Disputes on the increase

Michael Lee asks why more leaseholders are taking their service charge problems to the FTT?

In the last three years, the number of service charge disputes determined by the First-tier Tribunal (FTTs) in England has increased by 165%. Not surprisingly, by far the busiest region is London at just over 50% (in 2010) of cases, with its share increasing from 38% in 2008. However, it is interesting to note that during this period the biggest regional growth has been seen in the Northern and Eastern regions of England.

From a sample taken of 50 cases from the busiest two regions, the top three reasons for disputes in London are: unreasonable charges (19%); insurance premiums (15%) and major works (14%) while in the Southern region they are: withheld service charges (41%), major works (27%) and unreasonable charges (14%). Disputes over managing agents’, administration and consultants’ fees are generally low across the country.

The issue of unreasonableness was dealt with in the case of Shersby where the Upper Chamber (previously known as the Lands Tribunal, which is where FTT decisions are appealed) held that it had to be proven that a landlord (or RMC) acted unreasonably or improperly and that if it was within a range of alternatives then it had not acted unreasonably. This effectively widened the scope of what is reasonable. It is also fair to say that, in reasonableness challenges, landlords/RMCs are favoured more than in any other area of Landlord & Tenant law.

Why the increase?

The increase in cases is thought to be mainly due to the increasing awareness of legislation and availability of explanatory information on the internet, combined with ever increasing consumerism and cost awareness. The relative ease of access to the FTT and the ability to self-represent makes it an attractive option for dispute resolution.

However, this does have repercussions on Resident Management Companies (RMCs) and Property Managers who will face non–recoverable costs in representation and attendance which a self representing lessee will not face (see page 20 for more on this).

Who pays?

In the event of a lessee withholding service charges, the FTT will determine the reasons for non-payment (i.e. the liability to pay and reasonableness of those charges). Each party pays their own costs. However, the costs of the landlord or RMC may be recoverable from service charges as it is fairly common in residential leases for the landlord's legal costs in managing the property to be rechargeable. These can include the costs of court or FTT actions, whether initiated by the landlord or the tenant. Section 20c of the Landlord and Tenant Act 1985 enables a tenant to seek an order that the costs incurred by the landlord from proceedings before the FTT are not to be included in the service charges. This allows a tenant to seek that any reduction achieved in their service charges will be not cancelled out by the landlord recharging the legal costs of an unsuccessful defence to the service charges. Tenants who are being taken by the landlord/RMC to the FTT can also make an application. The FTT will review the evidence presented before deciding what is appropriate.

It is therefore in the interests of RMCs and Property Managers to try and avoid the matter being referred to the FTT and they can carry out, as part of their discussions with a lessee, some of the processes that would be required by the FTT procedures.

Know your lease

A lessee should not commence on what is nothing more than a fishing expedition if they don’t have any factual information to support their claim. They should start by seeking the information they are obliged to be provided with under the lease and the summary of relevant costs relating to the service charges, payable under section 21 of the Landlord and Tenant Act 1985. The starting point is to assess the case and prepare a summary setting out the elements to establish, the facts to establish and the available evidence in order to focus on what information is available to support the point you are trying to prove. This will soon highlight whether your case is strong and where the evidence in support of it is weak.  You can then devise an action plan in order to gather the necessary information.

Keeping time and cost down

If the matter went to an FTT then a Pre-Trial Review would be held to assess the case and it is likely that it would be directed that a joint meeting be required in order to produce what is known as a Scott Schedule (a table with columns showing a reference number, the matter at issue, the applicants comment, the respondents comment and a blank column for the FTT’s decision). This process will hopefully result in some issues being agreed which should be shown and the matters at issue therefore reduced. This will reduce the time spent and costs incurred in the FTT.

A simple investment of time in communication and transparency between the RMC/Property Managers and the lessees is well spent, when compared with the time and effort needed in taking the matter to the FTT which, by its very nature, can be unpredictable in its determination. A much swifter and cheaper method of resolution, the Leasehold Advisory Service (LEASE) Mediation Service, has just been closed.

If you find yourself with a service charge issue, then a good starting point is the very informative LEASE website  (www.lease-advice.org) which also has a list of surveyors and solicitors who deal with such matters. Depending on the type of dispute you are involved in, contact the RICS (www.rics.org) or the Association of Residential Managing Agents (www.arma.org).

Guy, please highlight this copy in tinted panel or similar

What is the FTT?

The First-tier Tribunal (FTT) is an accessible, informal, independent and impartial tribunal service which deals with a wide variety of disputes. Among other matters, these include the liability to pay and reasonableness of service charges; insurance; the appointment of a manager; lease variations; and consultation requirements for major works. It is an expert tribunal with the panel applying their own knowledge and experience and acting judicially and fairly.

There are five regionally based FTT offices, plus one for Wales. In England the offices and their percentage of total national service charge disputes heard are: London (50.5%), Southern (21.5%), Northern (11.5%), Eastern (11.5%) and Midland (5%). 

The tribunal usually consists of a lawyer, who is often the chairman, and one or two surveyors. In order to make the FTT accessible, proceedings are semi-formal with parties not having to be professionally represented. However, in cases involving substantial amounts of money with lawyers and experts, traditional court practice is likely to be followed, although where surveyors/property managers/lessees are appointed  then a softer approach can be taken.

Michael R Lee BSc(Hons) MRICS

Managing Director

HMLShaw Limited

Shaw & Company (Surveyors) Limited

Michael.lee@hmlshaw.com

9-11 The Quadrant

Richmond

Surrey TW9 1BP

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