Tribunal Appoints Property Manager Due to Management Failures

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL [APPELLANT] CHAMBER ([APPELLANT]) Case reference : LON/00AC/LAM/2022/0025 [APPELLANT] : 108a & [ADDRESS], London, [[APPELLANT]] Applicants : [redacted] : Mr [COUNSEL] of Counsel Respondents : [redacted] : Mr [COUNSEL], Solicitor Type of application : Appointment of a manager Tribunal members : Tribunal Judge I [NAME] of hearing : 5 June 2023

Date of decision : 13 July 2023

DECISION

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Introduction

1. This is an application made by the Applicants under section 24 of the Landlord and Tenant Act (as amended) (“the Act”) for an order in respect of 108a & [ADDRESS], London, [[APPELLANT]] (“the [APPELLANT]”).

2. The [APPELLANT] is described as a semi-detached house converted into two maisonettes. The Applicants are the lessees of [ADDRESS]. The Respondents are the joint freeholders of the [APPELLANT].

3. The various management failures complained of by the Applicants are set out in the witness statement of the Second Applicant, Mrs [RESPONDENT] dated 24 February 2023. For reasons that will become apparent, it is not necessary to set these out. The Law 4. Section 24 of the Landlord and Tenant Act 1987 provides:

"(1) A leasehold valuation tribunal may, on an application for an order under this section, by order appoint a manager to carry out, in relation to any premises to which this Part applies-

(a) such functions in connection with the management of the

premises, or

(b) such functions of a receiver,

or both, as the Tribunal thinks fit.

(2) A leasehold valuation tribunal may only make an order under this section in the following circumstances, namely-

(a) where the tribunal is satisfied-

(i) that any relevant person either is in breach of any

obligation owed by him to the tenant under his tenancy

and relating to the management of the premises in

question or any part of them...

(ii) ...

(iii) that it is just and convenient to make the order in all the

circumstances of the case;

(ab) where the tribunal is satisfied-

(i) that unreasonable service charges have been made, or

are proposed or likely to be made; and

(ii) that it is just and convenient to make the order in all the

circumstances of the case;

(aba)...

(abb)...

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(ac) where the tribunal is satisfied-

(i) where any relevant person has failed to comply with any

relevant provision of a code of practice approved by the

Secretary of State under section 87 of the Leasehold

Reform, Housing and Urban Development Act 1993

(codes of management practice), and

circumstances of the case;

(b) where the tribunal is satisfied that other circumstances exist which make it just and convenient for the order to be made.

Hearing 5. The hearing took place on 5 June 2023. The Applicants were represented by Mr [COUNSEL] of Counsel. The Respondents were represented by Mr [COUNSEL], a Solicitor.

6. The Respondents had not filed or served any evidence in the case. When this was raised with Mr [NAME], he said that that they were consenting to the appointment of the Applicant’s proposed manager, [NAME].

7. Therefore, the only issue before the Tribunal was whether [NAME] possessed the relevant knowledge and experience to be appointed as the manager of the [APPELLANT].

8. This was set out in two witness statements prepared by him together with a draft Management Plan for the [APPELLANT].

9. In addition, the Tribunal conducted its own examination of Mr [APPELLANT] in relation to this [APPELLANT] management experience.

10. Mr [APPELLANT] told Tribunal he had no formal training or qualification in [APPELLANT] management. His interest in [APPELLANT] management started in or around 2011 when he took on the management of his own [APPELLANT] portfolio and those of some family members. It was in 2018 that he accepted third party [APPELLANT] instructions to manage residential [APPELLANT]. [NAME] now manages some 102 units over some 15 sites, one site has 62 flats and the remaining sites between 2-4 flats.

11. Almost all the leasehold properties he manages hold a share of the freehold. He has no experience of managing blocks of flats with freeholder interest.

