Landlords who fall foul of the First Tier Property Tribunal beware! You can end up with a hefty contribution to the other side’s costs. The most recent example cost the Landlord £30,000, on top of the humiliation of being depicted in the most condemnatory terms by the Tribunal.
These recent cases, where costs have been awarded against a Landlord, show that proper management is not an option, compliance with the various acts of Parliament not a ‘pick and mix’ exercise, and do-it-yourself property management is a bit like representing oneself in Court:
“A man who acts for himself in Court, has a fool for a client”.
The Legal Background:
Until 2013 there was a £500 ceiling which governed the Tribunal’s power to award costs. There was also a test that costs would only be awarded where a party’s conduct was “frivolous or vexatious or otherwise an abuse of process.”
Post-2013 brought in a regime where costs may be awarded, but only where costs have been incurred as a result of a party’s “unreasonable conduct or a representative’s unreasonable conduct or in ‘wasted costs’ situations.”
The key question the Tribunal considers is whether the alleged “unreasonable” conduct was vexatious and designed to harass or inconvenience the other side. In determining this, the Tribunal will consider whether it is unreasonable in its context (what is unreasonable for a represented party may not be unreasonable when a party is not represented).
It just so happens that I have been involved either directly, or indirectly, in three such cost awards, and amazingly, had one sought against me in a case we actually won!
The Three Cases:
Case one1 involved parties I have written about previously, and should have been a fairly routine application for recognition of the residents’ association in August 2017. This was bitterly contested by the Landlord who had already had lost control to a Tribunal-appointed manager three years previously. Having failed with accusations of forged signatures and the claim that elderly residents were doorstepped and pressurised into supporting the application, he nonetheless presented an application for costs. This included an invoice for his barrister’s attendance in Court despite counsel not appearing at the hearing. Application for costs dismissed!
In January 2018, at a hearing2 to determine the same Landlord’s liability for pay service charges on nineteen flats he and his wife privately owned in the block, costs of £27,000 were awarded against the Landlord:
So what was deemed unreasonable behaviour this time?
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The respondents ignored directions from the Tribunal to file a statement of case, placing the applicants in the invidious position of preparing for a case without knowing what reasons might be put forward
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The principle respondent, Michael Stainer, failed to turn up in Court for the first two days and claimed incapacity on the final day
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The respondents’ approach to the Tribunal proceedings was viewed as a continuation of their conduct towards the Tribunal's 2014 Management Order, which was characterised by contempt and a total lack of co-operation
The Tribunal clearly agreed with this submission:
“Mr and Mrs Stainer have not accepted Mr Hammond's [the Tribunal-appointed manager] appointment as manager. Further Mr Stainer has deliberately frustrated Mr Hammond in the performance of his role as a manager which has had the effect of generating additional and unnecessary costs to the leaseholder through the service charge.”
The Tribunal concluded:
“The Tribunal is satisfied that its conclusion on Mr and Mrs Stainer's conduct of the proceedings met the definition of unreasonable behaviour, namely conduct which was vexatious and designed to harass the other side rather than advance the resolution of the case. In the Tribunal's view, Mr and Mrs Stainer had no reasonable explanation for the way they conducted the proceedings.”
Costs of £27,000 were awarded against the Stainers, but the hard-pressed leaseholders never got to enjoy the fruits of the success as the Stainers went bankrupt later that year and now await trial for serious fraud.
The lesson from this for all Landlords is that to bury one’s head in the sand and failing to comply with Tribunal directions is not a good idea.
Later in 2018, the same property’s Landlord, controlled from behind the scenes by the self-same Michael Stainer, again had costs awarded against them. This case3 was one in which the residents’ association successfully applied to the Tribunal to appoint a new manager and vary the Management Order. The costs hearing only took place a year later after a succession of failed appeals against the Tribunal decision, including a failed request for Judicial Review, dismissed as ‘totally without merit’.
The pattern of behaviour had some similarity with the earlier case:
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The Landlord, its directors and sole shareholder made a deliberate decision not to participate in the proceedings concerning the variation of the management order.
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Their refusal to give any evidence to support a case was unreasonable and showed a lack of respect for the Tribunal's desire to resolve the difficulties surrounding the management arrangements
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This placed a far greater burden on the applicants unaware of what objections, if any, would be advanced to the proposed varied Management Order
The Tribunal’s view re-affirmed its earlier view that the non-attendance of the Landlord, as represented by their solicitor was:
“……not transparent and designed to frustrate proper scrutiny of their merits by the Tribunal.”
The Tribunal went on to find::
“……that Hallam Estates has not substantiated its claim of reasonable explanation for its non-participation in the proceedings which were heard on the 26 and 27 April 2018. The Tribunal is satisfied that Hallam Estates made a deliberate decision not to co-operate with the Applicant and the Tribunal with the intention of frustrating the Applicant's efforts to secure a management order fit for purpose.”
