in Riverside CREM 3 is here: https://landschamber.decisions.tribunals.gov.uk/judgmentfiles/j1793/LC-2021-301%20final.pdf
Related posts:
Israel Moskovitz fails to get £30 each from leaseholders for his ground rent demands (as barrister Rebecca Cattermole, acting pro bono, sees off Justin Bates in the Upper Tribunal)
Israel Moskovitz loses epic Elim Court right to manage battle in landmark Court of Appeal decision
Now Israel Moskovitz wins right to charge £30 for his ground rent demands …
Retirement site loses right to manage appeal after three years. Now what’s the cost?
Israel Moskovitz fails – again – to appeal against the Regent Court right to manage
If freeholders can’t pay to remediate ‘their’ buildings, they should lose the freeholds and the income streams that come with them
I strongly suggest that Leaseholders should follow the example set by “Highbury Stadium Square” and go Right to Manage.
When a Leasehold apartment block consisting of more than Seven Hundred apartments, achieve Right to Manage, must send a clear message to all Leaseholders that anything is possible.
My residence is made up of twenty-one apartments, and we achieved Right to Manage. “Highbury Stadium Square” is made up of more than seven hundred homes and they have achieved likewise, I consider that residence to be a “Flag Ship” prestige property.
The LKP continue to fight the fight for Leaseholders, you only need to glance at the News articles that are and have been published on this platform. Leaseholders in turn must unite and do what is in your collective best financial interest and go Right to Manage! The consequences of not doing so can result in “Service Charge Poverty”
We have been advocating RTM for years but unfortunately it currently does not work well for larger developments. The work on part II of the leasehold reforms will help. When Parliament finally stays in one place for long enough to produce reforms
Martin,
May I ask, how many homes does your development consist of?
Stephen Burns, EXCELLENT question. Lets hope Martin Boyd replies.
Stephen the size of my site is mentioned in several articles on the site its not just homes we have but commercial units and two rivers. Our site has always been excluded from the rights under the RTM legislation because of its complexity. There were at least two major legal grounds and several minor ones which would have meant we would never have qualified for RTM. Or rather reasons why some parts of site might have qualified but others excluded. (its why we had to spend 5 years in court finding a more complex solution)
The extensive work of the Law Commission on reforming RTM included a visit to my site and a number of others to help get a better picture of why most modern complex sites don’t work under the current legislation.
The Law Commission’s 454 page report on reforming RTM sets out a number of changes to improve the law for smaller sites, retirement sites, and gives proposals to make complex RTM sites workable including changes to rules on commercial content – although even if all these changes go forward my site would potentially still not qualify as we have one block with over 50% commercial. The LC also proposes that landlords have less opportunity to run up large legal bills in resisting an RTM. Unfortunately a recent Supreme Court case has pushed things back even further so until the law changes there are relatively few large RTM sites that are likely to be created.
As with everything building new systems takes a lot of work.
I must say it does seem absurd that a freeholder should spend so much over a £72pa charge. But there again, £72 times how many thousands of properties? Clearly, it made economic sense from their point of view.
Anyway, a sensible Tribunal decision and good news for those leaseholders involved.
Just a reminder to all here that Bernie Wales owns/owned ground rents and sold them to investors in the past.
When Eric Schmidt (former CEO of Google) was asked why his company had only paid 50p tax in the UK on 200 trillion profit, he replied “That is capitalism”. It appears that this system of business, which has enabled even the poorest of us to rise from the bottom (due to the trickle down effect), has its downside. Avon demonstrate another downside with their demand for £72 to collect £250. Winston Churchill once observed of Tom Driberg, a notorious and rampant homosexual, “That man gives buggery a bad name”. Mr Schmidt and Israel Moskovitz give capitalism a bad name.
Nothing, but nothing, surprises me about leasehold. Nothing, but nothing, surprises me about the inactivity of government which allows all and any practise freeholders choose to use to further enrich themselves.
Stephen Burns. Charter Quay is Martins site. It has approx 235 flats, 5 Townhouses and an herb garden. The leaseholders bought the freehold and therefore have collective control,of the block.RTM allows leaseholders to have similar control. Size doesn’t matter. If it works for martins block then why not for others?
As mentioned above RTM did not work for us but that’s a function of size, the commercial element, and the interrelationship of the different blocks. Unfortunately size is often linked to complexity which is why we need the RTM reforms to move forward.
The difficulty of obtaining RTM is dependant on the complexity of the site. There has been plenty of case law that looks at vertical separation, appurtenant property, and commercial content and all the case law has ended up being found in favour of the landlords. After 22 years of the legislation about the only thing found in favour of leaseholders is that the RTM application does not fail of they make a minor technical error in the application such as not writing to someone who is dead
So unfortunately for many larger sites RTM simply does not work at the moment. The work we did with the Law Commission along with many others has helped point to where we need to be but getting legislation change has been a challenge. However it may happen soon at which point there will be lots of people claiming its down to their work
If you look at the 2014 CMA report its my data on the number of RTM’s. We need many more.
PS the herb garden seems to be going well.
In view of the wonderful services that Mr Justin Bates has provided to the rentier class one can only hope that this will be recognised by his appointment as a High Court Master.
I’m sure many counsel, such as the excellent Rebecca Catermole, would look forward to addressing him as Master Bates ….
Ah Avon rents, my landlord. They are probably ripping me off (actually pretty sure of it paying for services we dont get), but I cant really tell as they don’t send me details any more stopped a few years back.
I could ask for them and maybe get, but what’s the point. My fees at moment are cheaper than most and as the lease allows landlord to make us pay all his legal fees ias the article infers winning would make me worse off.
As to RTM thats a joke, 75% flats are owned by slum BTL landlords who don’t care. they know housing situation means they will never be without Tennant no matter what state the building is in. So they have no interest in RTM. Service fee goes up, they just jack the rent up.
On the question of reasonableness had there been a basis to consider it, most utilities and the like charge £1.50 for paper billing and processing transactions. I would have been delighted to argue how their business is special and different to that and “reward” them with perhaps £1.50 per annum and less for a paperless trans action.