By Sebastian O’Kelly
The epic battle over service charges at St David’s Square, on London’s Isle of Dogs, took place earlier this month, with the landlord conceding more than £100,000 buildings insurance commission days before the tribunal hearing.
The battle is being mounted by LKP trustee and City solicitor Liam Spender, a leaseholder at St David’s Square, which is a high-end development of 436 flats across nine blocks.
Service charges in 2018 and in 2020 collected by FirstPort were about £2 million a year for the site, which also includes 40 freehold houses and two retail units.
The legal freeholder is FIT Nominee Limited and FIT Nominee 2 Limited, both subsidiaries of the NatWest Group plc, which as RBS received a total of £45 billion in two taxpayer bailouts in 2008-9.
The ultimate owner of the site is the ARC Time Freehold Income Fund, which claims to have more than £200 million invested in more than 30,000 different leaseholds dotted around England and Wales.
Mr Spender, who has been a prominent activist over the building safety / cladding scandal, is representing 103 leaseholders at the site, which was completed by the Berkeley Group between 1999 and 2003.
The landlord conceding the insurance commissions on the eve of the hearing was a major coup for the service charge payers at St David’s Square. Leaseholders stand to get an average £270 each just from the cave-in on insurance commissions, although the amount will vary depending on the floor area of each flat.
Other leaseholders – especially those who have been on the receiving end of solicitors JB Leitch’s aggressive and expensive debt-collecting correspondence – may be wryly amused by the law firm’s letter to Mr Spender conceding the insurance commissions “without any admission of the matters alleged by the applicants”.
JB Leitch finds fault with Mr Spender:
“The Respondents do not wish to engage in lengthy or costly litigation, and hope that, in future, matters can be resolved without the need for such applications or indeed the lengthy, and at times antagonistic correspondence received. Whilst our Client accepts it may not have been your intention, the effect of such correspondence has resulted in employees of our Client’s agents feeling that they were under personal attack from you, resulting in them suffering unnecessary distress, whilst they were merely seeking to do their job. Those persons providing services are individuals simply seeking to provide services in a professional manner.”
Here is an example of JB Leitch “merely seeking to do their job”:
The hearing, which was originally scheduled for five days but eventually lasted for four, heard evidence from four witnesses for the applicant leaseholders and seven for the landlord, all of whom were FirstPort employees.
One witness was withdrawn by the landlord following its decision not to contest the buildings insurance commissions. Another witness from FirstPort said she could not be released from work to attend, although the landlord did not concede the issue in dispute, which was separate insurance commissions charged by FirstPort on policies covering lifts and water pumps.
A senior FirstPort figure Robert Montgomery – director of operational excellence – admitted during cross-examination that no-one at FirstPort had ever asked him to prepare service charge accounts complying with the RICS statutory “Service Charge Code of Practice”.
Mr Montgomery was unable to explain why Nigel Howell – then chief executive of FirstPort – had written a 2019 article in the trade publication Property Week claiming FirstPort followed the RICS Code, but had apparently made no arrangements within FirstPort to ensure staff were aware of this public promise.
Mr Montgomery also denied seeing a publication, still published on FirstPort’s website, carrying the RICS logo and assuring leaseholders that FirstPort complies with all parts of the RICS Code of Practice on residential service charges.
Mr Spender alleged that had FirstPort complied with the RICS Code leaseholders would have seen in the service charge accounts full disclosure of the hundreds of thousands a year flowing from them to FirstPort.
The biggest ticket item in dispute at £475,000 was the rental and maintenance of a video intercom and door entry system leased from Essex firm Countryside Communications (not related to the property developer of the same name).
The same company also leased satellite dishes, TV aerials and car park gates installed at the site, all on similar expensive rental terms to the intercom system.
“The Estate never owns any of the hardware installed,” Mr Spender said. “The Estate is perpetually renting the hardware and paying for its maintenance and improvement.”
Yet these sums – amounting to 10 per cent of the annual service charges – were based on an unwritten understanding between FirstPort and Countryside Communications on the landlord’s behalf, Mr Spender claimed.
During cross-examination, the FirstPort site manager admitted that in seven years he never asked to see a contract covering the £200,000 annual cost. This meant the contract rolled over after it was due to expire on 6 July 2020. The site manager also admitted he relied on Countryside to tell him what the termination provisions were and that no-one at FirstPort’s head office had a copy of the contract when he eventually asked to see one.
