Tribunal Appoints New Manager for Property with Significant Structural Issues

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case Reference

:

CHI/29UL/LAM/2022/0008

Property

:

5 [ADDRESS] [POSTCODE]

Applicant

:

[redacted]

:

[NAME_2]

Respondents

:

[redacted] and 5

Type of Application

:

Appointment of manager section 24 of the Landlord and Tenant Act 1987

Tribunal Member(s)

:

Judge [NAME_3] [NAME_4]

Date and Place of Hearing

:

22 August 2022 Havant Justice Centre Members and Parties Joined by the Common Video Platform

Date of Decision : 2 September 2022

DECISION

2

Background

1. [COMPANY_1] is the freeholder of the property under Title Number K271352. The directors of [NAME_1] are the leaseholders of Flats 1, 2 and 3. The Tribunal understands that [NAME_5], the leaseholder of Flat 4, is not a shareholder of the Company and has no share of the freehold.

2. The property is a converted mid-terrace Victorian style house five storey building (Including the basement). The building consists of a total of five self contained flats. The building is located on the seafront.

3. The Tribunal understands that in or around 2019 [NAME_6], the leaseholders of Flat 5 submitted a planning application to the local Council for an additional floor to be added to their Flat which was refused by the Council in August 2019. In February 202o [NAME_6] instructed a local contractor to remove the roof and carry out works to the Flat. [NAME_1] questioned the authority of [NAME_6] to carry out the works and eventually the works were stood down in or around July 2020. [NAME_1] has taken legal proceedings in the County Court against [NAME_6] claiming damages in the region of £250K. The Tribunal understands that a case management hearing in connection with the court proceedings has been fixed for 26 April 2023.

4. A temporary tin roof has been erected on the property, and the upper floor is covered in polythene to protect the flats below. Flat 5 is now a shell and has been stripped down to bare walls. The property has now been without a roof for almost two and a half years. The Tribunal inspected the property prior to the previous hearing on 9 March 2022.

5. There is considerable disagreement between the leaseholders about the structural integrity of the building and who is responsible for the current state of affairs. The Tribunal has no standing in the wider dispute which will be a matter for the court to determine. The Tribunal’s concern is whether an appointment of manager can progress the necessary works to the property to make it wind and watertight, and safe.

The Proceedings

6. On 11 October 2021 [NAME_5] applied to the Tribunal for the appointment of a manager in accordance with section 24 of the Landlord and Tenant Act 1987. [NAME_5] however, did not specify the name of an appointed manager.

7. On 16 November 2021 the Tribunal advised [NAME_5] that it could not progress the Application until a Manager was nominated.

3 8. On 29 November 2021 [NAME_5] put himself forward as the Tribunal appointed manager. [NAME_5] said he would be assisted by a firm of Architects and a separate firm of managing agents.

9. On 31 December 2021 the Tribunal drew [NAME_5]’s attention to the PRACTICE STATEMENT ON THE TRIBUNAL’S CONSIDERATION OF WHO TO APPOINT AS A MANAGER dated December 2021 issued by the Chamber President, [NAME_7]

10. The Tribunal identified paragraph 8 of the Practice Statement which stated

“Save in exceptional circumstances, the Tribunal will not usually appoint a leaseholder as the Manager”.

11. The Tribunal asked [NAME_5] to consider whether he still wished to proceed with the Application on the basis suggested in his response of 29 November 2021 or whether he wished to put forward a person who met the Tribunal’s requirements in the Practice Statement.

12. The Tribunal directed [NAME_5] to provide a response by 17 January 2022. If no response was forthcoming the Application would be struck out.

13. [NAME_5] responded by the due date stating that

“After consideration of the directions and the practice statement, the Applicant still maintains and recommends the appointment of himself as the Tribunal Manager however using the resources of the firm [COMPANY_9] (“the Company”)”.

14. The Tribunal issued directions for exchange of statements of case, and fixed the hearing for the 9 March 2022.

15. At the hearing on 9 March 2022 [NAME_5] was represented by his son. [NAME_10] of Counsel represented [COMPANY_1]. After hearing from the parties the Tribunal announced its decision.

a) [COMPANY_1] had not complied with its obligations to repair the roof and that unreasonable service charges had been made. In this regard the Tribunal was satisfied that the threshold criteria of section 24(2)(a)(i) and section 24(2)(ab)(i) of the Landlord and Tenant Act 1987 have been met.

b) It was just and convenient to make an order under section 24(1) of the Landlord and Tenant Act 1987 on the grounds of breakdown in the relationship between the parties, and the delay in finding a solution to the roof.

