Unreasonable leaseholder charges on a garage

[Lauren125]

I am hoping for some help.

 

I noticed some readers state they have successfully challenged leaseholder charges.

I am now being charged in excess of £2000 leaseholder service charges on a garage in Kent.

It is a simple garage.

 

As it is a  non-residential the normal tribunal routes to appeal the garage charges are unavailable.

I requested an explanation of the charges.

All the service company have provided is a list of charges nothing to say how these charges relate to my garage which has never been visited or maintained.

 

I am charged management fees, account preparation fees, audit fees.

The leaseholder forwarded my account to SLC solicitors three years ago.

 

Three years ago I sent SLC a cheque to avoid legal action.

SLC did not bank the cheque as they agreed that the charges are unreasonable.

 

However the management company continued to issue charges on the garage.

SLC have issued legal action again.

I would love to hear from readers who have successfully challenged unreasonable leasehold service charges.

[BankFodder]

Not really my area of experience – but as a starter, what does it say in the lease?

How long have you had the lease and has there been a sudden change in the level of charges all the way they have been calculated?

Presumably there are other garages with leaseholders in similar situations –?? What do they say?

[Lauren125]

Thank you.

Before I bought the property (a house and a garage bought together but on different titles) the report on title described one charge for the house, the garage separate charge was a surprise.

 

The house is freehold and the garage leasehold.

My conveyancing solicitor said that she was not informed of the duplicate cost for the garage. (There is no point challenging the conveyancers for negligence because being a garage it is not cost effective to do so) however I am trapped with these unreasonable charges.

 

The lease I discovered (after lots of questions to the surveyancing solicitors 6 months ago) revealed that there is a reference to a sub-lease. The sub lease all very vague and un explained is an area of common ground. There are two other garages in my situation. Both have objected and then paid due to the threats by SLC for non payment.

 

I cannot go to the tier 1 tribunal because the garage is not residential however I would be interested if I could pull up the lease company on a technicality for example. The lease company have to tell me my rights. I have no rights with the tribunal yet I have rights to reasonable costs and I have rights to a surveyor to examine whatever  works they claim they have spent the money on to run up these fees. I believe I also have rights to clear and transparent costs. 

 

NB If the judge orders against me would I receive a CCJ. (Or would I only get a CCJ if ordered by the courts and I then do not pay/)

 

Many thanks for any help

[BankFodder]

If a claim was issued against you, then you would get a CC J. However the CC J would only be registered and appear on your credit file if it was not satisfied within 30 days.

I'm trying to understand the story but it's a bit convoluted and as I've already said, this is not my area of experience. However you have said that they started claiming from you about three years ago and then even though you sent them a cheque, they returned it and said that they considered the charges were unfair.

Can you tell us more about that. Also I'm not sure that you have answered my question as to how long you have had the lease and have the charges change particularly or has the manual calculation suddenly changed.

[Lauren125]

Thank you so much. I hope this communication will help you advise me.

 

I have owned the garage since Nov 2016. 

 

I instructed my solicitor to communicate with the management company. She raised issues regarding the costs, and requested an explanation as to costs. When they failed to respond and were threatening court action I sent a cheque in 2017. The lady (Emma from the pre-action dispute team at SLC) who I spoke to told me she had received the cheque and would provide an explanation.

 

Between 2017-2020 I continued to get bills which I forwarded to my solicitors yet I did not get an explanation.

Until 02/06/2020 this year when I received the following copied below.

 

The issue I had with the explanation is that it talks about the need for maintenance of the garage and no maintenance has ever taken place. 

 

Since that time the bills have escalated from £534 to £2400! (I have also copied the offer from my solicitors which highlights changes in reserve funds etc. Since this date they have acknowledge a small vat error yet still insist on these extra-ordinary charges and fees.)

 

Is there any possibility as this is in the small claims that they could escalate the bills still further?

 

Letter of explanation I received in June 2020

 

Our Client has a broker that gets multiple quotes from different sources and as long as they provide the correct legal liabilities and cover, they will of course go for the cheapest option as long as these requirements are met. They of course need liability insurance not just for their contractors but for the people that live on the scheme also. They also need to ensure that the level of cover is correct in case they need to reinstate the building like new in case of catastrophe.

 

Again the difference in cost could be due to certain liabilities they have to have for the garage if they were to ever having to use contractors to fix it, the superior Freeholder of the estate may also want certain covers in place which again would explain the difference. They of course will look into our policies on an annual basis to try and keep the costs down.