The Tribunal’s final damming comment was:
“The Tribunal decided that Hallam Estates took a conscious and deliberate decision not to engage with the aim of frustrating the proceedings. The Tribunal is satisfied that this conduct by Hallam Estates and its directors was symptomatic of their longstanding disregard of the leaseholders' legitimate interests in The Grand and of their proclivity to abuse the legal process to block and harass leaseholder's attempts to achieve a satisfactory resolution of their grievances”.
So once again, a costs order was made representing the entire costs incurred by leaseholders. This time payment was made, but only after the famous TV bailiffs from “Can’t Pay, We’ll Take It Away” called at the Grand……..
There is a clear lesson here to all Landlords and their representatives who think they can play fast and loose with Tribunal directions and procedures.
The last case4 was only determined two weeks ago and again resulted from an application to appoint a manager under section 24 of the Landlord and Tenant Act. In this case, the Landlord company, and its director were co-residents with other leaseholders, three of whom in particular, were aggrieved by years of alleged neglect and lack of transparency in the financial management of their building. The Tribunal agreed to the application and a manager was appointed, and the Management Order contained a Penal Notice to ensure cooperation from the Landlord.
In damning terms in dealing with the cost’s application, the Tribunal found that:
“In our judgment, the failure to make contributions to the contingency fund and the failure to ensure that the block was always insured were exceptionally egregious. Defending the application in the face of those allegations was unreasonable. It was part of [the Landlord’s] vexatious stubbornness.”
In dealing with the insurance issue, the Tribunal stated:
“Any gap in insurance is potentially very serious. If a fire occurs during a gap, it will be uninsured. We find [the Landlord’s’] insouciance about these periods when no insurance was in place seriously concerning”.
The Tribunal went on to deal with what they believed was a serious omission in the Landlord’s declaration to the insurance company concerning possible empty flats:
“The representation that no part of the building was unoccupied was untrue. That was a material misrepresentation which may well have entitled the insurer to avoid the policy in the event of a claim. Having three flats vacant might well have increased the premium payable. In our judgment, [the Landlord] was at best reckless in approving that statement and at worst telling a deliberate lie.”
The Tribunal was equally exercised about the Landlord’s management of the so-called contingency fund. Firstly, the Tribunal found that:
“…….. he [the Landlord] treated the contingency fund as comprising separate accounting entities, representing the individual contributions of individual leaseholders. He used this as an excuse for not giving the tenants’ association access to the accounts, a breach in our judgment of section 42A(3) of the 1987 Act.”
The Tribunal also found that occasionally, if a tenant got into financial difficulties, the Landlord would withdraw any service charges due from that tenant from the contingency fund. The Tribunal found this:
“…..a breach of trust. Monies held in the contingency fund were held on trust for all the lessees jointly in order to meet unexpected or large items. It was not permissible to abstract monies from the fund to pay for individual contributions from tenants.”
The Tribunal went on:
“….at the very least [the Landlord’s] treatment of the contingency fund was reckless: he appears to have made no attempt to investigate his obligations as trustee. He did not even discuss the proper accounting treatment with [the accountant]. Acting without knowing or caring about the true position in law is a species of fraud.”
In what should be a clear warning to ‘amateur’ Landlords, the Tribunal stated:
“We find as a fact that [the Landlord] is a stubborn man. This came out strongly from the evidence of the applicants and from his own demeanour before us. He accepted in evidence to us that he had done no courses on and received no training in the management of residential blocks. Although he expressed contrition to us at his failure to learn the duties of a manager, we note that he has had many years to improve his substantive knowledge of property management. Further the tone and substance of his correspondence with tenants is in our judgment simply unacceptable.
Relations between the parties have completely broken down. We have seen and heard the applicants give evidence ….. We have also been referred to some of the correspondence. We find that the reason for breakdown is largely down to [the Landlord’s intransigence. He has simply never been prepared to act in a cooperative manner with the applicants. Any resistance by the applicants is met by threats.”
This behaviour has again met the threshold of unreasonable behaviour and cost the Landlord £30,000.
So, the lessons are clear:
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Responsible property management is not a game for amateurs
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Ignorance of the law is never an excuse
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Costs can be secured but can never be taken for granted
And never act without advice from the experts who really understand leasehold issues, and with respect to our learned friends, not every lawyer is an expert in leasehold law.
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CHI/29UL/LRA/2017/0001 Peter Cobrin on behalf of the Association of Residents in the Grand -v- Hallam Estates Ltd
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CHI/29UL/LIS/2017/0049 David Hammond Appointed Manager and Receiver by Order of the Tribunal -v- Michael and Doris Stainer
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CHI/29UL/LVM/2018/0001 Peter Cobrin on behalf of the Association of Residents in the Grand -v- Hallam Estates Ltd
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LON/00AF/LSC/2020/ John Ingledew, Jonas and Aparna Wandrin and Gary Bortz -v-Winstonworth Ltd
Peter Cobrin AIRPM FRSA, Senior Property Manager at Westbury Residential Ltd, part of the Urang Group, writing in a personal capacity