4

c) [NAME_5] was not a suitable person to be appointed as Manager of the Property. The Tribunal acknowledged that [NAME_5] was a successful business person who had considerable skills as an enabler. The Tribunal, however, found that [NAME_5] did not fulfil the requirements expected of a manager as set out in paragraph 9 of the Practice Statement. The Tribunal also found that [NAME_5]’s position as leaseholder would constitute a conflict of interest, and that there were no exceptional circumstances to justify departure from paragraph 8 of the Practice Statement.

16. The Tribunal gave the parties leave to submit by application names of prospective managers to be considered by the Tribunal for appointment. The Tribunal directed that any such application must be made by 4pm on 10 June 2022. If no application was made by that date, a party would have to start the proceedings again if it wished a manager to be appointed.

17. On the 8 June 2022 [NAME_2] for the Applicant submitted the name of [NAME_11] [NAME_11]) as the proposed manager. There were no other nominations for the proposed manager.

18. On 8 July 2022 the Tribunal directed that a hearing take place on 22 August 2022 to determine the suitability of [NAME_11] as a Tribunal appointed manager.

19. At the hearing on 22 August 2022 [NAME_12] of Flat 1, [NAME_2] of Flat 3, [NAME_5] of Flat 4 and [NAME_6] of Flat 5 attended by way of the Common Video Platform. [NAME_11], the proposed manager was also in attendance. [NAME_2] represented [COMPANY_1] and the leaseholders of Flats 1, 2 and 3. The Tribunal heard from [NAME_11], [NAME_2], [NAME_5] and [NAME_6].

The Hearing on 22 August 2022

20. [NAME_11] supplied a written statement of his experience and plans for the management of the property. [NAME_11] had familiarised himself with the Tribunal’s Practice Statement and the draft management order. [NAME_11] gave evidence and answered questions of the Tribunal, [NAME_5] and [NAME_6].

21. [NAME_11] is 70 and has had a varied and interesting career in warehousing, waste management and property. [NAME_11] spent the majority of his adult life in the Republic of South Africa (RSA), and returned to the UK 12 years ago.

22. [NAME_11] has been involved in property letting and management since 2004 when he joined a property company in RSA starting as commercial sales and letting agent and ending as Company Member

5 and KZN Board Member of the Institute of Estate Agents of Southern Africa.

23. When [NAME_11] returned to the UK he started as Residential Sales and Letting Agent with [NAME_13], then as Co-Founder of The Good Estate Agent. In 2012 [NAME_11] set up [NAME_15] based in Folkestone. [NAME_11] has managed a high of 33 blocks (from 2012/13 up to 2019/2020), a low of six blocks (during 2020/1 period), and now managed ten blocks. [NAME_11] highlighted three properties which he had managed, namely: [ADDRESS]; Wentworth House; and [ADDRESS] which posed specific management problems. [NAME_5] challenged whether [NAME_11] was now managing these properties. [NAME_11] indicated that Embassy remained the manager of [ADDRESS].

24. [NAME_11] was not a member of a professional property management body in the UK such as RICS and ARMA, and did not hold professional qualifications as a surveyor. [NAME_11] had an understanding of the Service Charge Residential Management Code (“the Code”) (3rd Edition). [NAME_11] believed that he had demonstrable experience of dealing with large scale projects and difficult buildings.

25. [NAME_11] had no previous experience as a Tribunal appointed manager. [NAME_11] admitted when questioned by the Tribunal that he did not fully understand the role of the Tribunal appointed manager. [NAME_11] did not appreciate that the appointment allowed him to act independently of the landlord. [NAME_11] appeared to have a good understanding of the lease. The Tribunal, however, pointed out to him that his authority came from the Order which can override the provisions of the lease.

26. [NAME_11] held Professional Indemnity Insurance (PII) to the value of £0.5M. [NAME_11] produced certificates to demonstrate that [NAME_15] was a Member of [NAME_14] (valid to 3 June 2023), and of the Property Redress Scheme (valid to 26 September 2022). [NAME_11] said that his firm had an internal complaints procedure published on its website. [NAME_11] said that if he had to increase the level of the PII he would recover the additional cost from the charge to leaseholders.

27. [NAME_11] said he was supported by a Business Manager who had five years experience in property management and an administrator with 21 years experience.

