… and if there is corruption involved they are the biggest victims
The right-to-buy schemes beloved of the present government are rendered farcical by local authorities whacking leaseholders with vast bills for major works.
No sooner has a former tenant owned the lease on a flat, than they are wiped out by the first big major works bill.
Given that such an abundance of these contracts have been established as fraudulent, local authority leasehold owners are also the principal victims of local council corruption as well. (More below)
LKP has been inundated with distressed calls from local authority leasehold owners. Last week we had a £38,000 demand from Lambeth, £44,000 from Haringey and £15,000 from Brent.
Sebastian O’Kelly spoke on this subject on Radio 4’s You and Yours on November 13, where the case of two young Londoners facing an £18,000 demand for a new roof was discussed. There is basic advice on how to fight back that link.
Kate Newton and her partner Andy Worsley, who employed a solicitor and surveyor, managed to defeat this initiative after a ten-month battle. Ms Newton then alerted us to her friends facing the same predicament:
- EE, who completed her ex-council flat purchase less than 5 months before £22k bill
- PS, who completed less than 3 months before £17k bill
- HF, who completed less than 8 months before £22k bill
- SM, who completed one week before an £18k bill!
- Kate Newton and Andy Worsley had been in their flat for only 6 months before £18k bill
Many of these buyers are in fact young Londoners buying council properties as a way of affording somewhere to live. The former council tenants have sold up and moved on.
It also wants details of how the disputes were resolved and whether flats were forfeited by councils.
Massive costs often arise from large contracts given to private contractors where there is no competitive costings for individual projects.
LKP asks why would any supplier need to be given a five or seven or even a 10-year contract for maintenance of council housing?
And then there are the abundance of cases of corruption, where leaseholders are often the principal private victims: scammed for wrongful contributions to a major works scheme and scammed as taxpayers as well.
Here are some examples. Can LKP readers please provide others over the past four years where cases have gone through the courts.
In September Anthony Bodgin, 65, an ex-Exeter council project manager, was sentenced to three and a half years for bribery and corruption.
Bodgin had been acting fraudulently for over five years before being caught and had taken £400,000 in bribes in total –£80,000 a year. It is a fair bet a good whack of this came from local authority leasehold owners.
The money had been spent on foreign holidays and a mobile home.
He was specifically done for accepting £125,000 as part of a £2 million contract, and £1,000 as a “gift” as part of a scaffolding contract.
He was also swimming in a gravy bowl of freebies to rugby matches, dinners, golf events, foreign conferences and so forth which corporate marketing people can dole out (and set against tax).
It remains unclear whether all the companies doing the bribing have been publicly named.
Exeter Council submitted it had lost £720,000 in the scams. This seems likely to be a fraction of the real costs.
Last Friday, the Brighton Argus reported that the police had given up an investigation into contractors overcharging the council by £300,000.
A plastering company, employed by the giant Mears group, was banned from working for Brighton and Hove City Council after overcharging on council housing repairs over a 17 month period.
Mears has agreed to return the funds.
Meanwhile, investigations at Tower Hamlets continue.
Former Communities Secretary Eric Pickles explained Tower Hamlets’ had been “unfair” in charging leaseholders so much for repairs. How much has been overcharged may take years to uncover but local authority leasehold owners will still be obliged to pay the demands they get.
In 2013 the BBC reported that contractors may have overcharged Birmingham council £19 million with auditors reporting considerable “contract leakage”.
LKP understands one of the most common ways that costs get out of control are “change orders”.
Having agreed an initial package of works suppliers then get to charge additional fees when changes are made to the specification – or perhaps that the specification was not as detailed as it might be?
These new costs diverge considerably from the original costs involved. On other occasions, some of the contracts simply do not seem competitive to start with.
The historic practice of billing for more works than have been done is well understood among suppliers to local authorities.
A brown envelope for the local authority staff member and if it all goes wrong they plead guilty making sure not too much evidence is disclosed in court.
So on to Islington, where the then Housing Minister, Grant Shapps, was reported as saying it was “shameful and unforgivable that some councils are hitting leaseholders with unfair service charges”.
In this case Islington was the authority being shamed. The Property Tribunal finding that a set of costs for window replacement billed at £149,000 should only have been charged at £10,000.
