Barrister Justin Bates torpedoes another RTM for Moskovitz / Gurvits: leaseholders face £100,000 bills

**Canary Gateway leaseholders have just lost £100,000 on a failed RTM, have aggressive 15-year doubling ground rents and, like every other sizeable new block in the country, has EWS1 issues to address**

The one-man right to manage demolition barrister Justin Bates has scored another victory against leaseholders for freeholder Israel Moskovitz and property manager partner Joseph Gurvits.

The defeat in the Upper Tribunal of leaseholders at Canary Gateway Block A (97 flats) and Canary Gateway Block B (136 flats) means that the RTM members must pay £70,000 of the freeholder’s costs.

They are understood to have run up around £30,000 to £40,000 costs themselves, as both sides deployed professional witnesses and barristers. The rulings of both hearings are below.

On top of this set-back, the leaseholders at Canary Gateway, built by City and Docklands with leases starting from 2008, face build safety defect bills following an EWS1 survey and aggressive ground rents that double every 15 years.

The first doubling occurs in two years’ time, which may make many flats unmortgageable as the ground rent will be more than 0.1 per cent of the values of the property.

One leaseholder, who contacted LKP, pays £350pa on a two-bedroom flat bought for £480,000; the ground rent here will double to £700.

The leaseholders at Canary Gateway, who are advised by Haus property management, won their first RTM hearing at the First Tier Tribunal in January 2020.

Judge Angus Andrew said in his ruling (see below) that: “This case has consumed a considerable amount of the tribunal’s resource.” There had been two case management hearings and “at least three sets of directions” and “Avon made a very late postponement request that was rejected”.

Furthermore: “Throughout this procedure and until the morning of the hearing it had been understood that the central issue was whether all or some of the houses in each of the two blocks were structurally detached self-contained buildings.”

This rather impacts LKP advice: advance an RTM application, but retreat before a tribunal action and address the landlord’s objections and start another.

This issue was substituted by arguments concerning right to manage notifications served on shared-ownership leaseholders and whether or not these notifications should also have been served on the Metropolitan Housing Trust, the landlord under the shared ownership leases.

Giles Peaker, of www.nearlylegal.co.uk and a landlord and tenant solicitor, assesses the case here:

Shared Ownership and ‘qualifying tenants’. – Nearly Legal: Housing Law News and Comment
A short note on an Upper Tribunal appeal that may have broader consequences. Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Company Ltd & Anor (2020) UKUT 358 (LC) This was an appeal on whether the leaseholders of two block were entitled to acquire the right to manage.

The leaseholders were represented in both actions by Mark Loveday, a barrister who writes about leasehold law matters in The Times. They won the case, with the First Tier Tribunal referencing several other right to manage cases where Mr Moskovitz was the freeholder that had been appealed.

Sure enough, the RTM of Canary Gateway was also appealed, with a hearing in November last year.

Mr Justice Fancourt ruled that Metropolitan should have been served the RTM notifications and ruled against the leaseholders.

He made this observation, which concerns the Law Commission’s efforts to reform the RTM process and prevent legal gamesmanship thwarting them. These proposals are to be part of reforms to leasehold in the 2022-23 parliamentary session:

“It is a matter of some regret that, once again, non-compliance in this case, which does not appear to have prejudiced any of the qualifying tenants, has provided an opportunity for Avon to delay the acquisition of the right to manage at the expense of the members of Canary A and Canary B.
“There can have been no prejudice to Avon, nor is Avon purporting to act in the best interests of MHT. However, the conclusion that I have reached is a consequence of the way that the legislation is drafted.

“In a consultation paper Leasehold home ownership: exercising the right to manage (January 2019), the Law Commission
proposed abolition of the requirement for notices of invitation to participate on the grounds that they generally served little purpose and only increased costs and the opportunity for landlords to defeat claims.
“In its Report Leasehold home ownership: exercising the right 26 to manage (July 2020), the Law Commission confirmed its proposal. It may therefore be the case that the problem disappears, but in the meantime RTM companies need to be
scrupulous to serve all qualifying tenants who are not already members of the RTM company and have not agreed to become a member with a notice in the right form.”

Justin Bates was employed by the Law Commission to assist its work of reform of right to manage.