28. [NAME_11] had visited the property on 14 July 2022. [NAME_11] stated that his primary concerns and objectives were associated with owner harmony, financial stability, building shelter and integrity, risks mitigation and the adequacy of insurance cover. [NAME_11] stated that the primary remedial tasks included the reinstatement of the roof shelter, the installation of a suitable Automatic Fire Detection system, and the refurbishment of the communal areas. [NAME_11] indicated

6 that he would not be identified as the Responsible Person for Fire Safety until a fully functioning fire safety system was installed.

29. [NAME_11] said that Embassy had been involved with the oversight of major works for many years and had a myriad of contacts for most project types. [NAME_11], however, pointed out that competent professionals had already supplied quotations for the re-roofing of the property, and that these would have to be reviewed if he was appointed.

30. [NAME_11] had supplied a proposal for his charges as a Tribunal appointed manager. However, [NAME_11] acknowledged following questioning that he would have to submit a revised proposal. [NAME_11] indicated that he would be willing to act as the managing agent appointed by the freeholder if he was not considered suitable to be a appointed by the Tribunal.

31. [NAME_2] stated that he had contacted on behalf of [COMPANY_1] a wide range of property agents for the potential appointment before deciding to put forward [NAME_11]. [NAME_2] stated that the leaseholders of Flats 1, 2 and 3 had contributed £30,000 each for the works on the roof. [NAME_2] explained that [COMPANY_1] had carried out a section 20 consultation in respect of the proposed works and had obtained quotations from three local contractors. [NAME_2] indicated that [COMPANY_1] preferred for [NAME_11] to be appointed by the Tribunal so that he would be seen by the other leaseholders as independent of the freeholder.

32. [NAME_5] questioned the propriety of [NAME_11] charging the leaseholders the additional fee for increasing the cover on the PII. [NAME_5] contended that [NAME_11] was not following the Code by charging fees at an hourly rate. [NAME_5] submitted that he had been severely prejudiced by the property not having a roof for the last two and half years. [NAME_5] said that he had suffered damage to his flat which was immediately below Flat 5 and had lost rent. [NAME_5] estimated that his losses amounted to in the region of £40K. [NAME_5] stated that he would submit a “prejudice claim” to the section 20, and that it would be unfair to him to contribute to the costs of the roof.

33. [NAME_6] asserted that the property was unsafe because the owners of the Flats below Flat 4 had taken out structural walls. [NAME_6] did not agree with the surveyor’s report commissioned by [COMPANY_1]. [NAME_6] indicated that their preference was for [NAME_11] to be appointed as a manager.

Decision

34. The Tribunal found on the previous hearing that it was just and convenient to appoint a manager. The property is in serious state of disrepair and has had no permanent roof structure for the past two and

7 half years. [ADDRESS] is to determine who is responsible for the disrepair. It is likely that the Court’s determination would not be forthcoming for a significant period of time. In the meantime, [COMPANY_1] bears responsibility under the lease to put the building back into a reasonable state of repair. The Tribunal observed at its inspection of the property that the freeholder has taken some steps to mitigate the disrepair but has been unable to move forward because of disunity in the leaseholder community. This disunity is compounded by the fact that the majority of the leaseholders owned the freehold. The Tribunal considers that a Manager appointed under section 24 of the 1987 with the power to raise the necessary funds in advance and who is independent of the parties may be able to effect the necessary repairs to return the property to a reasonable state of repair. The appointment of a Manager, however, is not a guarantee of success which ultimately would depend upon securing the necessary funds to carry out the required works, and the co-operation of the leaseholders.

35. The sole issue for the Tribunal is whether [NAME_11] is suitable to be appointed as Manager of the Property in accordance with section 24 of the Landlord and Tenant Act 1987.

36. The parties put forward no other nominations for the position of Manager. The Tribunal noted that at the previous hearing [NAME_5] enquired of more than 25 experienced management companies including ones which had previously been appointed as a Manager by the Tribunal as to whether they would be interested in the appointment. According to [NAME_5], most of the agents said that they would only take on the appointment when confirmation of funding for the roof was in place and the property was put back to a good state of repair.

37. It is important that the Tribunal sets the context for its enquiry on suitability. Although the appointed Manager is accountable to the Tribunal, the Tribunal does not get involved in the day to day management, and relies on the Manager to use his/her professional judgment in carrying out the terms of the Order. Also the Tribunal is not liable for the actions of the Manager, and at times has to act and be seen to act independently of the Manager particularly if proceedings are brought against the Manager by the leaseholders.

