Restitution for overpaid service charges

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    Restitution for overpaid service charges

    I have just had a First Tier Tribunal hearing for a service charge challenge spanning the years 2014-2016. The FTT confirmed what I suspected - that I had overpaid 10K of service charges and that although the FTT is not in a position to order repayment to me, I might consider making a county court claim for restitution if a letter before action does not result in a refund being made. The freeholder and managing agent are wide boys and I know that they will not volunteer repayment. Has anyone else had to take restitution action before? Any advice?

    The background is this:
    1. In Nov 2014 urgently required major works were due to the building.
    2. In Jan 2015 a Section 20 consultation was done and demands for payment were issued (10K each).
    3. Having studied the lease, I had a feeling that the freeholder was not permitted to demand payment in advance of the major works being completed and I repeatedly informed the freeholder and managing agent of this in writing.
    4. Freeholder and managing agent were unyielding and stated that they would not commence the major works until all monies had been collected from leaseholders.
    5. All 5x flats in the building were experiencing water ingress because all of the external walls and the roof were in very poor condition.
    6. My top floor buy-to let flat was experiencing water ingress every time it rained. My tenant left because of this and I had to leave the flat empty because it had become un-inhabitable.
    7. In May 2015, under pressure to get the major works done so that I could re-let my flat, I paid 10K towards the cost of the major works. When doing so, I sent another email to the managing agent and freeholder stating that the lease did not permit them to demand the money in this way and that I would be 'reserving my position' on the money paid.
    8. The remaining 4x leaseholders made no contribution to the major works.
    9. In June 2016, the major works still had not been done. I wrote to the freeholder and managing agent demanding repayment of the 10K and repeating that they had no right to the money in the first place. The freeholder and managing agent declined to repay.
    10. In July 2016, I sold the flat through auction (at a thumping loss because it was in poor condition because of the constant water ingress). The auction legal pack informed the buyers that major works were due to the building.
    11. In 2017/18 the freeholder/managing agent took county court action against the other 4x leaseholders for non payment of the major works demands. The freeholder/managing agent succeeded in getting judgment in default against all 4x leaseholders.
    12. In 2018, the freeholder/managing agent allegedly made emergency roof repairs. I use the term 'allegedly' because the roof continues to leak to the present day and the itemised invoice presented for the alleged roof repairs states a contractor name; address and phone number. Neither the contractor name; address or phone number actually exist.
    13. The freeholder/managing agent state that the alleged emergency roof repairs cost £9,500.
    14. The freeholder/managing agent confirm in writing that not a single element of the major works specification was undertaken during the course of the alleged emergency roof repair.
    15. At the FTT hearing, the freeholder/managing agent proudly stated that the alleged emergency roof repair was funded by the reserve funds - AKA my contribution to the major works!
    16. At the FTT hearing, the freeholder/managing agent also stated that the reserve fund is now empty.
    17. The FTT decision report states that the lease does not permit the collection of reserve funds (I suspected that all along).
    18. The FTT decision report states that the lease does not permit the advance collection of money for 'non recurring costs', such as major works (I suspected that all along).
    19. The FTT decision report states that under the terms of the lease, the freeholder is meant to pay for all non recurring costs from his own funds and then recover the cost from leaseholders after the works have been completed.
    20. To the present day, the major works have still not been commenced.

    #2
    Forgot to add to the above that there were numerous other overpayments made. The FTT decision report disallowed all the reserve fund charges (£1,000 per year for the whole development). The FTT also reduced the management fee from £1875.00 per year inclusive for the whole development to £540 per year inclusive for the whole development. In making such a large reduction to the annual management fee, the FTT decision report stated that there had been "deficiencies" in the managing agent's work - referring to the managing agent's unrelenting mis-application of the lease.

    I have written evidence of having paid all of these service charges under protest ...

    Comment


      #3
      I would formally ask for a repayment from the person who charged you, presumably the freeholder.

      I would make enquiries to see if the freeholder is able to pay you if you take out a county court claim against him. Does he have any other assets apart from the freehold interest? If a RMC had charged you, it would almost certainly not have the funds to repay you and there would be no point in issuing a county court claim.

      I would complain to the managing agent and to the redress scheme if you do not receive a satisfactory response. I would also contact your local MP.

      This is a warning to those people on here who advise leaseholders to pay all monies demanded before taking action through the FTT or the court.

      Comment


        #4
        Originally posted by eagle2 View Post
        I would formally ask for a repayment from the person who charged you, presumably the freeholder.
        I intend to commence with a letter before action asking for repayment within 14 days. I doubt that this would be forthcoming though. The FTT decision report was released 2 months ago and the freeholder has not approached me to make any offers. I think that he is burying his head in the sand about the whole thing ..

        Originally posted by eagle2 View Post
        I would make enquiries to see if the freeholder is able to pay you if you take out a county court claim against him. Does he have any other assets apart from the freehold interest? If a RMC had charged you, it would almost certainly not have the funds to repay you and there would be no point in issuing a county court claim.
        Yes, the freeholder is a third party limited company with a total of 25 properties under its ownership. Some of the properties are low value as they are only ground rent investments. Some of the properties are high value though - such as mixed use properties where the commercial tenant pays a rack rent to the freeholder. The reason that I know all of this is because I have placed charges against some of the higher value properties that the freeholder owns. Why? I took county court action against the freeholder for breach of the repair and maintenance covenants, resulting in loss of rental income and loss in sales price for the flat. I won this county court action by a landslide in late 2018 and was awarded a CCJ against the freeholder. I used the CCJ to place unilateral notices/charges on some of the freeholder's properties so that the freeholder could not simply 'phoenix' the company and run off without paying me the amount of the judgment. The service charges were not a feature of the county court action. I decided to take that element to FTT instead as I did not believe that the county court would want to handle the service charge elements. Now that the FTT have determined the service charge matters and the quantum of my overpayment is 'known', the county court will be more able to deal with the restitution issue.