 

Our Client’s charges do vary from year to year due to the reactive nature of the maintenance done to the scheme, as the managing agent working on behalf of the superior freeholder, it is their responsibility to keep the scheme in a good state of repair, meaning that they have to proactively fix and maintain any issue found on site, which is paid through the service charge. The amount of work, as I’m sure you can understand varies annually, however more often or not as the building/buildings/estate gets older, more maintenance will need to be done to keep the estate in good quality so the costs of maintaining an estate and insuring it, also increases.

 

Our Client wishes to assure your Client that it is in their best interests to have the interest of the leaseholders at heart, and they welcome a mutual understanding when it comes to the scheme. They will continue to work towards keeping the scheme at the highest level of repair.

 

Our Client’s current statement of account is attached. Both our Client’s Administration fees, and our fees have been waived, however the balance of £534.53 needs to be paid in full.

 

Please could you ensure this sum is settled by your Client, as a matter of urgency.

 

 

Reply from my solicitors:

Whilst you have provided us with copies of your client’s accounts for this property, you have not
provided us with a basis for your costs as requested on several occasions.

You mention that the allocation of your client’s costs includes the maintenance of the estate and the
garage, yet our client is invoiced separately for the service charge to the property and the estate.
Can you please explain this?

You have also failed to address our following points in your response and would appreciate your
cooperation in providing these:
1. your client’s insurance premiums;
2. in respect of the Accounts preparation fee and Audit fee which has been allocated to our
client, we consider that the level of work required to take into account the six itemised
factors (as stated above) to be completely disproportionate to the costs allocation. Can you
please explain why such costs have been allocated to our client’s garage and detail the level
of work required by your accountants.

With respect to the reserve fund, we note that this is referred to under the sixth Schedule of the
Lease however the determination by your client must be reasonable.

 

In accordance with your arrears schedule on 19th July 2017 we refer you to a letter of around the same date (please refer to separate attachment “First Port Letter Re Reserve Fund (July 2017)”) whereby your client stated

 

“We have reduced the annual collection for schedule 2 from £250 to £90 as we feel with the current
reserve fund levels this is a more appropriate level. We have therefore credited your account by
£53.33.”

 

As we have mentioned previously, there does not appear to have been any maintenance or
management actually carried out in respect of our client’s garage which would warrant a departure
from the £90 in reserve fund contribution from July 2017 to present. It seems clear that not only
should the historic figures be adjusted to reflect this but also that the accounts for future years
should be prepared on a similar ongoing basis.

Your client’s costs should therefore be adjusted in respect of each of the years in question and for
ease of reference we have set out the calculation below:
· July 2017 to June 2018, the reserve fund has been charged at £250.00 when it should have
been £90.00. Therefore the reduction in your costs for this year should have been £160.00.

· July 2018 to December 2018, the reserve fund has been charged at £125.00 when it should
have been £45.00. Therefore the reduction in your costs for this year should have been
£80.00.

· January 2019 to December 2019, the reserve fund has been charged at £265.00 (a 6%
increase), when it should have been £90.00 (plus a 6% increase of £5.40). Therefore the
reduction in your costs for this year should have been £169.60.

This totals £409.60

 

however taking into account that your client credited our client £53.33 on 19th July 2017, our client has been overcharged by £356.27.

We also note that there is a VAT discrepancy in the sum of £36.00 from the arrears schedule sent
with your correspondence on 22nd January and 9th March and the arears schedule sent with your
email dated 31st March, yet there hasn’t been any adjustment in costs.

 

We are therefore working from your original arrears schedule, that being £1,179.71, minus the £356.27 that your client is attempting to overcharge our client, thus bringing the amount due to £823.44. In the circumstances, it is unreasonable to expect our client to cover the legal costs in this matter.

Your client has not been forthcoming with the information or explanations requested on several
occasions. We are of the opinion that had your client been forthcoming your legal costs would not
have amounted to £336.50. As a gesture of goodwill, our client is prepared to offer a reasonable
contribution towards your client’s costs in the sum of £150.00.

In the absence of your client’s insurance premiums, an explanation as to the costs for the Accounts
preparation fee and Audit fee, and an explanation as to how the management fee has been
calculated without any management of the garage actually taking place, we are mindful that these
allocated costs are likely to be inconsistent with what would be deemed reasonable in the
circumstances.

 

[Lauren125]

FREEHOLDERS BE AWARE!

 

I have discovered the answer to my question - please read because anyone else out there - until this legal loophole is changed take great care before thinking you will have justice regarding leashold overcharging. Most leases check yours! have a clause whereby they can charge the leasholder whether they win or loose. So like Mr Barclay you might, even if you win the case, have to pay the freeholders legal charges! Criminal ! I am so pleased i spotted this before I defended myself against the unjust bills. 