38. The Tribunal, therefore, when considering an appointment of Manager considers whether there are sufficient external safeguards in place to protect the interests of the leaseholders. This typically involves membership of a recognised professional body which can hold the Manager to account for acting below professional standards; professional indemnity insurance giving sufficient cover in the event of legal action taken against Manager for negligence or breach of contract; and protection for client monies. There have been occasions where Tribunals have departed from these requirements but it carries a risk for leaseholders and freeholder. The Tribunal also endeavours to get a

8 fit between the professional skills of the Manager with the problems at the specific property. The Practice Statement dated December 2021 sets out the requirements in more detail.

39. The Tribunal finds in relation to [NAME_11] that he was an experienced property manager who had organised major works and had managed blocks of flats which had involved difficult leaseholders. [NAME_11] did not hold membership of a professional body, he appeared to understand the Code and the lease. [NAME_11] held PII but the level of cover was not sufficient for this appointment. His firm [NAME_15] had a complaints procedure which was similar to the requirements of the Royal Institution of Chartered Surveyors, and it was also a member of the Property Redress Scheme. Embassy belonged to [NAME_14]. The Tribunal was not sure whether the protection offered by [NAME_14] extended to service charge monies.

40. The Tribunal finds that [NAME_11] gave his evidence confidently and was straightforward with his answers. [NAME_11] asked questions when he did not understand an issue. The Tribunal is satisfied that [NAME_11] had no conflict of interest if he took up appointment.

41. The Tribunal had regard to [NAME_5]’s representations in connection with [NAME_11]’s appointment. The Tribunal shares [NAME_5]’s concern about the perilous state of the building, and his acknowledgement that it requires the intervention of an independent person tasked to organising the necessary works to put the property back to a reasonable state of repair. In the Tribunal’s view, [NAME_5] will have to decide whether he prioritises the repairs by making the appropriate contributions which a Manager will have the power to enforce or to pursue his action for damages.

42. The Tribunal formed the view that [NAME_11] would be suitable to be appointed as a Manager pursuant to section 24 of the 1987 Act subject to him confirming the following matters:

The PII cover be increased to £2M and that it would apply to his duties as a Tribunal appointed Manager.

• Confirmation from [NAME_14] that it applies to service charges collected from long leaseholders, and the level of protection.

• To provide a revised schedule of costs which should be in the form recommended at paragraph 3.4 of the Code: Annual Fee and a Menu of Charges for duties outside the scope of the Annual Fee. The Tribunal acknowledges that the Annual Fee is likely to be higher for a Manager appointed under section 24 because by definition the Manager is dealing with a “problem” building. The fee, however, still needs to be within the bounds of reasonableness. The fee should not include

9 costs directly connected with the landlord’s status as a Company. These should be separately agreed with the landlord and recovered from the shareholders of the company.

• To give an indication of the amount of funds necessary to provide an adequate sum to cover immediate costs on taking up appointment. The immediate costs relate to running costs including preliminaries for the major works.

43. The Tribunal requires [NAME_11] if he wishes to be appointed to provide the above information to the Tribunal and to the leaseholders within 14 days from the date of this decision.

44. On receipt of the information and provided it is satisfactory to the Tribunal, the Tribunal would confirm the appointment of [NAME_11] as Manager pursuant to section 24 of the 1987 Act initially for period of 15 months with an option to apply for an extension of the Order after 12 months. The extension will be at the discretion of the Tribunal. The terms of the appointment will be in accordance with the Draft Management Order. Under the terms of the Order the Manager will have power to demand payments in advance in respect of service charges together with the facility to require each leaseholder to pay an immediate sum to put the Manager in funds to carry out his duties. The parties are reminded that the provisions of the Order overtake the provisions in the lease.

10 RIGHTS OF APPEAL

1. A person wishing to appeal this decision to the Upper Tribunal (Lands Chamber) must seek permission to do so by making application by email to [EMAIL].

2. The application must arrive at the Tribunal within 28 days after the Tribunal sends to the person making the application written reasons for the decision.

3. If the person wishing to appeal does not comply with the 28 day time limit, the person shall include with the application for permission to appeal a request for an extension of time and the reason for not complying with the 28 day time limit; the Tribunal will then decide whether to extend time or not to allow the application for permission to appeal to proceed.

4. The application for permission to appeal must identify the decision of the Tribunal to which it relates, state the grounds of appeal, and state the result the party making the application is seeking.