12. The services offered to his clients varies. At the 62 flat block he is not responsible for the issue of service charge demands, at the other properties his company carries out a full management role. The company does not operate a client account for either annual or reserve service charges. He told Tribunal that all his 40 or so clients operate

4 [APPELLANT] specific service charge accounts and he uses these accounts to deposit monies and make payments. 13. After review of the witness statements and hearing evidence the Tribunal had a number of reservations about Mr [APPELLANT] intention to act as Manager of the [APPELLANT]. These include:

- The lack of any formal [APPELLANT] management training and qualification;

- limited knowledge and experience of residential management and in particular the requirements of the [NAME] Service Charge Residential Management Code; and

- no established governance for client monies within his company and specifically, no business client account. His company is not Regulated by the [NAME] or ARMA.

14. The [APPELLANT] comprises two dwellings with no common areas. This type of [APPELLANT] should present a straightforward management situation that demands practical management skills with a reliance upon consultants for professional expertise. Mr [NAME] responses to Tribunal questions revealed knowledge of the statutory [APPELLANT] management requirements including those relevant to section 20 consultation. The Tribunal concluded Mr [NAME] has acquired many of the necessary skills and knowledge from his exposure to the procedures adopted by other managing agents since 2011. They would encourage him to improve his knowledge of the [NAME] guidance and adopt this unequivocally in his [APPELLANT] management of this [APPELLANT].

15. The Tribunal was also concerned at the lack of governance of client monies. It was not clear from his submission whether Mr [NAME] was authorised to make payments to contractors at the various properties he managed or his role in accounting for receipts and expenditure.

16. Mr [NAME] confirmed to the Tribunal that it is his intention to open a client monies bank account. The Tribunal endorsed this proposed action. They also recommend a further bank account is opened for the deposit of reserve account monies. This is to ensure compliance with the [NAME] code.

17. The Tribunal is cognisant of the fact that [NAME] is not a member of the [NAME] and, therefore, will not be subject to formal financial scrutiny and external supervision. The Tribunal intend to apply a condition that a Chartered Accountant must inspect the client accounts every six months to ensure compliance with [NAME] standards. After each satisfactory review, the auditors shall issue a certificate of satisfactory compliance, which would be attached to the six monthly reports to Tribunal.

5 18. The Tribunal is aware of the short comings of Mr [NAME] in terms of his experience, formal training and business governance but recognise few managing agents are interested in managing a two dwelling block [APPELLANT]. He has practical experience of [APPELLANT] management. He exhibits a commitment to address the concerns held by the Tribunal. The additional conditions and supervision proposed will further support Mr [NAME] and enhance governance.

19. After careful consideration the tribunal is persuaded to approve his appointment as Manager of the [APPELLANT]. The management order is annexed to this decision.

Rights of appeal

By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) ([APPELLANT] Chamber) Rules 2013, the tribunal is required to notify the parties about any right of appeal they may have. If a party wishes to appeal this decision to the Upper Tribunal ([NAME]), then a written application for permission must be made to the First-tier Tribunal at the regional office which has been dealing with the case. The application for permission to appeal must arrive at the regional office within 28 days after the tribunal sends written reasons for the decision to the person making the application. If the application is not made within the 28 day time limit, such application must include a request for an extension of time and the reason for not complying with the 28 day time limit; the tribunal will then look at such reason(s) and decide whether to allow the application for permission to appeal to proceed, despite not being within the time limit. The application for permission to appeal must identify the decision of the tribunal to which it relates (i.e. give the date, the [APPELLANT] and the case number), state the grounds of appeal and state the result the party making the application is seeking. If the tribunal refuses to grant permission to appeal, a further application for permission may be made to the Upper Tribunal ([NAME]).

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FIRST-TIER TRIBUNAL

[APPELLANT] CHAMBER [APPELLANT])

Case reference : LON/00AC/LAM/2022/0025 [APPELLANT] : 108a & [ADDRESS], London, [APPELLANT]

Applicants : [redacted]

Respondents : [redacted]

Tribunal members : Tribunal Judge I [NAME] of hearing : 5 June 2023 Date of Order : 13 July 2023

MANAGEMENT ORDER

Interpretation

1. In this Order:

“The [APPELLANT]” means the premises known as known as 108A and [ADDRESS], London [[APPELLANT]] and registered at HM Land Registry under title number MX242805 and shall include the building, outhouses, gardens, amenity space, drives, pathways landscaped areas, flower beds, passages, bin stores, common parts, storage rooms basements, electricity and power rooms; and all other parts of the [APPELLANT].