A local authority representative acknowledged that there was “sensitivity” as well as “anxiety and stress caused by these large bills”. Some understatement!
In Leicester, police investigated £13 million contracts involving the repair of boilers and wiring of “council houses” which would have included a number of right to buy flats where leaseholders would have faced large costs.
It is not just the local authorities which face this problem.
In April 2015 social housing provider Circle Housing, who oversee 65,000 homes, admitted it had overcharged for repairs as part of a £220 million contract.
Executive Director Deborah Upton, who claims there has been no fraud, blames the problem on contractors recording works under the wrong code.
It is a problem which Ms Upton says is not uncommon at the start of a contract.
What was not clear in April 2015 is what Circle planned to do, if anything, to compensate those leaseholders overcharged.
In the meantime LKP continues to receive complaints about Circle for not consulting fully and for claiming that works are not subject to s20 consultation because of existing long-term contracts.
We also have a complaint that Circle failed to disclose relevant major works during a purchase and then sent the new owner a bill having said no major costs were expected in the foreseeable future.
Circle Housing Merton Priory records that is has entered into a long-term contract with Erith Contractors Ltd for 10 years on asbestos removal. It might argue that such a long contract is reasonable given this is a specialist business.
In 2013 Circle also entered into a contract for its decent homes project for “initial period of 5 years” with United Living.
United Living Group Holding Ltd has a net worth of £-5.25 million but is part owned by Lloyds Development Capital (Holdings) Ltd, who the accounts show as being paid £125,000 in the year for “monitoring their investment”.
In June 2015, the Evening Standard reported that Scotland Yard were on the case of Hackney, with accusations of bribery and corruption among Hackney Homes staff.
Among other things, it is alleged they took gifts for work not done.
One of the companies’ names in the Standard report is Lakehouse.
Hackney said “The chief executive of Hackney Homes has suspended five members of staff pending an internal investigation. If evidence of wrongdoing is found, further action will be taken.”
Lakehouse said it was supporting Hackney with its “ongoing investigation”. Lakehouse Contracts Ltd is reported as having a net worth of £-16.96 million in their latest accounts and its ultimate parent Lakehouse Holdings Ltd as having a new worth of £-11.5 million.
Local Authorities and Social Housing groups claim they get benefits from major contracts over a long period of time.
Too often it seems that staff are signing up to these huge long-term contracts with limited oversight. The potential for corruption is enormous.
It seems to me that:
1. There is the Housing Revenue Account which is ring-fenced.
2. There is the council, that cannot benefit from this account so will automatically spend it all on Housing.
3. There is the private ‘partner’ who sees this money as rightfully to be spent on them.
If there is no real scope to build new, and accepting that repairs do not provide a guaranteed revenue stream, there is a temptation for the ‘partner’ to promote major works, no matter how unjustified. Thus, ALL the rental income passes to the partner.
Private landlords might do similar but since they may benefit directly from the rents (as personal profit), there is less incentive to spend it all; although backhanders may change this equation to some extent.
Thus, for example, in Islington leaseholders got 70% of their money back because works, more or less the same as those in Brighton, were considered unnecessary.
The council tenants appear to benefit although, of course, their rents are higher as a result of this behaviour, there are less new homes built, repairs and maintenance are ignored and they have the disruption of unnecessary major works.
The leaseholders are put in the weird position of effectively paying the same rent through the service charge as the council tenants even though they have paid a lump sum for their lease. NB. If the LVT does refund them eventually, it is to the loss of the Housing Revenue Account.
Any private landlord would use the income:
1. For repairs and maintenance
2. For re-investment (e.g. new properties)
3. As profit.
It would seem that the situation in Brighton and Hove is that repairs and maintenance are being ignored, profit is proscribed and re-investment is being side-lined into ‘major works’.
A question with regard to apartment blocks where there are both tenants and those who have taken up the option of right to buy.
How is the cost of major works split between those who remain as tenants and those who are now leaseholders?
In my case, as per the lease which states a percentage based on the size of the flat and the total number of flats.