 

Put simply until the law changes (especially if you are non residential and have no tier tribunal) there is no facility to challenge unreasonable leasehold charges.

 

Leaseholders to benefit from closure of legal loophole

According to figures in The Times 5.3 million (21%) homes in England and Wales are leasehold, meaning the property is not owned outright but is instead ‘leased’ from the freeholder, typically for a lengthy term.

 

In a leasehold arrangement there will usually be a contract between leaseholder and freeholder which sets out the legal rights and responsibilities of each party. Generally these will be that the freeholder maintains the common parts of the building and the leaseholder pays maintenance fees, service charges and a portion of the buildings insurance.

 

But what happens if there is a dispute as to those fees or some other matter?

 

Currently if a leasehold property owner takes the freehold owner of the building to court, a legal loophole means they could be burdened with the opposing party’s legal costs – even if the leaseholder wins. The legal bills involved can amount to tens of thousands of pounds, adding a sting in the tail to any victory.

 

However, after the Sunday Times launched an investigation and uncovered legal bills being levied of up to £60,000, Secretary of State for Housing, Communities and Local Government James Brokenshire MP has pledged to take action and close the loophole.

 

The loophole is contained in the majority of leases which typically allow freeholders to recoup their legal costs from leaseholders, even if the freeholder loses the case. There is no parallel right for leaseholders to claim costs back.

 

The Times reported that last year leasehold owner Richard Barclay successfully recovered £1,200 of a £10,100 service charge from the management company in respect of his central London Flat. But the victory soon turned sour when Barclay was hit with a bill for £61,300 in legal fees by Quadrant Property Management who takes care of the building.

 

Barclay challenged the costs and the bankruptcy court reduced these by £12,500, but tribunal has ruled that all other costs being challenged are reasonable.

 

Back in 2015, a similar situation arose when the leasehold owners of 30 flats in West London took the freeholder to court and won a £29,000 discount off their service bill. The managing agent’s bill for legal fees in that case amounted to more than £44,000.

 

According to the Times, in 2014 / 2015 A2Dominion housing association who managed the block charged its leaseholders £24,167 for legal costs. One year after, FirstPort billed leaseholders of the wider estate £20,160 for what was thought to be the same legal costs.

 

The Times further reports that in 2017, two leaseholders took A2Dominion to tribunal regarding £12,500 claimed through their service charges for roof repairs. Those costs could have been recouped instead through the buildings insurance policy. This time the money was refunded just before the hearing – but this time the tribunal banned the association from issuing the claimants with a legal bill.

 

When presented with the details of two of these cases, James Brokenshire responded by stating:

“It is the secretary of state’s intention to close the legal loopholes that allow freeholders to unjustifiably recoup legal costs from leaseholders. This will form part of our broader package of leaseholder reforms. We will do this as soon as parliamentary time allows.”

 

His promise is one of a number put forward by the government – it has also pledged to ban the sale of new build leasehold homes, and to cap ground rents on new leases.

 

t believes:

“… when someone buys a house, it should feel truly their own. House buyers should not be faced with a depreciating lease or a ground rent charge for any other purpose than to pay for the privilege of living in the house they havealready bought.” (October 2018 Consultation)

 

The Law Commission is currently conducting three sub consultations in this area and the reforms are likely to follow their completion. These are:

·        Leasehold enfranchisement

·        Right to Manage

·        Commonhold

 

James Brokenshire said he wanted a leasehold market where people were able to challenge. He showed concern for  an inequality of arms that was preventing people from getting the outcomes, fairness and justice that they require.

 

What can I do if I have a dispute?

The first place to look if you have a dispute regarding a charge is your lease. You can only be charged for items listed in the lease so if, for example, there’s no mention of management fees or the cost of improvements, you won’t be liable. If you’re not sure whether your lease allows the charges you’re disputing, ask a solicitor to check it for you.

 

If you’ve received a service charge demand, check it carefully. It should state the name and address of the landlord at the top (not the managing agent, unless they are also the landlord). The exception to this is if the managing agent is a party to the lease. It should also contain a summary of your rights and obligations which can be found here.

 

If you believe the certain items are excessive, request a summary that shows how the charge has been worked out and what it will be spent on, with receipts. The freeholder cannot refuse to supply this – to do so can attract a £2,500 fine.

 

If an item seems too high, get comparable quotes. This will help you demonstrate that the same services could be provided at a significant cost saving. By law the landlord must behave in a ‘reasonable’ manner with regard to its expenditure on the building.