7 “The Landlord” shall mean [APPELLANT] and [RESPONDENT] or their successors in title to the reversion immediately expectant upon the Leases.

“The Tenants" shall mean the proprietors for the time being of the Leases whether as lessee or under-lessee and "Tenant” shall be construed accordingly.

“The Leases" shall mean all leases and/or underleases of flats in the [APPELLANT].

“The Manager” means Mr [APPELLANT]

“The Tribunal” means the First-tier Tribunal ([APPELLANT] Chamber)

ORDER

2. In accordance with section 24(1) of the Landlord and Tenant Act

1987 (“the Act”) Mr [APPELLANT] is appointed as Manager of the

[APPELLANT].

3. The Manager’s appointment shall start on 14 days from the date

of this order (“the start date”) and shall end on two years

thereafter (“the end date”).

4. For the avoidance of doubt this Order supplements but does not

displace covenants under the Leases and the Tenants remain

bound by them. Where there is a conflict between the provisions

of the Order and the Leases, the provisions of the Order take

precedence.

5. The purpose of this Management Order is to provide for the

management of the [APPELLANT] which includes taking steps to

resolve the following problems of inadequate management

identified by the tribunal:

a. The issues identified in the report of [NAME]

dated 1 March 2021 (“the Report”)

6. To address the steps identified in the previous paragraph the

Manager is empowered to:

a. Collect monies in order to prepare and carry out a

programme of works to remedy all of the issues identified

in the Report.

7. The Manager shall manage the [APPELLANT] in accordance with:

a. the terms of this Order and the Directions set out below;

8 b. the respective obligations of the Landlord and the

Tenants under the Leases whereby the [APPELLANT] is

demised by the Landlord (save where modified by this

Order); c. the duties of a Manager set out in the Service Charge

Residential Management Code (“the Code”) (3rd Edition)

or such other replacement code published by the [NAME] (“[NAME]”) and approved

by the Secretary of State pursuant to section 87 Leasehold

Reform Housing and Urban Development Act

1993(whether the Manager is a Member of the [NAME] or

not; and d. the provisions of sections 18 to 30 of the Landlord and

Tenant Act 1985.

8. From the date this Order comes into effect, no other party shall

be entitled to exercise a management function in respect of the

[APPELLANT] where the same is the responsibility of the Manager

under this Order.

9. The tribunal requires the Manager to act fairly and impartially in

the performance of their functions under this Order and with the

skill, care and diligence to be reasonably expected of a Manager

experienced in carrying out work of a similar scope and

complexity to that required for the performance of the said

functions.

10. The Manager or any other interested person may apply to vary

or discharge this Order pursuant to the provisions of section

24(9) of the Act.

11. Any application to extend or renew this Order must be made

before the end date, preferably at least three months before that

date, and supported by a brief report of the management of the

[APPELLANT] during the period of the appointment. Where an

application for an extension or renewal is made prior to the end

date, then the Manager’s appointment will continue until that

application has been finally determined.

12. The Manager is appointed to take all decisions about the

management of the [APPELLANT] necessary to achieve the purposes

of this Order. If the Manager is unable to decide what course to

take, the Manager may apply to the Tribunal for further

directions, in accordance with section 24(4), Landlord and

Tenant Act 1987. Circumstances in which a request for such

directions may be appropriate include, but are not limited to:

9 a. a serious or persistent failure by any party to comply with

an obligation imposed by this Order; b. circumstances where there are insufficient sums held by

the Manager to discharge their obligations under this

Order and/or for the parties to pay the Manager’s

remuneration; and c. where the Manager is in doubt as to the proper

construction and meaning of this Order.

Contracts

13. Rights and liabilities arising under contracts, including any

contract of insurance and/or any contract for the provision of

any services to the [APPELLANT], to which the Manager is not a party,

but which are relevant to the management of the [APPELLANT], shall

upon the date of appointment become rights and liabilities of the

Manager, save that:

a. the Landlord shall indemnify the Manager for any

liabilities arising before commencement of this Order;

and b. the Manager has the right to decide, in their absolute

discretion, the contracts in respect of which they will

assume such rights and liabilities, with such decision to

be communicated in writing to the relevant parties within

56 days from the date this order.

