John Christodoulou, one of the leasehold sector’s most habitual litigants, has lost a £1.6 million case over excessive insurance costs in the war of attrition at the prime Canary Riverside site in London’s Docklands.
The first tier tribunal has criticised his companies’ “complete lack of transparency with leaseholders regarding these commission payments, paid since 2010”. This “has been lamentable”, the tribunal ruled.
“The sums involved are large and constitute a very substantial percentage of the premium towards which leaseholders were asked to contribute, without any notification to them as to the nature and amount of the commissions involved. It was only through these proceedings that the full extent of these commissions became apparent.”
While the victory has been widely celebrated by leaseholders, the first tier tribunal ruling will inevitably be appealed, with the tribunal ruling of 21 December 2022 itself noting: “We anticipate that one, or both of the parties may wish to seek permission to appeal this decision to the Upper Tribunal.”
The tribunal determined that individual leaseholders in Canary Riverside Estate should not have paid £1.5 million to a managing agent for insurance-related services, nor been charged a further £121,000 in linked taxes.
Martin Boyd, LKP chair, said: “No one should minimise the amount of effort required of the leaseholders to achieve this brilliant result.”
The ruling is reported on the Financial Times website today.
The ruling will undoubtedly be of interest to Communities Secretary Michael Gove who ordered a deeply reluctant Financial Conduct Authority to investigate insurance and commissions in the leasehold sector last year. It reported in October:
The tribunal concluded that £483,000 plus taxes paid to insurance broker Reich at Canary Riverside was justified, but that other monies paid in respect of insurance to managing agent Westminster Management Services were not.
“We conclude that all the work said to have been carried out by Westminster Management Services is more accurately described as the provision of services concerning management of the Estate, including obtaining insurance,” said the tribunal.
Liam Spender, LKP trustee and a commercial lawyer whose five-day challenge to FirstPort’s service charges at St David’s Square, another prime site in London Docklands, kicks off from January 16, told the Financial Times that “the decision is important because the most common justification for commission, that valuable work is done to justify the cost, has failed”.
The leaseholders argued that Westminster Management Services was a company that was part of John Christodoulou’s Yianis Group company and that payments to it “were not remuneration for services provided, but rather a rebate, or discount associated with the Yiannis block policy”.
The tribunal paid tribute to Angie Jezard, an accountant and the leaseholder leader at Canary Riverside:
“In her closing submissions, Ms Jezard explained how exhausting the long-running litigation regarding the Estate has been for her. We have no doubt about the sincerity of that remark.
“We commend her for the way in which she has conducted herself throughout the proceedings on behalf of the Applicants. There can be little doubt that the information finally provided by Reich [the insurance broker] regarding the amount of commission it retained, and the fees paid to Westminster Management Services, would not have emerged if not for her determined efforts.”
“The service charge accounts are silent on the question of commissions and fees; the amount of commission said to have been retained by Reich in the Respondents’ 28 August 2020 statement was woefully inaccurate, as was the figure specified in the schedule provide three months later, in November 2020, which stated that Reich had estimated that from 2013 – 2019 they earned total revenues across all of the [Christodoulou’s] CREM policies (inclusive of broker fees) of an average of £28,725.38 per year.
“The level of commission retained by Reich was, in fact, much greater than that, roughly £50,000 per year …
“We agree with Ms Jezard’s closing remarks about the need for greater transparency in insurance fees and commission charges.
“Paragraph 12.1 of the 2013 RICS code states that Insurance fees (including commissions) and all other sources of income and related income or other benefits in relation to the service charge arising out of the management should be declared annually to the client and to leaseholders and should reflect the level of work carried out. We urge the Respondents to ensure compliance with these recommendations in future.”
Monaco-based John Christodoulou lost the management of Canary Riverside back in August 2016 when the leaseholders argued for a section 24 court appointed manager. This, too, is the subject of seemingly unending litigation, which has been the subject of critical rulings in the courts.
The full ruling of 21 December 2022 can be read here: https://www.leaseholdknowledge.com/wp-content/uploads/2023/01/CanaryRiversideInsuranceDecision21122022.pdf