Leasehold Management Company legal costs

venomizer

Hello,

I recently purchased (mortgage) the leasehold in a block of flats. Lessees are granted membership of the freeholder owner company through their ownership of the lease.

This freeholder owner company has appointed (some time long ago, soon after the leases were created) a 3rd party management firm to look after administration of the block, collect service charges, maintain the estate etc.

In my most recent service charge bill, I have been charge an equal share of ~£1500 of legal fees incurred by the 3rd party management firm. When querying this, they say they were incurred due to preparation of a defence for a tribunal brought about by another lessee that was withdrawn before it went to tribunal. They've quoted my lease to say that they are entitled to recover all costs (including legal costs) from the lessees as a whole (hence a share of them appearing on my service charge).

This only equates to around £40 on my charge, but I'm more concerned about the precedent this sets. What if the case did go to tribunal, the lessee won, and the management company incurred legal costs of £1m. Am I still liable? How can I be liable - I have no interest or part in this matter.

Is there anything I and the other lessees can do as shareholders in the freehold owner company?

eddddy

Unfortunately, it sounds like the Management Company is correct.

...As long as...

a) The lease really does say that the freeholder's (and their agent's) legal costs can be recovered through the service charge.

b) The legal costs are reasonable (i.e. it's very unlikely that £1m in legal costs would be reasonable.)

But some cases go to tribunal because the wording in the lease is vague, and it's not clear whether legal costs are recoverable.

As you say, even if the Management Company was 'in the wrong' and had to back down - as long as a) and b) above are satisfied, they could have still recovered their legal costs through the service charge.


Edit to add...

As an example, I suspect that spending huge amounts of legal fees on an 'unwinnable' case, would be considered unreasonable. So you could challenge having to pay that.

venomizer

Thanks for the response.

This is the area that is a little unclear. The lease states the Company (the freeholder, which is not the same as this 3rd party management company) can levy legal costs on the lessees. I, along with the other lessees are members of the freeholder. The management company (as far as I'm aware) is not, but they are directors for the freehold company...not the lessees.

eddddy

venomizer wrote: »

Thanks for the response.

This is the area that is a little unclear. The lease states the Company (the freeholder, which is not the same as this 3rd party management company) can levy legal costs on the lessees. I, along with the other lessees are members of the freeholder. The management company (as far as I'm aware) is not, but they are directors for the freehold company...not the lessees.

The Management Company is the freeholder's agent. ('Agent'/'Agency' is a legal term, defined in English Contract Law).

In simple terms, that effectively makes the Freeholder and the Management Company the same 'thing'.


Again, in simple terms, the Freeholder's contract with the Management Co almost certainly gives the Management Co authority to do everything the leases require/allow - including recovering their legal costs.

Going forward, the Freeholder could change their contract with the Management Co - to give the authority to do everything the leases require/allow except recovering legal costs.

But I suspect that the Management Co would walk away - rather than face losses every time somebody takes legal action against them.

david1951

I would ask for evidence of the legal fees (an invoice) and also the reason for the tribunal.

What is the exact wording of this clause in the lease?

lindze

I went through the process of taking my then Freeholder to the leasehold tribual (we have since purchased the freehold) and as part of the process I completed a form to request that no legal costs are passed to me or the fellow leaseholders in my building.

We settled the day before the tribual date and I requested written confirmation that their legal costs would not be passsed on either directly or indirectly and this was produced with no fuss.

I would do some more digging if it was me! If you own a share of the freehold then surely you are entitled to see ALL paperwork in relation to the case including the paperwork completed by the complaining leaseholder. All paperwork sent to the tribunal has to be copied in to the other party, both ways.

As a side note my lease also states that legal costs can be recovered but they couldn't for the tribunal case. Contact LEASE for some guidence.

NeilCr

Are you saying that the residents jointly own the freehold? So when you purchased your property you, in effect, became a part owner? Or is there a separate freeholder?

If you do own we are in the same situation. If the management company (who we appointed) are going to get involved with some sort of legal proceedings they will tell us first. In our case it will normally be about chasing unpaid service charges.

I assume that you have residents are directors. It might be best to have a chat with them about this and any concerns you have

To be honest you do have a part in it if this is the case

If it a separate freeholder ignore the above!

venomizer

NeilCr wrote: »

Are you saying that the residents jointly own the freehold? So when you purchased your property you, in effect, became a part owner? Or is there a separate freeholder?

If you do own we are in the same situation. If the management company (who we appointed) are going to get involved with some sort of legal proceedings they will tell us first. In our case it will normally be about chasing unpaid service charges.

I assume that you have residents are directors. It might be best to have a chat with them about this and any concerns you have

To be honest you do have a part in it if this is the case

If it a separate freeholder ignore the above!

Yes, that's pretty much it. I, along with the other lessees are members of the freeholder company. The strange part is from what I can see, none of us are directors of that company, but the owners of the management company are! From the incorporation documents of the freehold company, it doesn't appear that this should be allowed (some or all of the lessees should be directors).

NeilCr

venomizer wrote: »

Yes, that's pretty much it. I, along with the other lessees are members of the freeholder company. The strange part is from what I can see, none of us are directors of that company, but the owners of the management company are! From the incorporation documents of the freehold company, it doesn't appear that this should be allowed (some or all of the lessees should be directors).

That does sound odd!

We’ve got a few directors and we make sure we keep on top of the management company

G_M

Get togetherr with the other owners of the freehold (ie the other flat owners) and decide what you (all) want your management comoany to do.

Then write and instruct them.


Personally I'd be advocating the bill be sent in full to the leaseholder who brought and then withdrew the case, thus incurring these legal costs.

I'd also be looking carefully at the overall role of the management company, and the extent to which the freeholder company is overseeing their actions, and their costs.

That of course relies on there being sufficient owners of the freehold company who are willing to be active....... Would you be willing to volunteer your time?

venomizer

G_M wrote: »

Get togetherr with the other owners of the freehold (ie the other flat owners) and decide what you (all) want your management comoany to do.

Then write and instruct them.


Personally I'd be advocating the bill be sent in full to the leaseholder who brought and then withdrew the case, thus incurring these legal costs.

I'd also be looking carefully at the overall role of the management company, and the extent to which the freeholder company is overseeing their actions, and their costs.

That of course relies on there being sufficient owners of the freehold company who are willing to be active....... Would you be willing to volunteer your time?

This is exactly my plan. It seems very wrong that none of us are directors in the company that only we are members of, but instead the company we pay to manage the estate are directors!

My willingness to volunteer my time depends on how much of my time it might take up. With no prior experience of this I'm fairly in the dark.