Letter to Harriet Harman MP from Southwark leaseholders
Rt Hon. Harriet Harman QC MP
House of Commons
8 January 2015
Major Works programme on the Portland Estate, Southwark: excessive bills and years of disruption for leaseholders
We are a group of leaseholders who live on the Portland Estate, near East Street market in your constituency. The Portland Estate consists of four identical 13-storey red brick tower blocks built in 1964. Each building contains 54 one- and two-bed properties. The four buildings are called Broadmayne, Lulworth, Studland, and Woodsford. There are approximately 5-10 flats in each building owned by private leaseholders, the remainder being Council tenants.
Planned Major Works and Costs
It is a legal responsibility of the Council to consult leaseholders when the Council intends to carry out works to properties that will require leaseholders to be billed for more than £250.
In December 2015 all leaseholders were served with a Section 20 (S20) consultation Notice of Intention. The London Borough of Southwark (LBS) intends to carry out Major Works under their Warm Safe and Dry programme of Council property renovation. The S20 consultation period closes on January 15. (We note the S20 was served the week before most people went on holiday for the Christmas and New Year break, 9 December 2015).
We have consulted the Leaseholder Advisory Service, Leasehold Knowledge Management, the Citizens Advice Bureau, solicitors, a Southwark councillor for Faraday ward, independent leaseholder associations, and the LBS officer in charge of these works, amongst others. We are reviewing the full documentation made available to us by LBS. But we need more time.
LBS’ latest estimate is that the works will start in March this year and take a total of two and a half years. The works planned on the Portland Estate are both extremely extensive and expensive. The works will be carried out four days a week from Monday to Thursday, from 8am to 5pm.
In 2011, a very small amount of brickwork on the Woodsford building came loose. In 2012, the Council erected some scaffolding on two of the buildings to conduct tests on the brickwork. Originally major works were planned to start in 2013/2014 but this has been pushed back repeatedly without explanation.
The S20 explains that A&E Elkins, the contractor employed by LBS under a Qualifying Long Term Agreement (QLTA), plan to do the following work on each of the four buildings:
• erect scaffolding on the entire building;
• drill into the brickwork and tie the bricks to the steel structure using ‘pins’;
• replace the asphalt roof;
• carry out other ‘repairs’, ‘decorations’, and ‘improvements’ as necessary;
• carry out communal electric tests and remedial work; and
• carry out asbestos testing and removal ‘where required’.
Further information is provided in the S20 received by one of the signatories to this letter, at Annex A.
LBS and the contractor have warned all residents that the works will be extremely noisy, in some cases quite deafening, and properties are likely to be uninhabitable while some of the drilling is going on. This is not to mention the dust, limited daylight caused by scaffolding, and general disruption caused by living on a building site.
The cost of the work ranges from £2.1m to £2.2m for each of the four buildings. Leaseholders are required under the terms of our lease to pay a ‘fair’ proportion of the costs. For a one bed flat in Woodsford, the total costs of the works are £41,007.98. Bills for other leaseholders are either broadly similar or several thousand pounds higher.
Current top-level concerns of leaseholders on the Portland Estate
We are seriously concerned at being hit with both a very large bill and the prospect of severe disruption for a lengthy period of time.
In particular, we note:
1. Evidence from Southwark leaseholder associations recognised by the Council and individual leaseholders showing that recently a large number of extremely expensive bills have been sent to leaseholders. Some of these bills are upwards of £60,000. (It is worth noting 71.3% of properties in your constituency are held on a leaseholder basis according to a recent survey done by Leasehold Knowledge Management).
2. Numerous press reports of LBS carrying out Major Works which have proved fully or partially unnecessary; and the current lack of clarity over whether the Portland Estate works are really necessary or not, including whether all or some of the buildings need the same Major Works. It is unclear whether the testing on parts of brickwork evidently in disrepair amount to evidence that the whole building needs these works. Although testing has been done on 2 out of 4 of the buildings, the other 2 have been included in these Major Works purely because they were built at the same time, and not because their brickwork is actually proven to be in disrepair.
3. That currently, although the replacement of the roof on all four buildings comes with a 30 year guarantee, the extensive work to the structure and brickwork of the buildings holds no such guarantee, meaning that our properties would be unmortgageable after these works are completed.