14. The Manager may place, supervise and administer contracts and

check demands for payment of goods, services and equipment

supplied for the benefit of the [APPELLANT].

15. The Manager shall be responsible for responding to pre-contract

enquiries regarding the sale of a residential flat at the [APPELLANT].

Legal Proceedings

16. The Manager may bring or defend any court or tribunal

proceedings relating to management of the [APPELLANT] (whether

contractual or tortious) and, subject to the approval of the

Tribunal, may continue to bring or defend proceedings relating

to the appointment , after the end of their appointment.

17. Such entitlement includes bringing proceedings in respect of

arrears of service charge attributable to any of the Flats in the

[APPELLANT], including, where appropriate, proceedings before this

tribunal under section 27A of the Landlord and Tenant Act 1985

and in respect of administration charges under schedule 11 of

the Commonhold and Leasehold Reform Act 2002 or under

section 168(4) of that Act or before the courts and shall further

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include any appeal against any decision made in any such

proceedings.

18. The Manager may instruct solicitors, counsel, and other

professionals in seeking to bring or defend legal proceedings and

is entitled to be reimbursed from the service charge account in

respect of costs, disbursements or VAT reasonably incurred in

doing so during, or after, this appointment. If costs paid from

the service charge are subsequently recovered from another

party, those costs must be refunded to the service charge

account.

Remuneration

19. The Landlord is solely liable for payment of the Manager’s fees.

However, should the Landlord fail to make payment of any fees

within 28 days of a first class postage of a written demand by the

Manager to the Landlord’s registered address, then the Manager

may obtain payment for those fees

a. from the Tenants by way of a 50% contribution in respect

of each of the two leases of the [APPELLANT] (payable within

28 days of the first class postage of a written demand by

the Manager to the address for the tenant in the relevant

Land Registry entry)

and/or

b. A contribution of greater than 50% from the Applicants if

they elect to pay more.

20. Any of the Tenants may apply to the Tribunal for an order that

the Landlord reimburse them for any fees that they have paid to

the Manager under the preceding paragraph, together with their

costs of obtaining that reimbursement.

21. The sums payable are:

a. an annual fee of £2,000, to be increased on the

anniversary of appointment in line with the [NAME];

b. where in any month there are building works at the

[APPELLANT] involving builders being on-site for more than

half of that month, an additional fee of £83 for that

month;

11 c. where it is necessary to undertake consultation under

section 20 of the Landlord and Tenant Act 1985, a fee of

£450, unless the consultation process includes a

requirement for notification of the award of the contract,

in which case the fee shall instead be £550;

d. a reasonable fee for any attendance at Tribunal or Court;

e. postage costs and other minor incidental costs.

Ground Rent and Service charge

22. The Manager shall not collect the ground rents payable under

the residential Leases.

23. The Manager shall collect all service charges and insurance

premium contributions payable under the Leases, in accordance

with the terms and mechanisms in the Leases.

24. Whether or not the terms of any Lease so provides, the Manager

shall have the authority to:

a. demand payments in advance and balancing payments at

the end of the accounting year; b. establish a [NAME] to meet the Landlord’s

obligations under the Leases; c. allocate credits of service charge due to Tenants at the

end of the accounting year to the [NAME]; d. alter the accounting year and to collect arrears of service

charge and insurance that have accrued before their

appointment; and

25. The Manager may set, demand and collect a reasonable service

charge to be paid by the Landlord (as if he were a lessee), in

respect of any unused premises in part of the [APPELLANT] retained

by the Landlord, or let on terms, which do not require the

payment of a service charge.

26. To ensure that the Manager has adequate funds to manage the

[APPELLANT], the Manager may immediately collect £ 500 from each

Tenant and, as the case may be, any reasonable sum

from the Landlord. Any sum demanded by the Manager shall be

payable within 28 days.

27. The Manager is entitled to recover through the service charge

the reasonable cost and fees of any surveyors, architects,

solicitors, counsel, and other professional persons or firms,

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incurred by them whilst carrying out their functions under the

Order.

