First Tier Tribunal cases relating to leasehold service charges

Transcription

1 Housing and Adult Social Services 7 Newington Barrow Way, N7 7EP Report of: Corporate Director of Housing and Adult Social Services Meeting of: Date Agenda item Ward(s) Housing Scrutiny Committee All Delete as appropriate Non-exempt SUBJECT: First Tier Tribunal cases relating to leasehold service charges 1. Synopsis 1.1 This report updates the Housing Scrutiny Panel with information about the First Tier Tribunal (previously known as the Leasehold Valuation Tribunal) and tribunal cases involving Islington Council leaseholders. 2. Recommendation 2.1 That the committee note the contents of the report. 3. Jurisdiction of the First Tier Tribunal On 1 July 2013 the First-tier Tribunal (Property Chamber) (known as FTT ) replaced the Leasehold Valuation Tribunal (LVT) as the statutory tribunal in England which determines various types of landlord and tenant disputes involving residential property. Amongst other things, the FTT can determine a leaseholder s liability to pay a service charge under the terms of their lease. The FTT can decide by whom, to whom, how much and when a service charge is payable. A service charge is defined in Section 18 of the Landlord & Tenant Act 1985, as an amount payable by a leaseholder as part of or in addition to the rent which is payable, directly or indirectly, for services, repairs, maintenance, improvements, insurance or the landlord s costs of management, and the whole or part of which varies or may vary according to the relevant costs. A service charge is only payable insofar as it is reasonable. So in deciding liability, a tribunal also had to decide whether service charge costs are reasonable, and whether the standard of any or services for which the costs are charged are reasonable. Page 1 of 5

2 3.5 There is no simple definition of reasonable and it is for the FTT to determine the issues according to the evidence before them. However, in determining reasonableness some of the issues raised are: Whether the or services are necessary Whether the original specification for the or service were adequate The procedures for costing the or services Arrangements for controlling costs Whether the standard of the or services is appropriate Arrangements for monitoring service delivery The reasonable amount for the leaseholder to pay as an interim charge Whether or services are chargeable under the terms of a lease 4. The Tribunal process Applications to the FTT can be made by landlords or by leaseholders either before or after service charge costs have been incurred. Where the council has taken legal action at the County Court to recover unpaid service charges and the leaseholder defends the claim, the County Court may also transfer the case to the FTT for a determination. The Application fee ranges from 65 up to 440 on a sliding scale depending on the value of the service charges in dispute. After an initial Case Management Conference which is chaired by a single chairperson, Directions are given for exchange of evidence and a Hearing date is set. At all times there is an opportunity to use the free mediation service provided at the FTT to try to settle the dispute. Notwithstanding mediation, it is open to both parties to try to negotiate a settlement prior to the Hearing. The decision making process at the FTT usually involves a panel of three people: a legally qualified chairperson sitting with a chartered surveyor and a lay member. Following the Hearing, a decision is normally given within six weeks. The FTT s decision is legally binding, but either party may seek permission to appeal the decision in part or in full or take the matter further to the Upper Tribunal. The council s Legal Services and Home Ownership departments lead on FTT cases, although significant input is often required from Property Services in cases where the necessity, cost or quality of major are challenged. FTT service charge cases relating to Islington Council Types of cases Most of Islington Council s FTT cases relate to major service charges. These are ad hoc charges of over 250 per leaseholder (though charges can be considerably higher than this, i.e. 10,000+) which are usually for large one-off such as lift or communal heating replacement, or for cyclical repairs and maintenance. Leaseholders generally dispute their major charges at the FTT because there are underlying issues of affordability and/or concerns about value for money. They focus on the necessity, cost and/or quality of the. Some leaseholders have also disputed their liability to pay major service charges on the basis that they believe the council has failed to consult them about the in accordance with Section 20 of the Landlord and Tenant Act 1985 (as amended). Historically, tribunals would heavily penalise landlords for any minor breach of the consultation requirements. Although the council can apply for dispensation from the statutory consultation requirements, tribunals wouldn t grant dispensation and they would determine that the landlord couldn t recover any of the costs of the over the statutory limit of 250 from the leaseholder. A company called Landmark Leasehold Advisory Service Ltd (Landmark) were well known in London for using this legal loophole to seek to significantly reduce their clients major service charges. Page 2 of 5