4. That the works propose to drill into the brickwork, which could disturb asbestos, leading to more expense in testing and removing this. The buildings insurance policy taken out by LBS should cover such risks, but we have been given no such assurances.
5. That the estimates provided by LBS contain many provisional costs, which again could easily increase during the works.
6. The death of a 93 year old pensioner last year who suffered a fatal heart attack caused by the stress of receiving a Major Works bill from LBS for £50,000 for roof repairs, which were later found to be unnecessary. Subsequently central Government passed a law, commonly called ‘Florrie’s Law’, limiting Major Works bills to £15,000 when central Government funding is involved. We are relieved to report that so far there have been no reported deaths on the Portland Estate as a result of our S20s. However although LBS has yet to provide clarification, we believe that these Major Works are funded by Central Government and therefore that this limit should apply in our case.
7. That such huge bills are simply unaffordable for many leaseholders despite the payment terms offered by LBS. Moreover, the bills are almost ten times greater than the average: a report by the independent commission on the future of council housing in Southwark estimated that to meet the current Decent Homes standard, the average cost per unit was £4,645, ranging from £3,200 to £8,800.28.
8. That such huge bills call in to question the ability of LBS to manage such a programme of works while ensuring value for money for taxpayers and leaseholders. (As an example, one Major Works bill on another LBS-owned building included an item called ‘workmen to move flower pots from balcony to inside the flat’ – this was charged at £75 for each balcony).
9. That our legitimate observations and concerns will be taken into account, as we have been told by LBS that work will go ahead next month either way.
10. Investing in council housing: options for the future, a report by the independent commission on the future of council housing in Southwark states,
“In 2009, an independent audit of leasehold service charges by Grant Thornton LLP found that insufficient information (and clarity of information) was provided to leaseholders about the charges levied, that the council could have been reclaiming money from its insurance policies, and that there were not adequate checks to identify works which should have been classified as major works (which would have meant greater consultation). The report’s recommendations included a new accountancy policy to make charges clearer, an improved audit trail and better monitoring of overcharging from contractors.”
Additionally, Portland leaseholders are currently facing three other Major Works programmes at the same time. These relate to boiler replacement on the Portland Estate, borough-wide emergency works, and borough wide non-specified ‘Major Works’. The cost of the new boiler is approximately £3,700, while the cost of the other two is likely to be a further several thousand pounds combined.
As your constituents, we, and no doubt other leaseholders on the Portland Estate, would appreciate both your views and your help on the following issues:
1. Do you consider it reasonable for individual leaseholders to be landed with such huge bills, both generally and in this particular case?
2. Do you agree that the council should cap the amount that leaseholders will have to pay, in case further expenditure during the works is needed?
3. Do you agree that LBS should provide solid evidence that all Major Works proposed are in fact necessary?
4. Do you agree that LBS and its contractors should provide suitable mitigation measures for residents while the works are on-going, particularly for vulnerable residents in particular situations (eg, lack of mobility, women in pregnancy, etc).
5. Do you agree that LBS should allow enough time before the works begin for proper consultation with the leaseholders, and to allow leaseholders enough time to seek further legal advice and instruct an independent surveyor?
In addition, we would be enormously grateful if you could:
1. write to the London Borough of Southwark seeking assurances on the points we are concerned about; and
2. express your support for the work we are doing to defend our legitimate interests.
We do not dispute the legal responsibility of LBS to ensure its properties are properly maintained. We accept that major works may be necessary. We acknowledge the benefits Major Works can bring to leaseholders’ properties. We accept the intentions of the LBS Warm, Dry and Safe programme. We also accept some measures like re-housing all residents during the Major Works are not feasible for LBS. However, we are prepared to use all necessary reasonable and legal measures to ensure our legitimate interests are protected. Your help in this cause is sincerely appreciated.
This letter is copied to:
– Leasholder Knowledge Partnership
– Leaseholder’s Association of Southwark 2000
I can definitely relate to the following comment:
“Massive costs often arise from large contracts given to private contractors where there is no competitive costings for individual projects”
As I am constantly bombarded with different notifications from Ealing Council for this and do not feel we are getting a good deal. I just wish it was all reverted back in-house with proper costing breakdown.