Lessees count the cost of FTT's

Taking your dispute to the FTT should always be considered a last resort, warns Konrad Grosse who, together with his fellow residents, has recently fallen foul of the flaw in the FTT system – namely potentially limitless costs.

 

If a lessee loses their case at the FTT they only risk a maximum £500 in costs being awarded against them. However there is no limit to what it could cost a Resident Management Company (RMC) - a cost that is non-recoverable and is likely to be re-charged to the lessees via future fees. In Konrad’s case, the unrecoverable costs levied against the residents of his London block amounted to a staggering £25,000 after the FTT allowed a maximum of £40,000 recoverable legal costs. He estimates that the cost to you and me, the taxpayer, in running a 7 day FTT hearing would be about the same.

Konrad explains what happened: “In 2008, our RMC took legal action to recover arrears of service charge from one lessee. The action commenced in the County Court and some matters were referred to the FTT. After a 7-day hearing, the determination was handed down allowing £40,000 to be recovered in legal costs from the service charge but a balance of £25,000 to be found by the RMC.

“The management company responsible to all the lessees of a block is under a duty of care to ensure everyone pays their service charges. The legal process, should it come to it, is very strict and procedures have to be followed but it appears that any lessee with even the smallest of gripes (whether genuine, or not) can request the County Court to refer the case to FTT. This not only carries with it a minimal (£500 maximum) financial risk on costs to themselves, but of greater concern, the very real possibility that the service charge or the RMC (if it has funds) will end up being responsible for the costs of the action. In our case other lessees joined the FTT, as is their right, but this still amounted to less than 6% of the flats in the development.

“The leaseholders who pay, find themselves not only penalised for honouring their lease covenant but also having to effectively pay for the actions of others over which they have no control. Why can an FTT allow such significant costs to be unrecoverable in whole or in part from the lessee(s) who have run an action through the judicial process without fear of having to pay anything like their reasonable costs? The process is fundamentally flawed and a system that was set up to protect lessees can actually present a very real financial risk to them.”

Arbitration and mediation are available to leaseholders in the first instance, providing they are willing to use it. “In our case this option was refused by the errant lessee, the reasoning being ‘there is no point talking to them unless they are going to agree with us’ and to the best of my knowledge the FTT did not question whether the option had been explored,” says Konrad, who believes this leaves the FTT wide open to abuse.

“In my opinion, the FTT is a well intentioned but potentially highly vulnerable to any unscrupulous lessee who can use the system to their own advantage at serious detriment of their neighbours”, he says.