Apartment Leaseholders, victims of Landlord's mismanagement

Luckyspal

I am a Lessee in a block of apartments approximately 30 years old.  The Lessor is also the Services Management Company.  Over many years the Management Company, despite having levied a Deferred Service Charge, have failed to carry any real preventative maintenance, resulting in all the windows, cladding and exterior doors having to be replaced. Even in this, their failure to efficiently manage the the whole process has resulted in insufficient funds in the coffers to carry out the works and significant additional charges being demanded from all the Lessees. This has inflicted great distress on many of the Lessees, some of whom have had to sell up. 

According to my Lease it would appear that the Management have failed in their legal obligations, but how do we fight this when the Lessees are mainly very elderly and cannot afford to challenge the legal might of the massive Management Company. They are being held to ransom.

Is it possible for one of the Lessees to take action against the Management Company through the County Court and, if successful, would it open the doors for all the other Lessees to follow suite?

I'd greatly appreciate any help or advice the forum may be able to give in this matter. 

theartfullodger

Re """  Over many years the Management Company, despite   """" - during those many years what actions did the various leaseholders take (individually or jointly) and what responses did they get, please??? If no actions, why, please??

fullyrendered

Your starting point should probably be the Leasehold Advisory Service: https://www.lease-advice.org/

fullyrendered

Get your timeline, facts and figures together.

Have you made observations during the Section 20 consultation process? Have they been addressed?

Some of the building elements you have listed might only have a 30 year lifespan, depending on the quality of the product, and the building's location.

A shortfall in the sinking fund doesn't prevent the freeholder from raising those additional charges.

Challenging a landlord at the First Tier Tribunal is affordable, although you will need your own surveyor. 

eddddy

Luckyspal said:

Is it possible for one of the Lessees to take action against the Management Company through the County Court and, if successful, would it open the doors for all the other Lessees to follow suite?

Yes - but probably not through the county court, but through the First Tier Tribunal instead. Tribunals are supposed to be less formal and easier to deal with than courts.

And it's probably just as easy for multiple leaseholders to be named on a claim, as having just one leaseholder named.




Essentially your case would be that 'Your Service Charge is not reasonable'. (i.e. The costs you are being asked to pay are too high.)

And based on what you've said, your argument could be something like:

"The management company should have carried out preventative maintenance, and that would have kept future service charges reasonable.

But the management company failed to carry any real preventative maintenance, which has resulted in much higher (and therefore unreasonable) service charges"


The application fee for Tribunal is £110, if everything is done on paper. Plus an extra £220 if the tribunal decide a physical hearing is required. (You'd normally get those fees back if you win - as well as a service charge refund.)


BUT... the management company might decide to defend the claim with super-expensive lawyers, surveyors, etc.  And those professionals might screw 'an amateur' into the ground. So you might decide that you need your own (super-expensive) lawyers and surveyors. 

It might be a tough fight.

gm0

Oh dear

If the windows are reasonably end of life for what they are made of and need replacing you will struggle to get out of paying Section 20 recharge costs for replacement.  30 years isn't that long but for softwood timber and cheap double glazed units - it's not ridiculously out of line either.  Have seen blown units and frame issues at 20.  It depends on the quality originally (site developer/converter which could be a prior freeholder not the lessor. And the weather and site conditions and other construction. And yes - appropriate maintenance - for a few cycles then stopping in the run in to replacement.  A surveyor with experience of disputes about this.  And then an exploratory lawyer discussion perhaps. 

Win probabllity for contribution due to negligence will be affected by the provable history of them being made aware of and chased up on issues outstanding requiring attention - "should have but didn't" and provably knew about overdue work - were chased repeatedly - and by their actions and omissions reached a standard of "negligence". 

Which has cost us £X money - so they should now contribute £X (losses) towards early replacement.  An argument about the timing, cashflow, costs avoided to date (what wasn't done would have cost you money you did not pay for scaffolding and painters) and this may get put into the calculation. Lifecycle costs for the scenario now vs the better maintained alternative theory.  You may win less than you think or hope.  Costs escalate and a settlement to end acton is net of spend to get that far.  Ask your professional help about it.

One possible line of defense on skimping on day to day cyclical maintenance with a straight face is to say - yes - we could see the deferred sinking budget becoming challenged by rising costs and sector inflation.  And the day to day budget as also challenged despite increases disliked by lessees. So we reduced and deferred cyclical maintenance to avoid raising the charge even more and to protect the sinking fund from depletion to balance the books when it was already likely to fall short.  Radiating prudence and hard choices. And so on.

It is worth examining the stucture of the lessor and managing company or companies.  Lessor and provider of services.  Who pays who what.  Is the site its own company.  Or just the same corporate long term with a freehold in the draw. One big lump.  Or is it separated financially and a site entity is paying a mothership corporate for managing agent services to do things.  What entity holds the sinking fund in its accounts.  Follow the money.

The latter (monolithic) is MUCH easier to sue. As it is more likely to have money to claim against for its actions and inactions.  The former separate entities model can be exceptionally difficult to sue and actually get any winnings.  Extra layers of legal action to get recourse liabilities back onto owners - if "site co" is proved to be liable.
In that model you don't have a contract or lease with the corporate agent.  Site Co does. Issued by its directors. 

Governed by that contract not by your lease.  You sue site co (lessor) and win. Ah no money.  Then "site co" can either fold - insolvency reboot.  Or it can seek funds to sue the agent from its owners or other interested parties - i.e. lessees.   Who provide all of its income via service charges anyway.  It may then lose that separate action under the contract terms with them - if they are not provably negligent for their actions based on the directions given to them by the site co directors - while under the contract (or a series of contracts). So still no recovery. Site co still owe you. No money.  Back to site co folding.  But with more legal bills outstanding.

All this can be a setup with the same overall pool of people being directors of the multiple entities but nobody actually issuing contracts directly to themselves.  The game can seem rigged.  Because it has been set up that way precisely to achieve a reduction in legal risk and financial risk contagion within the limits of what is allowed in lease and corporate law.

I am doubtful a few thousand spent in that direction will achieve very much. I am not a professional in the space.  Professional opinion will at least inform a grounded discussion amongst lessees. 

A legal dispute costs a lot more ££££ once you go beyond the consumer leaseholder goes to the tribunal level to challenge a specific charge.

As to sinking fund not coping. I am afraid that is not negligence at all unless your lease is weird. People are tripping over this issue all over the country.  Didn't plan for the Ukraine war affect long ago.  Wrong estimate of future inflation.  Deferred service charge budgets are now squeezed badly.  Many took current cost guesses for various items and projected it out at 2%-3%-5% inflation for some 20+ years into the future - for lifts. roofs. windows, gates, fences whatever it is.  Chopped the rough cashflow projection into chunks of deferred service charge to save up year by year.  Rounded that down a bit to be more acceptable in the here and now.  The whole thing is just a rough estimate and a savings plan across a bag of stuff.  With much higher inflation in construction because of embedded energy costs. (Ukraine war). All sites now need to react to the new reality.  It's not possible to pin doubling the capital budget on a managing agent paid for admin. Nor does the increased cost of construction materials for a new fence, lift or window belong to anyone other than the 999 year lessees. Just as before. Nothing changed about that aspect of the lease.  The item is more expensive now than a guess at what it might cost from >10 years ago.  Very sad.  But the plans and service charges now need to change to reflect the new reality.

So a lessor can and will Section 20 the rest of the bill above the allocation from sinking fund available to the 999 year lessees.   Which is a horrible sudden demand for retirees on fixed income who are savings light.  But nothing negligent has happened to get to there.  And the lessee signed a lease which promised they would pay for it.  Hopefully advised about the lease by their conveyancer when they did that - whether they fully understood the implications or not.   This is still better than not saving up at all with a zero deferred component which some sites do - sometimes influenced by resident preference for cheaper along the way and let the future look after itself.  Might be dead.  The full 100% Section 20 bill just lands on them with an even louder bang

No sane freeholder offers a guarantee of sufficiency of sinking funds collected against a rough estimate. Not how it works.  People wish it were like that - no surprises.  But it's not.  And it isn't realistic.  Building the error bar and risk premium into the savings plan would not be any more attractive.

Sites hitting inflation overpowering sinking funds are reacting by delaying and prioritising and cancelling things for now to better try to fit a quart of work into a pint pot of budget and wait for better times for commissioning works.  And some in denial just delaying the day of pain and the phasing in of higher service charges - current and deferred.  And site condition slowly worsens

But here is one tiny positive idea to explore.  Cashflow smoothing and use of credit.

One option often done with freehold purchase is to smooth a lumpy cashflow demand is to pay for it - with a loan and then pay it back. A higher service charge over 5-10 years but without the big lump event in one year.  With freehold acquisition this borrowing happens in the "to be" share of freehold company to be owned collectively by the lessees.  And the freehold is generally the asset against which the loan is secured from a bank.   Lessees then pay a service charge levy added on for the defined years.  And the loan is repaid with interest.  Then the levy stops or (quite often) continues to some level but is diverted to become a sinking fund funding source - but based on the democratic wishes of the now share of freehold owners.  One lease one vote. Who are now their own lessor,  And can defer maintenance to save money in the here and now and cause problems later all on their own.

In your situation there there is no collective *you* to attempt to get credit and do the same thing for your lumpy cost.  And the timing is likely not good for working through RTM and Freehold acquistion processes. 

So it is a lessor discussion about credit and cashflow to make this process somewhat more palatable as lessees in the first instance.  Can it be financed over several years.

You still pay all of it. But over more years.  Repaid via a higher forward curve of service charges to pay back the credit.  How the negative sinking fund balance is financed. Is the heart of the discussion.  People looking to sell leases soon.  Will hate this idea as if having an empty sinking fund is bad. An "overdrawn" one with a loan attached is even worse.  The "loan" to get the works done could be financed directly by a corporate (for a sensible low interest based fee as incentive to go along with this plan) or helpfully arranged with a bank. (if there is a site company in the structure perhaps) but the corporate would likely need to provide loan guarantees to a bank as the freeholder (if it's all a monolithic setup).  If they choose to help out with this - as an alternative to an extensive trip to tribunal and the courts for costly disputes.   There are lease and legal constraints on what is easy or difficult for them to do within the current structure and what has already happened with a subset of lessees

Literally everyone will still hate this.  You still pay.  And the interest on a loan.  But not legal bills. But a path through.

A corporate has financing options you don't as a group of mostly retired and separate lessees.  They won't do it if they think they are going to have to deal with the lawsuit anyway. If different groups of lessees go different directions on it.  Moving them to something more constructive could need some work to to provide a credible legal threat as incentive.  You need an organised residents association, perhaps some seed corn for a fight fund to pay surveyor and legal consult.  A few hundred each chipped in for a few thousand of professional fees.  Focus on the realistic parts of a legal dispute.  And drop the little to no hope elements. However emotive. Which their lawyers will happily ignore.  Thinking that you can waste your money on litigation support as much as you like on that rubbish.  It can be hard to get residents on the same page about what *is* - rather than what they think *should* be true based on some unrelated notion of fairness.  Lawyers will take money to write letters about anything so they are a poor guide to when not to do it.

Good luck

Luckyspal

theartfullodger said:

Re """  Over many years the Management Company, despite   """" - during those many years what actions did the various leaseholders take (individually or jointly) and what responses did they get, please??? If no actions, why, please??

Hard to tell. A lot of the leaseholders involved have either sold up or passed away and records are not very comprehensive. The tenants' association was only formed a couple of years ago and there was a lot of burying heads in the sand.  
Many thanks

Luckyspal

gm0 said:

Oh dear

If the windows are reasonably end of life for what they are made of and need replacing you will struggle to get out of paying Section 20 recharge costs for replacement.  30 years isn't that long but for softwood timber and cheap double glazed units - it's not ridiculously out of line either.  Have seen blown units and frame issues at 20.  It depends on the quality originally (site developer/converter which could be a prior freeholder not the lessor. And the weather and site conditions and other construction. And yes - appropriate maintenance - for a few cycles then stopping in the run in to replacement.  A surveyor with experience of disputes about this.  And then an exploratory lawyer discussion perhaps. 

Win probabllity for contribution due to negligence will be affected by the provable history of them being made aware of and chased up on issues outstanding requiring attention - "should have but didn't" and provably knew about overdue work - were chased repeatedly - and by their actions and omissions reached a standard of "negligence". 

Which has cost us £X money - so they should now contribute £X (losses) towards early replacement.  An argument about the timing, cashflow, costs avoided to date (what wasn't done would have cost you money you did not pay for scaffolding and painters) and this may get put into the calculation. Lifecycle costs for the scenario now vs the better maintained alternative theory.  You may win less than you think or hope.  Costs escalate and a settlement to end acton is net of spend to get that far.  Ask your professional help about it.

One possible line of defense on skimping on day to day cyclical maintenance with a straight face is to say - yes - we could see the deferred sinking budget becoming challenged by rising costs and sector inflation.  And the day to day budget as also challenged despite increases disliked by lessees. So we reduced and deferred cyclical maintenance to avoid raising the charge even more and to protect the sinking fund from depletion to balance the books when it was already likely to fall short.  Radiating prudence and hard choices. And so on.

It is worth examining the stucture of the lessor and managing company or companies.  Lessor and provider of services.  Who pays who what.  Is the site its own company.  Or just the same corporate long term with a freehold in the draw. One big lump.  Or is it separated financially and a site entity is paying a mothership corporate for managing agent services to do things.  What entity holds the sinking fund in its accounts.  Follow the money.

The latter (monolithic) is MUCH easier to sue. As it is more likely to have money to claim against for its actions and inactions.  The former separate entities model can be exceptionally difficult to sue and actually get any winnings.  Extra layers of legal action to get recourse liabilities back onto owners - if "site co" is proved to be liable.
In that model you don't have a contract or lease with the corporate agent.  Site Co does. Issued by its directors. 

Governed by that contract not by your lease.  You sue site co (lessor) and win. Ah no money.  Then "site co" can either fold - insolvency reboot.  Or it can seek funds to sue the agent from its owners or other interested parties - i.e. lessees.   Who provide all of its income via service charges anyway.  It may then lose that separate action under the contract terms with them - if they are not provably negligent for their actions based on the directions given to them by the site co directors - while under the contract (or a series of contracts). So still no recovery. Site co still owe you. No money.  Back to site co folding.  But with more legal bills outstanding.

All this can be a setup with the same overall pool of people being directors of the multiple entities but nobody actually issuing contracts directly to themselves.  The game can seem rigged.  Because it has been set up that way precisely to achieve a reduction in legal risk and financial risk contagion within the limits of what is allowed in lease and corporate law.

I am doubtful a few thousand spent in that direction will achieve very much. I am not a professional in the space.  Professional opinion will at least inform a grounded discussion amongst lessees. 

A legal dispute costs a lot more ££££ once you go beyond the consumer leaseholder goes to the tribunal level to challenge a specific charge.

As to sinking fund not coping. I am afraid that is not negligence at all unless your lease is weird. People are tripping over this issue all over the country.  Didn't plan for the Ukraine war affect long ago.  Wrong estimate of future inflation.  Deferred service charge budgets are now squeezed badly.  Many took current cost guesses for various items and projected it out at 2%-3%-5% inflation for some 20+ years into the future - for lifts. roofs. windows, gates, fences whatever it is.  Chopped the rough cashflow projection into chunks of deferred service charge to save up year by year.  Rounded that down a bit to be more acceptable in the here and now.  The whole thing is just a rough estimate and a savings plan across a bag of stuff.  With much higher inflation in construction because of embedded energy costs. (Ukraine war). All sites now need to react to the new reality.  It's not possible to pin doubling the capital budget on a managing agent paid for admin. Nor does the increased cost of construction materials for a new fence, lift or window belong to anyone other than the 999 year lessees. Just as before. Nothing changed about that aspect of the lease.  The item is more expensive now than a guess at what it might cost from >10 years ago.  Very sad.  But the plans and service charges now need to change to reflect the new reality.

So a lessor can and will Section 20 the rest of the bill above the allocation from sinking fund available to the 999 year lessees.   Which is a horrible sudden demand for retirees on fixed income who are savings light.  But nothing negligent has happened to get to there.  And the lessee signed a lease which promised they would pay for it.  Hopefully advised about the lease by their conveyancer when they did that - whether they fully understood the implications or not.   This is still better than not saving up at all with a zero deferred component which some sites do - sometimes influenced by resident preference for cheaper along the way and let the future look after itself.  Might be dead.  The full 100% Section 20 bill just lands on them with an even louder bang

No sane freeholder offers a guarantee of sufficiency of sinking funds collected against a rough estimate. Not how it works.  People wish it were like that - no surprises.  But it's not.  And it isn't realistic.  Building the error bar and risk premium into the savings plan would not be any more attractive.

Sites hitting inflation overpowering sinking funds are reacting by delaying and prioritising and cancelling things for now to better try to fit a quart of work into a pint pot of budget and wait for better times for commissioning works.  And some in denial just delaying the day of pain and the phasing in of higher service charges - current and deferred.  And site condition slowly worsens

But here is one tiny positive idea to explore.  Cashflow smoothing and use of credit.

One option often done with freehold purchase is to smooth a lumpy cashflow demand is to pay for it - with a loan and then pay it back. A higher service charge over 5-10 years but without the big lump event in one year.  With freehold acquisition this borrowing happens in the "to be" share of freehold company to be owned collectively by the lessees.  And the freehold is generally the asset against which the loan is secured from a bank.   Lessees then pay a service charge levy added on for the defined years.  And the loan is repaid with interest.  Then the levy stops or (quite often) continues to some level but is diverted to become a sinking fund funding source - but based on the democratic wishes of the now share of freehold owners.  One lease one vote. Who are now their own lessor,  And can defer maintenance to save money in the here and now and cause problems later all on their own.