Administration Charges

28. The Manager may recover administration charges from

individual Tenants for their costs incurred in collecting ground

rent, service charges and insurance which includes the costs of

reminder letters, transfer of files to solicitors and letters before

action. Such charges will be subject to legal requirements as set

out in schedule 11 of the Commonhold and Leasehold Reform

Act 2002. The Details of the fees charged are set out in the

Appendix of additional fees.

Disputes

29. In the event of a dispute regarding the payability of any sum

payable under this Order by the lessees, additional to those

under the Leases (including as to the remuneration payable to

the Manager and litigation costs incurred by the Manager), a

Tenant, or the Manager, may apply to the tribunal seeking a

determination under section 27A of the Landlord and Tenant

Act 1985 as to whether the sum in dispute is payable and, if so,

in what amount.

30. In the event of a dispute regarding the payability of any sum

payable under this Order by the landlord, other than a payment

under a Lease, the Manager or the Landlord may apply to the

tribunal seeking a determination as to whether the sum in

dispute is payable and, if so, in what amount.

31. In the event of dispute regarding the conduct of the

management of the [APPELLANT] by the Manager, any person

interested may apply to the Tribunal to vary or discharge the

order in accordance with section 24(9) of the Landlord and

Tenant Act 1987.

32. In the event of a dispute regarding the reimbursement of

unexpended monies at the end of the Manager’s appointment,

the Manager, a Tenant, or the Landlord may apply to the

Tribunal for a determination as to what monies, if any, are

payable, to whom, and in what amount.

DIRECTIONS TO LANDLORD

33. The Landlord must comply with the terms of this Order.

13 34. On any disposition of the Landlord’s estate in the [APPELLANT], the

Landlord will procure from the person to whom the [APPELLANT] is

to be conveyed, a direct covenant with the Manager, that the said

person will (a) comply with the terms of this Order; and (b) on

any future disposition (other than a charge) procure a direct

covenant in the same terms from the person to whom the

[APPELLANT] is to be conveyed.

35. The Landlord shall give all reasonable assistance and co-

operation to the Manager in pursuance of their functions, rights,

duties and powers under this Order, and shall not interfere or

attempt to interfere with the exercise of any of the Manager’s

said rights, duties or powers except by due process of law.

36. The Landlord is to allow the Manager and their employees and

agents access to all parts of the [APPELLANT] and must provide keys,

passwords, and any other documents or information necessary

for the practical management of the [APPELLANT] in order that the

Manager might conveniently perform their functions and duties,

and exercise their powers under this Order.

37. Within 14 days from the date of this Order the Landlord must

provide all necessary information to the Manager to provide for

an orderly transfer of responsibilities, to include the transfer of:

a. all accounts, books and records relating to the [APPELLANT],

including a complete record of all unpaid service charges;

and b. all funds relating to the [APPELLANT] including uncommitted

service charges and any monies standing to the credit of a

reserve or [NAME].

DIRECTION TO CHIEF LAND REGISTRAR

38. To protect the direction in paragraph 34 for procurement by the

Landlord, of a direct covenant with the Manager, the Registrar is

ordered to enter the following restriction in the register of the

Landlord’s estate under title no MX242805. The restriction is to

have overriding priority against any search with priority or

pending application for a disposition of the registered estate

(other than a charge) that has been lodged after the 30th day of

November 2022

“No disposition of the registered estate (other than a charge) by the

proprietor of the registered estate, or by the proprietor of any

registered charge, not being a charge registered before the entry of this

restriction, is to be completed by registration without a certificate

signed by the applicant for registration or their conveyancer that the

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provisions of paragraph 34 of an Order of the Tribunal dated 13 July

2023 have been complied with”

DIRECTIONS TO MANAGER

39. The Manager must adhere to the terms of the Order above.

Registration

40. The Manager must make an application to HM Land Registry for

entry of the restriction referred to in paragraph 38, within 14

days of the date of this Order.

