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The cost of justice

After writing off a total of £2.8 million from leaseholders’ repairs and maintenance bills in 2012 as a result of leasehold valuation tribunals, social landlords clearly have some lessons to learn. Martin Hilditch reports

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In any given week in 2012 a couple of social landlords were facing judgement day.

At least 113 disputes between landlords and leaseholders came to a climax with a decision made by a leasehold valuation tribunal (independent bodies that make decisions on disputes about residential leasehold property). In each case, disgruntled leaseholders decided to fight to overturn at least some of the charges levied by social landlords for their share of repair work to the blocks of flats they live in.

The leaseholders have argued that the work either wasn’t necessary, that they weren’t properly consulted about it or that the quality was just plain shoddy. They weren’t fighting for small potatoes either, in some cases the disputed sums ran to hundreds of thousands - and in one case millions - of pounds.

A common defeat

The bad news for social landlords is that in 59 cases (52 per cent) it was worth the leaseholders’ while to go to tribunal and significant sums were wiped from their overall bills. In total, landlords had to write off £2.8 million in 2012 - although Westminster Council accounted for £2 million of the overall figure.

So what’s been going wrong? Why are leaseholders meeting with so much success and are there any lessons social landlords can learn from the mistakes that left the tribunals unimpressed in 2012?

In some cases, the errors would be almost comical if they didn’t involve such large sums of money. The most notable example of this - take a bow - relates to Swan Housing Association and a dispute over the cost of a new roof covering amounting to some £37,021. It charged for the work in 2011/12, but the tribunal heard that one leaseholder objected to paying his billed share because the roof was ‘already under warranty until 2017 by virtue of roof works carried out at an earlier date and in respect of which his block and the residents therein were charged substantial sums’.

In its decision the tribunal stated that ‘it was the applicants’ case that the provider of the guarantee was still in business and the warranty was perfectly capable of having been relied upon’.

Swan’s response was, in effect, ‘oops’. The decision document adds that Swan’s representative ‘very candidly said that he was willing, as he put it, “to hold my hands up on that point”’.

It’s more difficult, however, to see any funny side in a decision made in February last year that is set to cost Westminster Council £2 million. The authority is looking to appeal so it is like that even the leaseholders are still feeling stressed.

The case also concerns major repair works carried out to a block of flats called Emanuel House near St James’s Park in central London. The works were completed in 2010 but the leaseholders disputed the cost when they were presented with the bill. After lots of haggling, both sides failed to reach any agreement and the council referred the decision to a leasehold valuation tribunal.

The tribunal, however, turned out to have bad news for the council, taking issue with the way it had consulted about the cost of the work. In a 93-page decision document it concluded that a notice of intention document served to tenants was ‘confusing, difficult to understand and so flawed it is invalid’. In effect, it adds, the ‘lessees were misled about the nature of the works intended to be carried out’.

As a consequence of this the tribunal ruled that the ‘sums payable under the contract are limited to £250 per lessee’ rather than the considerably more weighty sums of up to £90,000 originally claimed. If the decision is not overturned, it will cost the council a total of £2,048,032 - although a spokesperson confirms it has sought permission to appeal.

James Butler, director of Landmark Leasehold Advisory Services, which advised some of the leaseholders in the case, says the decision proves that landlords must make every effort to hold detailed and clear consultations with every leaseholder who is likely to be affected by repairs and maintenance work.

‘The thing landlords should take from it is probably threefold,’ he says. ‘First, you should be mindful of costs. Second, consultation is key. You have to get it absolutely spot on. We will research each case in minute detail.

‘Ultimately, it should be an inclusive process. You need to accept that there is no quick step around a consultation.’

Landlords can run into trouble if they treat consultation as ‘a set of hurdles that have to be got over as quickly as possible’, he adds.

A spokesperson for Westminster Council was also happy to point out the lessons it has learned from the case that may be of use to other landlords.

Unnecessary repairs

A short hop up the road from Westminster, Islington Council has also been left counting the cost following a tribunal last year. However, its case is markedly different and contains some other important lessons.

It lost a tribunal involving a number of residents from two blocks of flats - Merryweather Court and Brennand Court - who raised a number of issues, including whether some of the work was actually necessary. In total, the tribunal decision ruled that £100,000 should be chopped from the charges faced by the seven leaseholders who went to tribunal. But because the reductions were then applied to other leaseholders in the two blocks, the decision ended up costing the council some £210,000.

However, it is the reasoning of the tribunal that may make other landlords sit up and take notice.

