Question 1

Leaseholders who won’t pay

Accepted Answer

Leaseholders who won’t pay Q: Our Board is grappling with how to best to deal with the issue of leaseholders who do not pay for repairs undertaken on their behalf by the lessor. BACKGROUND During 2018 we had the periodic external maintenance and repair to the four blocks of flats. The managing agent dealt appropriately with all the relevant paperwork and liaison with leaseholders. There are requirements in the lease for notifying leaseholders of work that is to be undertaken to their demise (Lessee / Tennant Covenants Section 3, clauses 4 and 6 - repair on notice and right of entry in case of disrepair respectively). During the external maintenance and repair contract work was required to be undertaken to the windows. In respect of the widows, some of the external elements of the windows were considered to be within the demise and thus the responsibility of the leaseholder, but the majority of the external work was the responsibility of the lessor. In the case of the windows, the need for work and the extent of work is only evident when viewed from the scaffolding (each block is a 5-storey building). In the event that work is needed to the demised property the lease specifies the notice period that the leaseholder could be given before work is started. I’ve attached a letter which the managing agent sent to leaseholders where it was determined that the work to the windows fell within the leaseholders demise. Unfortunately the requirements placed on the lessor in the lease to give 2 months notice was not achieved. As you’ll see in the letter, it was recognised that giving the stated notice period was not generally possible. So in effect leaseholders were told what work was needed to be done and how much it would cost. The Chartered surveyor appointed by the Board to oversee the building contractor, was able to verify that the works proposed to leaseholders windows was indeed required, and that the contractor’s costs were reasonable. He was available to explain the detail to individual leaseholders and a number of leaseholders availed themselves of this professional advice. But there was no practical option for them to then source their own independent assessment of the work needed, or an estimate for the work. The building contractor was contracted by the lessor who has paid invoices submitted following review and recommendation from the appointed Chartered surveyor. THE ISSUE : LEASEHOLDERS WITHHOLDING PAYMENT A few leaseholders (four out of 65) are in dispute and some have taken legal advice, and are refusing to pay for the work undertaken on their windows. They are variously pointing to the inability to source independent advice on the necessity for the work and/or its cost. The money which they owe (because the lessor has paid the contractor’s invoices) has been added to their service charge account and will continue to show as a debt until paid. ADVICE PLEASE The Board is considering: 1. Demand the leaseholders pay as per invoice (the total sum is about £5k total). Question - in reality what redress does the Board have? We recognise it may simply end up as a bad debt (costing more to recover than it is worth), which would lead us to the same end point as the option (2) below. OR 2. Acquiesce to the leaseholders who are withholding payment, in effect transferring liability for those costs to be shared by all leaseholders. Question - would this not expose the Board to accusation of inappropriate use of leaseholder funds? OR 3. Decide to interpret the lease such that all of the external work undertaken is a lessor’s liability and so meet all the costs of the external window work from the service charge - retrospectively (which will mean refunding the leaseholders who have already paid. This would be about £35k) and therefore set the precedent for the next external major works. Question - can the Board make such a decision within the terms of the lease and the Board’s powers? FPRA Director Bob Slee replies: I can see that solutions 2 and 3 in your enquiry are attractive but neither would be sustainable if other lessees who might suffer increased service charge costs on account of them sought to bring a challenge. There seems to be little doubt that the work involved here is the responsibility of the lessees directly affected and there is no sound basis for transferring that liability to others which would be the impact of solutions 2 and 3. Your focus therefore needs to be on solution 1. While clearly, in normal circumstances, the lessees involved should have been given the opportunity to challenge the necessity of the work and to have effected their own repair arrangements should they have wished to do so within the stipulated two months’ notice period, I think any reasonable person, taking all of the circumstances into account, would agree that the lessor in this case had not acted unreasonably. I believe you have two options here. Firstly you inform the lessees concerned that in the opinion of the directors, having taken all circumstances into account, the charge is a fair one and should be paid without delay and that failure to do so will result in the lessee’s account being regarded as in debt. Assignment of the lease (ie sale of the flat in due course) will not be permitted by the lessor until the debt is settled in full including any permissible interest payments that have accumulated in the meanwhile. The lessees should be told that if they wish to challenge this position they should apply for a ruling at a First Tier Tribunal (Property Chamber). Should this happen the FTT will take all of the circumstances into account and hand down a decision on how the matter must be dealt with. Alternatively, you can inform the lessees that you have noted their positions and that the lessor intends to refer the matter to an FTT for resolution. If the FTT hands down a decision against the lessor then you would be on much stronger ground for writing off the debt (in effect your solution 2) than you would be without it. The cost of referring cases to an FTT are pretty nominal: £100 to make an application and a further £200 if it is decided to conduct a hearing. You can self-represent or engage a solicitor (obviously at additional expense) if you would prefer. [Submitted February 2019]