Conflicts of Interest

41. The Manager must be astute to avoid any Conflict of Interest

between their duties and obligations under this Order, and their

contractual dealings. Where in doubt, the Manager should apply

to the Tribunal for directions.

Complaints

42. The Manager must operate a complaints procedure in

accordance with, or substantially similar to, the requirements of

the [NAME].

Insurance

43. The Manager must maintain appropriate building insurance for

the [APPELLANT] and ensure that the Manager’s interest is noted on

the insurance policy.

44. From the date of appointment, and throughout the appointment,

the Manager must ensure that he/she has appropriate

professional indemnity insurance cover in the sum of at least £1

million and shall provide copies of the certificate of liability

insurance to the Tribunal, and, upon request, to any Tenant or

the Landlord. The Certificate should specifically state that it

applies to the duties of a Tribunal appointed Manager.

Accounts

45. The Manager must:

a. prepare and submit to the Landlord and the Tenants an

annual statement of account detailing all monies

receivable, received and expended. The accounts are to be

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certified by the external auditor, if required under the

Leases; b. maintain efficient records and books of account and to

produce for these for inspection, to include receipts or

other evidence of expenditure, upon request by the

Landlord or a Tenant under section 22 Landlord and

Tenant Act 1985; c. maintain on trust in an interest-bearing account at such

bank or building society, as the Manager shall from time

to time decide, into which ground rent, service charge

contributions, Insurance Rent, and all other monies

arising under the Leases shall be paid; and d. hold all monies collected in accordance with the

provisions of the Code.

Repairs and maintenance

46. The Manager must:

a. by 28 days after this order draw up a planned

maintenance programme for the period of the

appointment, allowing for the periodic re-decoration and

repair of the exterior and interior common parts of the

[APPELLANT], as well as any roads, accessways, mechanical,

electrical and other installations serving the [APPELLANT], and

shall send a copy to every Tenant and to the

Landlord; b. subject to receiving sufficient prior funds:

i. carry out all required repair and maintenance required

at the [APPELLANT], in accordance with the Landlord’s

covenants in the Leases, including instructing contractors

to attend and rectify problems, and is entitled to recover

the cost of doing so as service charge payable under the

Leases or in accordance with the Order. ii. arrange and

supervise any required major works to the [APPELLANT],

including preparing a specification of works and

obtaining competitive tenders. c. liaise with all relevant statutory bodies in the carrying out

of their management functions under the Order; and d. ensure that the Landlord, and the Tenants, are consulted

on any planned and major works to the [APPELLANT] and to

give proper regard to their views.

47. The Manager has the power to incur expenditure in respect of

health and safety equipment reasonably required to comply with

regulatory and statutory requirements.

16 Reporting

48. By no later than six months from the date of appointment (and

then annually) the Manager must prepare and submit a brief

written report to the Tenants, and the Landlord, on the progress

of the management of the [APPELLANT] up to that date, providing a

copy to the Tribunal at the same time.

49. The Manager must confirm in his initial report to Tribunal no

later than 6 months from date of appointment, that he has set up

a client bank account for this [APPELLANT] and include with his

report a copy of a reconciliation statement from the appointed

independent Chartered Accountant. All subsequent 6 monthly

reports must include the client account reconciliation with a

brief verification report from the independent Chartered

Accountant.

End of Appointment

49. No later than 56 days before the end date, the Manager must:

a. apply to the tribunal for directions as to the disposal of

any unexpended monies; b. include with that application a brief written report on the

progress and outcome of the management of the [APPELLANT]

up to that date (a “Final Report”); and c. seek a direction from the tribunal as to the mechanism for

determining any unresolved disputes arising from the

Manager’s term of appointment (whether through court

or tribunal proceedings or otherwise).

50. Unless the tribunal directs otherwise the Manager must within

two months of the end date: a. prepare final closing accounts and send copies of the

accounts and the Final Report to the Landlord and

Tenants, who may raise queries on them within 14 days;

and b. answer any such queries within a further 14 days.

51. The Manager must reimburse any unexpended monies to the

paying parties, or, if it be the case, to any new Tribunal

appointed Manager within three months of the end date or, in

the case of a dispute, as decided by the Tribunal upon an

application by any interested party.

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