The works to Merryweather Court and Brennand Court were carried out in 2010/11 as part of the council’s efforts to improve homes to meet the government’s decent homes standard. The tribunal’s decision document states that at least part of the council’s reasoning behind its conclusion that the roofs were in a poor state of repair was ‘driven by’ guidance from the Communities and Local Government department that ‘roofs to blocks of flats qualify for disrepair if they are 30 years old and in poor condition’. The roofs were installed in 1967 ‘and so’ - as the decision document states - as far as the council was concerned they were ‘in a poor condition’.

An expert hired by the leaseholders, however, took a different view. Between 1996 and 2010 he found that there had been no repair work at all relating to any roof defect on Brennand Court and just three small jobs - costing just £750 - on Merryweather Court. The expert added that, because the asphalt roofs had been overlaid by insulation and concrete slabs, at ‘the very least he would have expected a life expectancy of 50 years’.

The tribunal agreed and had similar concerns about work to replace rear windows on the blocks. When it came to the roofs it found the council was ‘unable to produce any independent survey of the two relevant roofs and their condition prior to the works being carried out’ and that the CLG guidance is ‘no more than that, that is to say, guidelines’.

‘In the case of these particular roofs, the repairs history showed in relative terms very little by way of expenditure or problem’, it said. It went even further when it came to the windows, stating that there appeared to have been an ‘excessive reliance’ on the CLG guidance.

A spokesperson for the council insists the CLG guidelines ‘are just one element of our decision-making process’.

‘In this instance we considered that the works we undertook were for the benefit of all the residents and improved the estate,’ he adds.

Other landlords seeking to undertake similar improvement work should note, at least in this case, that reasoning alone was not enough to save the council from having to write off a substantial sum.

The spokesperson does, however, provide some interesting statistics which show why landlords are prepared to take their leaseholders on in tribunal where necessary. He states that Islington has won roughly 66 per cent of tribunals since 2005, and in 33 per cent of cases no reduction is made to bills and charges at all. In a further 33 per cent of cases, a settlement was reached in advance of any tribunal or the case was withdrawn by the complainant. In the remainder ‘where the LVT has reduced the charges, the reduction was significantly less than the leaseholder had been seeking in the vast majority of cases’, he adds.

Unacceptable standards

The cases so far reveal how important it is to have your paperwork in order, consult residents fully and make sure evidence for carrying out work is strong. But a number of landlords’ charges have been reduced or axed for another reason - the actual standard of work carried out or the level of the charge compared with the amount of work done.

Birmingham Council lost out on this latter point in a case where it was told that an annual cost of nearly £7,000 for cleaning one block of flats was ‘plainly unreasonable’ and that the tribunal ‘considers that an annual cost of £2,000 is a sum that would be reasonably incurred’.

Regenda Homes, based in the north west, also lost out when it was told in a tribunal that there had been a ‘clear and demonstrable failure in the management of communal cleaning and gardening contracts which the tribunal has found to be significantly below that which might reasonably be expected’, outside a block in Liverpool.

The decision notice adds that ‘the most modest of management input would have identified these shortcomings and instigated remedial action’ in the individual case.

In another case, Hemel Hempstead-based Dacorum Council was told repair work on a wall in a block was ‘very poor’ and that ‘if done privately we suspect would have resulted in the client refusing to pay’. In both instances charges were reduced at tribunal.

Harlow Council also lost out after a tribunal found that ‘surprisingly’ a ‘sum of £16,800 is allowed for preparing and painting the front entrance doors and frame’. After consideration the tribunal found this sum was ‘unreasonably high’.

What all this tells us is that social landlords are often losing out at tribunal because of simple mistakes made during the costing process. If you are charging for top-quality work then make sure that residents can’t point to a shoddy job. Consult properly and ensure the paperwork is in order. Galling losses as a result of providing unclear financial information to leaseholders can be avoided.

Take heed of these lessons in advance and there’s every chance social landlords will be able to reclaim reasonable costs for repair and maintenance work without alienating leaseholders in the process. Ignore them and leaseholders could well end up with huge smiles on their faces after benefiting from a cheap or even free upgrade to their living conditions.

Leasehold lessons: what Westminster Council has learned

  • It is always advised to seek to agree a settlement with leaseholders rather than proceed through the tribunal process. The leasehold valuation tribunal process can have an uncertain outcome and is costly and protracted
  • There is an increasing pattern of applications to the leasehold valuation tribunal from leaseholders for them to minimise leaseholder recharges
  • The council would only appeal where it is advised that the findings of the tribunal were not reasonable and that the council’s case for a more reasonable settlement is achievable
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