The leaseholders have not given up, and are determined to launch another effort at RTM.

Meanwhile, earlier this month Mr Moskovitz’s manager, Y and Y Management wrote to the leaseholders, urging the case for remaining under his control. It is understood one leaseholder has ceased to participate in the RTM action as a result.

The Y and Y letter is given in full below.

But the main arguments are that Mr Moskovitz:

has a “source of funding for building expenditure notwithstanding contributions by individual leaseholders” … er a gift horse?;
the freeholder can negotiate in a position of strength with insurers (actually, this has some validity in the current disturbing insurance market);
and, finally, the freeholder will be able to forfeit properties of defaulters – “methods of enforcement to ensure payment of judgments … more relevant in a time where proceedings may be more likely”.

Well, we are certainly in times where forfeiture – sorry, “proceedings” – are more likely.

Reasons for Canary Gateway RTM leaseholders to stay under the control of Mr Moskovitz, by Y and Y Management:

Dear Leaseholder,

We are writing to you in your capacity as member of the RTM company at Canary Gateway.

As you may now have been informed the RTM claims were defective and the Freeholder continues to manage the development. Costs of over £70,000 were incurred by the Freeholder in connection with the process and proceedings before the First Tier Tribunal as well as the Upper Tribunal.

As you should have been informed, the Freeholder’s reasonable costs are recoverable from those who signed up to membership of the companies who are all jointly and severally liable for same.

The Right to Manage is a statutory right and can be exercised by Leaseholders where no fault lies on the part of the Landlord. In many cases such claims are driven by a smaller number of individuals interested in self-management who are joined by members who have been informed that the RTM will reduce management costs but who may not have been provided full details of the practicalities of the RTM process in practice.

We are not aware as to whether the company intends to reissue claims in future, but would you invite you to consider the following to ensure you have full information on the consequences of a future Right to Manage claim:

A) The external environment has substantially changed since the issue of the initial claim. The benefit of management by the Freeholder includes a source of funding for building expenditure notwithstanding contributions by individual leaseholders. At this juncture, the Freeholder has a substantial increase in requests by individual leaseholders for payments to be made in instalments. The Freeholder can make such arrangements as it has the funds to cover expenditure whilst sums are repaid – this flexibility in funding may not be available to an RTM company which does not have assets.

B) There are significant issues within the development at the moment and the Freeholder has utilised its commercial influence to secure insurance of the development during a period where many insurers refused to place same. The Freeholder is also making sustained efforts to negotiate with insurers regarding the significant increase in premiums and is considering the steps that may be required in external Building Work. It may be likely that legal proceedings will be required so the Freeholder can ascertain the viability of additional building works. All these matters require funding at a period where contributions from leaseholders are staggering due to Covid-19. The benefit of the Landlord’s funding is most significant at this time.

c) For those people with specific issues in management there are cheaper ways to address same and we would propose that same could be reconciled between regular meetings between your property manager and residents. We would propose that such meetings could take place every six months (initially by zoom) to discuss – the provision and review of services, to highlight necessary repairs , to plan works and discussing budgeting and expenditure on the block.

D) Responsibility for legal action and enforcement where leaseholders default on payment will pass to the RTM company and will place leaseholders in the role of commencing proceedings against their fellow leaseholder.

E) The freeholder has methods of enforcement to ensure payment of judgments are made which is not available to an RTM company – this is more relevant in a time where proceedings may be more likely with increased issues of default.F) The Freeholder utilises professional managing agents regulated by ARMA who have significant experience both in the management of this block but large scale developments of this type with the services required in connection with same. A change in management will not guarantee services at this level.

We consider that during this time the resources of both the Freeholder and Members would be better served in funding the management of the building as opposed to the significant costs of RTM claims. You have the right to withdraw from the company but please note that you must give the RTM company 7 days notices of your withdrawal or you may be included as a member in future claims (and automatically liable for costs of same) if you do not act to remove yourself.

If you agree that an RTM claim may not be a practical or most cost-efficient solution for the building at this time, you may wish to discuss these issues with those parties who have been co-ordinating the effort.

Alternatively, to remove yourself as member you can fill in and send the enclosed form directly to the RTM company. If you forward the form to us, we can also send this on to the company on your behalf.