3 However, following a Supreme Court ruling in 2013 in the case of Daejan Investments Limited v Benson & Others, this loophole has closed. The Supreme Court determined that the statutory consultation should not be regarded as an end in itself, but as a process to ensure that the resulting service charge is reasonable (i.e the work is necessary, and the cost and quality of the work is reasonable). As a result of this case, dispensation from the consultation requirements is now more likely to be granted by the FTT as the key issue they must consider is what relevant prejudice if any, the leaseholder suffered as a result of the landlord s breach of the consultation requirements. The factual burden of proving relevant prejudice rests with the leaseholder. Landmark continue to promote their services to Islington leaseholders and to other leaseholders in London, but their approach has changed slightly following the Daejan case - they are now focussing their challenges on the necessity of instead of trying to identify technical breaches of the consultation requirements. More recently, we have received some challenges related to the calculation methodology that we use and on the construction of individual leases. Occasionally, the council makes an application to the FTT. For example, in 2013 we proactively took a case about proposed to a communal heating system at Adams Place. There was a difference of opinion between the council and some leaseholders who would be affected by the proposed. We used this as a test case and the FTT agreed with us that the proposal to replace the communal heating system was reasonable. Number of cases Over the past three financial years we have averaged nine tribunal hearings/decisions per year. In 2013/14, the council issued annual service charge invoices of approximately 7.3m to 7,600 leaseholders and 2.55m of major work invoices to approximately 1,800 leaseholders. Since 1 April 2013, we have had nine FTT hearings / decisions regarding the reasonableness of service charges. These related to approximately 175,000 service charges which were only reduced by 6,600, a 3.8% reduction. Please refer to Appendix A for a summary of these cases. The council s approach to service charge disputes Where possible, we try to minimise the number of cases going to the FTT because the proceedings can take up a signficiant amount of staff time and resources. Officers try to address leaseholders concerns at an early stage and we have recently introduced a Leaseholder Challenge Procedure which provides a complaint mechanism for leaseholders to formally challenge their major invoices without the need to go straight to the FTT. Emphasis is also placed on internal partnership working between Home Ownership, Property Services and Legal Services to improve services generally and to minimise the number of future FTT cases. Identifying issues, pre-empting disputes and learning from previous tribunal cases was particularly important following the adverse and widely publicised Tremlett Grove tribunal decision in Conclusion 7.1 The number of First Tier Tribunal cases remains low in comparison to the number of service charge invoices raised each year, and the council has had reasonable success in achieving positive outcomes at FTT. Page 3 of 5

4 Final report clearance: Signed by: Corporate Director of Housing and Adult Social Services Date: Report Author: Doug Goldring, Director of Housing Operations Tel: Page 4 of 5

5 Appendix A A summary of FTT hearings/decisions since 1 April 2013 regarding reasonableness of service charges Case Type of service charges Main challenges Outcome Amount in dispute Amount payable reduction % reduction Loreburn House Major - roof,window and Consultation, cost, quality FTT decision 10,071 10, % brickwork repairs and associated Adams Place Major - communal heating Reasonableness of FTT decision 113, , % proposals, cost Buckmaster House Major - roof,window and Consultation, cost, quality FTT decision 8,985 8, % brickwork repairs and associated Graham House Major - lift replacement Cost, whether chargeable FTT mediated settlement 6,477 4,865 1,612 25% under the terms of the lease Howell House Major - lift replacement Cost FTT mediated settlement 13,500 12,500 1,000 7% Holmbury House Major - lift replacement Cost, chargeable under FTT decision 13,618 13, % lease, tender process Thornhill Houses Major - door entry Necessity, cost, terms of lease, consultation, quality Part-FTT mediated settlement; part determined by FTT. Leaseholder has appealed FTT decision to Upper Tribunal, awaiting hearing. 1, % Thornhill Houses Major - repairs, redecorations and window repairs Necessity, cost, terms of lease, consultation, quality FTT mediated settlement 6,019 3,008 3,011 50% Morgan Mansions Annual service charges Cost, terms of lease FTT mediated settlement 1, % Total 174, ,910 6, % Page 5 of 5