 

Whilst there is no duty to minimise costs, service charges must be ‘reasonable’ and where the charges relate to works or services, the works or services must be completed to a reasonable standard.

 

Before you consider making a challenge, speak to neighbours who are in the same boat. They may consider bringing the challenge with you.

 

You should not stop paying the charges. Instead, write to the management company and provide evidence such as quotations to show that the charges are not reasonable. A solicitor’s letter may carry more weight, particularly as it can set out in legal terms the landlord’s duties regarding charges.

 

If the management company does not agree with your challenge, mediation may be a good way to resolve the dispute. This involves sitting down with the other party and trying to find a way forward, with the help of a trained mediator. It is typically far cheaper than litigation.

 

Another option may be to take over the right to manage the development. Speak to a solicitor about whether this may be possible.

 

The final option is to apply to the first-tier tribunal (England) or the leasehold valuation tribunal (Wales) for a ruling on whether the fees are payable. There’s a £100 application fee and £200 hearing fee in England, or a £50 – £350 application fee and a hearing fee in Wales.

 

If you are successful, you can ask the tribunal to limit the landlord’s ability to recover its legal costs through the service charge. However, they don’t have to agree to this and you may face a substantial charge.

[BankFodder]

Thank you for all of this information. However, I can imagine that most people won't be able to go through it all – partly because there is so much of it but also because it is presented in a tightly packed block of text.

It would be much easier if you would space it properly so that it was presented more accessible way – but then put into a PDF document which could be uploaded onto the forum. That means that people could have a look at it by downloading it and then sizing it to suit their own computer screen and their own convenience.

I did ask you how much you had paid in the first cheque which was eventually returned to you – and I'm not sure that you have answered this question yet.

If they come round to issuing a claim against you, it could be very important to know this.

If you have answered this question already then I'm afraid it's lost in the large bulk of the information you have provided.

 

[BankFodder]

Also, in respect of these recent developments concerning the rights of leaseholders and their lessors, I haven't followed it too closely, but aren't you mixing up service charges on one hand with ground rent.

I do understand that it seems that landlords are pretty unfettered in terms of the level of ground rent they can apply – but I would have thought that service charges – which represent actual expenditure have to be accounted for.
Have I got this wrong?

[dx100uk]

post spaced for you.

 

dx

 

[Lauren125]

Hi Bankfodder thank you for your interest and your comments.

 

There are issues with ground rents AND service charges. In my case, non residential, not eligeable for Tier 1 tribunal so there is no possibility of holding the leaseholder to account for unreasonable service charges because of the loophole below. Even if it is residential see Richard Barclay and others quoted in the article above. You win the case about unreasonable costs yet have to pay the leaseholders court fees for loosing their case! Criminal!!!

 

From the article I quoted above.  'The Times reported that last year leasehold owner Richard Barclay successfully recovered £1,200 of a £10,100 service charge from the management company in respect of his central London Flat. But the victory soon turned sour when Barclay was hit with a bill for £61,300 in legal fees by Quadrant Property Management who takes care of the building.

 

The loophole is contained in the majority of leases which typically allow freeholders to recoup their legal costs from leaseholders, even if the freeholder loses the case. There is no parallel right for leaseholders to claim costs back.

 

 

[BankFodder]

Well as I said, this is really outside my experience but I really don't understand why such a one-sided term which is also calculated to negate the court rules about costs is not considered to be an unfair term under the consumer rights act.

As far as I can see, the unfair terms provisions simply refer to "a contract" between a trader on one hand and a consumer on the other hand.

There is no definition on consumer which suggests that it has to be in terms of buying retail services in the usual way. It simply says that they are entering into a contract outside their normal trade or profession.

Have you checked to see whether or not this aspect has been considered? Have you looked in the above case to see whether the issue of unfair terms was raised?

[Lauren125]

Dear Bankfodder,

 

The Tribunal did not support overturning the fees on the basis of unfair terms. Galling though it is I am simply paying the unreasonable fees because given this clause there is no possibilitiy of a fair outcome. I am writing this post because it was by chance I discovered the litigation fee clause in the lease and what it means in reality (I pay the fees for the loosing party!) and I hope anyone who reads this may not be caught out.

 

I showed this lease to three lawyers and they did not spot the issue until I explicitly drew their attention to it and then exclaimed ... that's criminal! I have written to my MP to lobby for a change, the government are stating they are aware of the leasehold scandal and will change how things operate. Sadly this will be too late to help me win my case.