FirstPort’s current regional manager also admitted during cross-examination that it was correct FirstPort did not keep track of long-term contracts, but that a chain of senior managers would have been involved in approving the £200,000 a year paid from service charge money to Countryside. The same regional manager could not explain why none of those FirstPort managers ever raised any questions about the huge costs incurred.
The costs of the systems were eye-watering in the 2018-20 period, being about twice the cost of buying and installing a new system:
The Countryside charges – and the insurance commissions – have continued to be charged at the site into 2021, 2022 and 2023.
Other issues raised by the leaseholders concerned £90,000 of concierge charges, with dissatisfaction raised about the swimming pool and parcel holding service at the site, including numerous instances of parcels being stolen. It was claimed that FirstPort refused to accept deliveries to the concierge desk.
Services were wound down during and after the pandemic, but leaseholders were still charged full service charge prices.
FirstPort, however, which made a £64 million gross profit in the year ending December 2021, retained £286,000 in furlough money from the taxpayer.
A £20,000 issue in dispute concerns FirstPort charging commissions on the provision of temporary and permanent staff at the site.
Then there was more than £29,000 in legal costs put through the service charges.
These costs were incurred in a legal case against a disabled leaseholder that FirstPort / the landlord lost.
Mr Spender claimed that not only were the £8,625.75 landlord’s legal costs put through the service charge, despite the County Court making a cost ruling against the landlord, but so were about £8,000 in costs and damages for disability discrimination awarded to the leaseholder.
A further £13,000 paid under a settlement agreement to the same disabled leaseholder was also put through the service charge. FirstPort entered the settlement agreement to avoid the landlord being dragged back to the County Court, so further damages for disrepair could be assessed.
The landlord conceded the last £5,028 of this part of the claim only on the first morning of the hearing, almost four years after the charges were first billed to leaseholders.
In other words, leaseholders paid out for the landlord’s failings and failed litigation, it is claimed.
The landlord’s excuse for allowing these costs to be passed on to leaseholders was that it did not know what FirstPort had done until Mr Spender brought the claim to tribunal.
Mr Spender noted in written argument that it was long established that a landlord could not claim at the back door what had been denied at the front, and that these costs should never have been charged to leaseholders.
In addition, there were £6,393 in survey fees – including charges for a FirstPort surveyor miscounting the number of storeys of one of the buildings at the site, it is claimed – and £14,000 in accounting and audit fees.
Both FirstPort and its auditor – BDO – failed to spot that service charge demands had been issued using the wrong percentage for more than 20 years, leading to leaseholders regularly overpaying around £18,000 a year and having that money quietly refunded 18 months later.
On cross-examination, FirstPort admitted that it had misled BDO as to the source of the error even when BDO had questioned why there was more money coming in than estimated in the annual budget.
£88,000 in management fees were also disputed on the basis of alleged poor quality oversight.
At the end of the hearing, the landlord’s barrister – Simon Allison of Landmark Chambers – attempted to argue that the landlord should be able to charge leaseholders all of its legal costs of the hearing, whether leaseholders won or not.
Mr Allison did not name the figure incurred, but said it was “challengeable in its own right”. Mr Allison argued that leaseholders should pay the bill – even after the £100,000 insurance cave-in – because Mr Spender had put the landlord to a great deal of trouble in answering the claim.
Mr Spender argued back, noting that it had required bringing a claim to get answers out of the landlord about service charges and commissions at the site.
Mr Spender argued that the £100,000 insurance cave-in meant leaseholders had already won and should get an order preventing the landlord recharging any of its legal costs.
In the alternative, Mr Spender asked the tribunal to make an order reflecting the overall outcome of the case.
Unfortunately, as the law currently stands, only the 103 participating leaseholders will get any costs protection. The landlord will be free to charge its legal costs to the other 333 leaseholders because they chose not to join the claim.
The other 333 leaseholders will also not see any benefit from the claim, including receiving their share of the buildings insurance commission, or any of the other issues the tribunal decides in leaseholders’ favour.
It remains to be seen whether any of FirstPort, NatWest or the ARC Time Freehold Income Fund want to be seen charging their legal costs if the case ultimately goes against them.
The tribunal ruling is pending.
Mr Spender’s skeleton argument is below. It is not legal advice and it is specific to the issues in this case: