LEGAL FEES ADDED ALONGSIDE SERVICE CHARGE

Marvellousmrsmaisel

Hi everyone. I was hoping someone could help me. I bought a leasehold flat 5 months ago,it’s in a Victorian house made into 6 flats. I have in total since December been asked to pay £6800 towards legal costs to do with a leaseholder above me who is challenging the service charges and is taken the management company to a First Tier Tribrunal next month. My seller disclosed nothing in the Property Information Form,answered No to disputes despite that I now know they did know about it. And I have a memo from directors of Management to all leaseholders  dated a year ago saying that because of all the ongoing problems with the other leaseholder that the service charge would be “sufficiently increasing over the next 4 years”and a letter from the chap who is taking them to tribunal informing all of the leaseholders what he was going to do that over a year before I bought the property. They also didn’t disclose damp when they knew about it which you are supposed to but that’s another story. 

These are on top of the service charges which is just under £2400 this year. In the LPE1 form that the managing agent filled in the question regarding Is the service charge likely to go up by 10% or £100 over the next 2 years answered No! The only things alluding to problems that they mentioned in the form was that 1 leaseholder was often late paying the service charge and that sometimes breached covenants. I since found out after exchange of contracts when she wanted to fill me in more etc that actually the police had been involved with him a few times and that he had been aggressive with the directors (3 live here) and the managing agents etc but everything should be fine as it was mainly them he had a problem with.

Had I been told all of this before exchange and been told that actually he’s going to take us too the FTT and that there will be substantial legal costs expected above the service charges then I would have walked away. I’m a single mum who doesn’t work due to a number of health conditions and I really cannot afford this or think I should have to pay it as it’s all been going on for years and I wasn’t given all of the information. This is all very stressful and worrying and I’m already worrying I’m probably going to have to sell because I won’t be able to afford to live here. But then I’m stuffed and won’t be able to sell because I will have to tell potential buyers about the ongoing disputes which will put anyone off. 

I did speak to my solicitor who I used to buy the property but she doesn’t seem to sure and doesn’t seem to think it’s an issue. She was going to pass on to another colleague who deals more with this side of things but she came back and said she can’t help due to a conflict of interest. 

How is this fair. £6800 in the space of a few months. 

Hoenir

Consult your conveyancing solicitor. 

Marvellousmrsmaisel

Hoenir said:

Consult your conveyancing solicitor. 

I did ,sorry I edited my post as I left that bit out. Thanks

eddddy

Marvellousmrsmaisel said:

I bought a leasehold flat 5 months ago,it’s in a Victorian house made into 6 flats. I have in total since December been asked to pay £6800 towards legal costs to do with a leaseholder above me who is challenging the service charges and is taken the management company to a First Tier Tribrunal next month.

There's so much to unpack in your post - but here are a few initial comments about the FTT...

• Are you sure that £6800 is your share of the management co's legal bill, or is it the total of the management co's legal bill.

For example, there are 6 flats, so maybe you have to pay 1/6th of the bills, so...

• Is the management co's total legal bill £40,800 - so your 1/6th share is £6,800

• Or is the management co's total legal bill £6,800 - so your 1/6th share is £1,133

(does the letter mention section 20 of the Landlord and Tenant Act 1985?)


Do you think the letter might be a 'dirty trick' by the management co. Essentially are they saying...

"Your neighbour is taking us to tribunal. We're afraid we'll lose. So we're trying to scare you by mentioning £6,800 in legal costs - so that you put pressure on your neighbour to withdraw their case."



Is your neighbour using a solicitor? As I understand it, if the management company lose the tribunal case, the leaseholder can ask the tribunal to make an order that the management company have to pay their own legal costs - so they can't claim the £40,800 or £6,800 back from leaseholders like you.

(But the leaseholder has to ask for that to happen, it won't happen automatically.)

MichelleUK

eddddy said:

• As I understand it, if the management company lose the tribunal case, the leaseholder can ask the tribunal to make an order that the management company have to pay their own legal costs - so they can't claim the £40,800 or £6,800 back from leaseholders like you.

What happens in cases where the management company is the freeholder, residents are the owners of the management company and it has no money in its own right, as in, it only has the service charges that it collects? Is it then that the leaseholders would have to pay (in their capacity as members/shareholders, rather than leaseholders?)

eddddy

MichelleUK said:

What happens in cases where the management company is the freeholder, residents are the owners of the management company and it has no money in its own right, as in, it only has the service charges that it collects? Is it then that the leaseholders would have to pay (in their capacity as members/shareholders, rather than leaseholders?)

As I understand it, the management company would be insolvent - i.e. it would have debts it couldn't pay, and go bankrupt.

It's only asset would be the freehold. So if the freehold is worth anything, it would be sold off by the administrator.

Unless... the leaseholders (or somebody else) chose to bail-out the management company, by giving them a chunk of money to pay their debts.


TBH, this is a huge problem with "Shared Freeholds". If you have a group of directors who spend service charge money wrongly, breach leaseholders' rights, etc - it's very difficult for flat owners to do anything about it.

EssexHebridean

The conflict of interest bit interests me - that suggests that your conveyancing firm either are, or have been acting for either the management company or the disgruntled neighbour. If they are acting on this particular issue, then that begs a whole lot more questions! 

Go back to your lease and read the relevant sections on service charges - you are looking to try to work out if these charges even CAN be charged to you. Sometimes leases are quite specific about the sorts of charges which can be passed to leaseholders. 

Marvellousmrsmaisel

eddddy said:

Marvellousmrsmaisel said:

I bought a leasehold flat 5 months ago,it’s in a Victorian house made into 6 flats. I have in total since December been asked to pay £6800 towards legal costs to do with a leaseholder above me who is challenging the service charges and is taken the management company to a First Tier Tribrunal next month.

There's so much to unpack in your post - but here are a few initial comments about the FTT...

• Are you sure that £6800 is your share of the management co's legal bill, or is it the total of the management co's legal bill.

For example, there are 6 flats, so maybe you have to pay 1/6th of the bills, so...

• Is the management co's total legal bill £40,800 - so your 1/6th share is £6,800

• Or is the management co's total legal bill £6,800 - so your 1/6th share is £1,133

(does the letter mention section 20 of the Landlord and Tenant Act 1985?)


Do you think the letter might be a 'dirty trick' by the management co. Essentially are they saying...

"Your neighbour is taking us to tribunal. We're afraid we'll lose. So we're trying to scare you by mentioning £6,800 in legal costs - so that you put pressure on your neighbour to withdraw their case."



Is your neighbour using a solicitor? As I understand it, if the management company lose the tribunal case, the leaseholder can ask the tribunal to make an order that the management company have to pay their own legal costs - so they can't claim the £40,800 or £6,800 back from leaseholders like you.

(But the leaseholder has to ask for that to happen, it won't happen automatically.)

Thanks for replying. No all of that money is my share. When they told me about it obviously I wasn’t happy and stated why,and just don’t get how when I’ve only been here 5 months and wasn’t told the full facts that this can be right. Nowadays who even has that kind of money. I have said I want it all in writing so am waiting for that.

To answer some other questions you and others asked yes the management/directors were using the same solicitors firm that I bought the property through for this so that is where the conflict of interest lies.
Also the husband and wife directors who own 2 of the flats that were knocked together have apparently loaned the management company of which they are 2 of 3 directors the money to pay the legal costs and are saying to us we can pay it back monthly over 3 years. Starting from April £185 a month this year. And then the next 2 years £135 a month. 

A chap is trying to help me with this. I’m also trying to get advice from the Leasehold Advisory Service and I will probably contact citizens advice as well.

eddddy

Marvellousmrsmaisel said:

No all of that money is my share. 

So what are the total legal fees?  £40K?

What kind of "unreasonable service charge" claim is it that requires £40k in legal fees to defend it?


(I guess it's just about possible, if the management co need a team of lawyers to do a detailed analysis of the wording of the lease - and a series of expert witness building surveyors to inspect the building, etc.)

Or like I say - is the letter just a 'dirty trick' to try to scare you and other leaseholders?

Marvellousmrsmaisel

eddddy said:

Marvellousmrsmaisel said:

No all of that money is my share. 

So what are the total legal fees?  £40K?

What kind of "unreasonable service charge" claim is it that requires £40k in legal fees to defend it?


(I guess it's just about possible, if the management co need a team of lawyers to do a detailed analysis of the wording of the lease - and a series of expert witness building surveyors to inspect the building, etc.)

Or like I say - is the letter just a 'dirty trick' to try to scare you and other leaseholders?

Yes must be more than that, so they have spent a lot of money towards all of this which can’t be right. Apparently they tried to settle with him at some point before my time but considering what has now been racked up it’s very disproportionate to what he must of been challenging which I believe is to do with legal costs taken from the reserve fund or accounts which to cover this before. Like I said this first started years ago.How can they just go and spend other peoples money?
Im trying to find out if they did ask the other leaseholders before going ahead.
Im planning on sending in an email to the managing agents and to the directors of the management company (3 who live here). I will also be wanting to know when these costs are for ,the dates started and to when as I don’t think it will end there. Like I said the tribunal is next month.

gm0

  If this is a share of freehold and you are now one of the part owners of the company via its ltd company (member on register or share owner).  Then you have two relationships.  Two hats.

- Leaseholder (relationship to the freehold Ltd) - they do certain things for you of a common nature.  And you are obliged to pay a share for them (from the lease).  This can include the directors taking or defending legal action when it becomes relevant to chasing debts (of other leaseholders), disputing trade suppliers , neighbours etc.

- Freehold "shareholder" (as a part owner of said company) - relationship as owner to the company which is run by elected directors (volunteers unpaid usually) from among the owners.  Democratic collective ownership.  The company articles (for your Ltd, Companies House) describe how that is applied to decision making.  One lease = one share. One share = one vote.  Simple majority.  Is common.  But there are others.

- You don't have a direct legal relationship with other leaseholders.  If they break their leases and it affects you then you can press the freehold company to act (via agent if there is one, directors if there isn't).  This covers behaviour issues, unaddressed leaks, nuisances.  And the freehold company should be collecting service charge dues from all leaseholders anyway.  And chasing the delinquent.

Your fellow residents as directors - unpaid spare time volunteers - would (with rare exceptions) not self represent in legal matters.  But hire an agent (all year) or hire lawyers as needed -  and the bill is split across the shareholders of the share of freehold.  This is a bad thing to have happen due to cost.  Rates per hour / cycle of communication or action are steep.  But it needs to happen when leaseholder A has a problem (lease breach) which the freeholder needs to enforce on leaseholder B.  And they ignore/refuse.  Or leaseholder B is simply not paying their dues.

They should act.  But their sanctions and options are limited.  Letters are sent.  Solicitor letters are sent.  After long delays and much disappointment.  Court action to forfeit the lease begins.  Legal costs for court action are significant.  And the courts are reluctant to confiscate large assets like leases for small (and disputed) arrears.  The delinquent makes a part payment under protest.  And continues disputing the amounts and causing trouble and more tribunal action.  The court doesn't confiscate.  It goes on some more.  And they go back to court (queue up) eventually.  Costs build.  Legal cost award and apportionment becomes the dominant question.

Delinquent lease owners will - inevitably - immediately challenge as many as possible of the charges and use the lease laws to dispute the validity and basis of them at tribunal.  Repeatedly.  Bog it down. Delay Delay Delay.  It can go on for months and years.  And burn significant legal costs.  If the place is well run and records in good order - the tribunal process will be non-threatening. If more casual about tendering work and records - this can be problematic. 

The decision for the freehold company - guided by its owners collectively (and democratically to its articles) is whether the costs and win probability of any fight - are worth the amount under dispute.  This makes some people very angry that "they" are getting away with it.  But you also don't spend 60k to chase 10k.

Separately

You have previously been conveyanced into this property.   The question of whether the previous owner has deceived you depends on a number of things.  While in practice they likely probably did fail to mention something significantly offputting.  But what matters are timings and what you can prove.   Timing of the freehold purchase and setup of the company (could matter) relative to the timing of the declaration.  As does exactly what they wrote on the seller q&a forms or to specific questions.   The situation *could* be a false declaration where a losses claim could proceed.  When you know what your final losses are.  Or it could be just about valid - if unhelpful - an uncertain claim

This is a query with a lawyer with relevant experience willing to act.  Until you understand the nature of the dispute (or disputes) from the freeholder to the other leaseholder and what the court action is about.  And the exact timeline.  This will not be a conclusive conversation.  And so a waste of money.  It will cost low thousands to get a professional opinion on whether to take the claim forward. 

The documented and communicated in writing status of the dispute at the time of the seller declaration.  The exact text. 

A small split "share of freehold" house - has basically NO money other than the money you give it.   There is no "them" other than you - to pay for it.  Lessee charges under the lease.  Freeholder expenses (as collective owners).

The situation where debts are owed by a delinquent and the company cannot pursue them for lack of cash.  Is completely stuck.  A director or shareholder, or commercial loan is a way to cashflow manage past that out of the impasse.  At some point a freehold AGM shareholders meeting is necessary.  This may well (actually MUST) include inviting the leaseholder delinquent - if they have a share of freehold share.  For it to be valid.  Even though a significant amount of the discussion is on matters and decisions that relate to a dispute with them.   

To say this is awkward rather understates the problem.  They will look for any procedural irregularity to grind into their dispute and legal action and delaying tactics.  The directors have to avoid that trap.  And yet also hold the meeting in a way that other non-legally trained residents can understand and accept.