Question 2

Leaseholders who won’t pay

Accepted Answer

Leaseholders who won’t pay Q: Our Board is grappling with how to best to deal with the issue of leaseholders who do not pay for repairs undertaken on their behalf by the lessor. BACKGROUND During 2018 we had the periodic external maintenance and repair to the four blocks of flats. The managing agent dealt appropriately with all the relevant paperwork and liaison with leaseholders. There are requirements in the lease for notifying leaseholders of work that is to be undertaken to their demise (Lessee / Tennant Covenants Section 3, clauses 4 and 6 - repair on notice and right of entry in case of disrepair respectively). During the external maintenance and repair contract work was required to be undertaken to the windows. In respect of the widows, some of the external elements of the windows were considered to be within the demise and thus the responsibility of the leaseholder, but the majority of the external work was the responsibility of the lessor. In the case of the windows, the need for work and the extent of work is only evident when viewed from the scaffolding (each block is a 5-storey building). In the event that work is needed to the demised property the lease specifies the notice period that the leaseholder could be given before work is started. I’ve attached a letter which the managing agent sent to leaseholders where it was determined that the work to the windows fell within the leaseholders demise. Unfortunately the requirements placed on the lessor in the lease to give 2 months notice was not achieved. As you’ll see in the letter, it was recognised that giving the stated notice period was not generally possible. So in effect leaseholders were told what work was needed to be done and how much it would cost. The Chartered surveyor appointed by the Board to oversee the building contractor, was able to verify that the works proposed to leaseholders windows was indeed required, and that the contractor’s costs were reasonable. He was available to explain the detail to individual leaseholders and a number of leaseholders availed themselves of this professional advice. But there was no practical option for them to then source their own independent assessment of the work needed, or an estimate for the work. The building contractor was contracted by the lessor who has paid invoices submitted following review and recommendation from the appointed Chartered surveyor. THE ISSUE : LEASEHOLDERS WITHHOLDING PAYMENT A few leaseholders (four out of 65) are in dispute and some have taken legal advice, and are refusing to pay for the work undertaken on their windows. They are variously pointing to the inability to source independent advice on the necessity for the work and/or its cost. The money which they owe (because the lessor has paid the contractor’s invoices) has been added to their service charge account and will continue to show as a debt until paid. ADVICE PLEASE The Board is considering: 1. Demand the leaseholders pay as per invoice (the total sum is about £5k total). Question - in reality what redress does the Board have? We recognise it may simply end up as a bad debt (costing more to recover than it is worth), which would lead us to the same end point as the option (2) below. OR 2. Acquiesce to the leaseholders who are withholding payment, in effect transferring liability for those costs to be shared by all leaseholders. Question - would this not expose the Board to accusation of inappropriate use of leaseholder funds? OR 3. Decide to interpret the lease such that all of the external work undertaken is a lessor’s liability and so meet all the costs of the external window work from the service charge - retrospectively (which will mean refunding the leaseholders who have already paid. This would be about £35k) and therefore set the precedent for the next external major works. Question - can the Board make such a decision within the terms of the lease and the Board’s powers? FPRA Director Bob Slee replies: I can see that solutions 2 and 3 in your enquiry are attractive but neither would be sustainable if other lessees who might suffer increased service charge costs on account of them sought to bring a challenge. There seems to be little doubt that the work involved here is the responsibility of the lessees directly affected and there is no sound basis for transferring that liability to others which would be the impact of solutions 2 and 3. Your focus therefore needs to be on solution 1. While clearly, in normal circumstances, the lessees involved should have been given the opportunity to challenge the necessity of the work and to have effected their own repair arrangements should they have wished to do so within the stipulated two months’ notice period, I think any reasonable person, taking all of the circumstances into account, would agree that the lessor in this case had not acted unreasonably. I believe you have two options here. Firstly you inform the lessees concerned that in the opinion of the directors, having taken all circumstances into account, the charge is a fair one and should be paid without delay and that failure to do so will result in the lessee’s account being regarded as in debt. Assignment of the lease (ie sale of the flat in due course) will not be permitted by the lessor until the debt is settled in full including any permissible interest payments that have accumulated in the meanwhile. The lessees should be told that if they wish to challenge this position they should apply for a ruling at a First Tier Tribunal (Property Chamber). Should this happen the FTT will take all of the circumstances into account and hand down a decision on how the matter must be dealt with. Alternatively, you can inform the lessees that you have noted their positions and that the lessor intends to refer the matter to an FTT for resolution. If the FTT hands down a decision against the lessor then you would be on much stronger ground for writing off the debt (in effect your solution 2) than you would be without it. The cost of referring cases to an FTT are pretty nominal: £100 to make an application and a further £200 if it is decided to conduct a hearing. You can self-represent or engage a solicitor (obviously at additional expense) if you would prefer. [Submitted February 2019]

Leaseholders who won’t pay

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