In your situation there there is no collective *you* to attempt to get credit and do the same thing for your lumpy cost.  And the timing is likely not good for working through RTM and Freehold acquistion processes. 

So it is a lessor discussion about credit and cashflow to make this process somewhat more palatable as lessees in the first instance.  Can it be financed over several years.

You still pay all of it. But over more years.  Repaid via a higher forward curve of service charges to pay back the credit.  How the negative sinking fund balance is financed. Is the heart of the discussion.  People looking to sell leases soon.  Will hate this idea as if having an empty sinking fund is bad. An "overdrawn" one with a loan attached is even worse.  The "loan" to get the works done could be financed directly by a corporate (for a sensible low interest based fee as incentive to go along with this plan) or helpfully arranged with a bank. (if there is a site company in the structure perhaps) but the corporate would likely need to provide loan guarantees to a bank as the freeholder (if it's all a monolithic setup).  If they choose to help out with this - as an alternative to an extensive trip to tribunal and the courts for costly disputes.   There are lease and legal constraints on what is easy or difficult for them to do within the current structure and what has already happened with a subset of lessees

Literally everyone will still hate this.  You still pay.  And the interest on a loan.  But not legal bills. But a path through.

A corporate has financing options you don't as a group of mostly retired and separate lessees.  They won't do it if they think they are going to have to deal with the lawsuit anyway. If different groups of lessees go different directions on it.  Moving them to something more constructive could need some work to to provide a credible legal threat as incentive.  You need an organised residents association, perhaps some seed corn for a fight fund to pay surveyor and legal consult.  A few hundred each chipped in for a few thousand of professional fees.  Focus on the realistic parts of a legal dispute.  And drop the little to no hope elements. However emotive. Which their lawyers will happily ignore.  Thinking that you can waste your money on litigation support as much as you like on that rubbish.  It can be hard to get residents on the same page about what *is* - rather than what they think *should* be true based on some unrelated notion of fairness.  Lawyers will take money to write letters about anything so they are a poor guide to when not to do it.

Good luck

Many thanks for your very comprehensive response. I will study it and present it to our tenants' association. Hopefully it can spur some action.  I really appreciate your time taken and your knowledgeable input.

Havanese

Luckyspal said:

I am a Lessee in a block of apartments approximately 30 years old.  The Lessor is also the Services Management Company.  Over many years the Management Company, despite having levied a Deferred Service Charge, have failed to carry any real preventative maintenance, resulting in all the windows, cladding and exterior doors having to be replaced. Even in this, their failure to efficiently manage the the whole process has resulted in insufficient funds in the coffers to carry out the works and significant additional charges being demanded from all the Lessees. This has inflicted great distress on many of the Lessees, some of whom have had to sell up. 

According to my Lease it would appear that the Management have failed in their legal obligations, but how do we fight this when the Lessees are mainly very elderly and cannot afford to challenge the legal might of the massive Management Company. They are being held to ransom.

Is it possible for one of the Lessees to take action against the Management Company through the County Court and, if successful, would it open the doors for all the other Lessees to follow suite?

I'd greatly appreciate any help or advice the forum may be able to give in this matter. 

Have you spoken to the Leaseholders advisory? They have been great with my similar issue.
I'm now applying to the FTT First Tier Tribunal for a change of management.
They've talked me through the correct procedure and even if you are the only one amongst other tenants, you can apply 

eddddy

Havanese said:

Have you spoken to the Leaseholders advisory? They have been great with my similar issue.

I'm now applying to the FTT First Tier Tribunal for a change of management.
They've talked me through the correct procedure and even if you are the only one amongst other tenants, you can apply 

 
It would be great if you could come back and post how you get on.

FWIW, a few years ago, I spoke to a solicitor who specialises in this stuff.

Unfortunately, their view was that, while the law allows just one tenant to apply to the tribunal to appoint a manager, they had never known an application from just one tenant to be successful.

They said that, based om their experience of tribunals, a bunch of tenants need to be behind the application.

TBH, that solicitor wouldn't even consider taking on the application, if just one tenant was involved.

(Did the Leasehold Advisory comment on your chances of success, or just explain the process?)

So maybe you should try to get some other tenants involved.

Cloth_of_Gold

The OP might also want to be aware of recent changes regarding RTM.

https://www.lexology.com/library/detail.aspx?g=6894d898-9f30-4403-ab3b-f4946d9fe463