        Originally posted by eagle2 View Post
        I would complain to the managing agent and to the redress scheme if you do not receive a satisfactory response. I would also contact your local MP.
        I will definitely consider doing this.

        Originally posted by eagle2 View Post
        This is a warning to those people on here who advise leaseholders to pay all monies demanded before taking action through the FTT or the court.
        Not sure about that. At least by having paid up what was demanded (albeit under protest and duress) the freeholder was not been able to obtain a CCJ against me. The 4x other leaseholders have had their credit reports dented for what now turns out to be no good reason. The freeholder/managing agent played the usual trick of sending the court papers to the flat addresses when they were perfectly aware that none of the leaseholders actually live in the flats - they are all BTLs. Hence the default judgments ...


        Comment


          #5
          You should ask your local MP to send "full details of your service charge problems" plus FTT judgement to :

          ( 1) Housing Minster who is presently gather evidence for preparing new laws on leasehold reform and

          ( 2) APPG for leasehold reform in Parliament .

          Comment


            #6
            You were right to take the service charges to the FTT, the court would have transferred the case anyway. I agree that it should be safe to start legal action against the freeholder if he does not settle the amount payable. You may end up owning the freehold. All leaseholders should ensure that correspondence addressed to them at the flats is forwarded to them.

            Comment


              #7
              Originally posted by eagle2 View Post
              You may end up owning the freehold. All leaseholders should ensure that correspondence addressed to them at the flats is forwarded to them.
              This property is one of the low value ones that I referred to earlier. I would not like to own this freehold. The unilateral notices/charges that I have placed on the higher value properties that are owned by the freeholder are not for the purposes of owning those freeholds either. It was explained to me that my charging orders mean that I can request 'orders for sale' against the properties to compel the freeholder to pay the judgment that I have been awarded.

              Going back to the restitution issue, do you think that there are any defences that the freeholder could successfully use? I expect the freeholder to argue that he has already spent my 10K overpayment on the alleged 'emergency roof repairs' ...

              Comment


                #8
                You have the FTT decision and I assume that the freeholder has not lodged an appeal within the time limit. The freeholder then has no defence for settling the sum awarded in your favour. Having spent money is no argument, in theory he can recover it from the current leaseholders. You are right to take out charges against his assets. With freeholds, he cannot sell and disappear overnight. I am not surprised that you would not want the freehold interest in the property mentioned but at least you could sell it.

                Comment


                  #9
                  Originally posted by eagle2 View Post
                  I assume that the freeholder has not lodged an appeal within the time limit.
                  No, the freeholder did not request permission to appeal the FTT decision. This surprises me somewhat because there are quite devastating further implications for the freeholder apart from my own restitution claim. Although none of the other 4x leaseholders were parties to my FTT action, these other 4x leaseholders will expect the same reductions and disallowances that the FTT determined for me to be applied to their own service charge accounts. In addition (if you recall) these 4x leaseholders have all had default judgments issued against them for non payment of the major works demand. I expect that the content of my FTT decision report will now open up a whole slew of litigation against the freeholder.

                  Comment


                    #10
                    It is surprising how many leaseholders fail to follow up a previous decision and that is what the freeholder will be relying on. Another Tribunal may not arrive at the same decision, although it is difficult to imagine in this case, the cost and inconvenience are all factors which seem to persuade leaseholders to do nothing.

                    Comment


                      #11
                      The FTT decision report implied that there would not have to be another hearing for the other 4x leaseholders to be granted the same reductions and disallowances that I was granted. The FTT implied that since all 5x leases are exactly the same and the reductions and disallowances were based on service charge costs for the building as a whole, all that would be required is a fresh, joint application from the other 4x leaseholders referring to the determinations made in my own FTT case.

                      If I were in the shoes of the other 4x leaseholders (having had judgment in default entered against me for something that was then determined to be unrecoverable under the terms of the lease) I would waste no time in petitioning the FTT (after, of course, obtaining set aside from the county court for the judgment in default). With the FTT decision report in hand, set aside would be virtually guaranteed.

                      Comment


                        #12
                        I had something similar happen to me. I was charged for years for directors and officers insurance and the Tribunal decided that the lease did not allow for this charge at all. The Tribunal said that I was due repayment of these contributions even if the RMC had 'used' the money to pay for directors and officers insurance. The Tribunal decision did not do much good though as the RMC had no funds to make any repayments!

                        At least you appear to have a separate entity as your freeholder. And no, there is no possible defence that they can make to state that they should not repay you.

                        Comment


                          #13
                          Can a claim be brought in the FTT against a managing agent (not party to the lease) who collected service charges improperly?
                          They did this without the authorisation of the RMC directors.

                          Comment


                            #14
                            I wouldn't think so. I would think the directors would have to take County Court action against he agent.

                            Any FTT claim would be against the management company who would then have claim any resulting losses against the agent.

                            Comment


                              #15
                              Originally posted by Lorimer View Post
                              Going back to the restitution issue, do you think that there are any defences that the freeholder could successfully use? I expect the freeholder to argue that he has already spent my 10K overpayment on the alleged 'emergency roof repairs' ...
                              I'm no expert, but might this help? As you say the freeholder used your money for emergency repairs that didn't include any elements of the work for which the money was collected.

                              s.42(7) Landlord and Tenant Act 1987 7.6 … Service charge payments… must only be used to meet the expenses for which they have been collected.

                              Comment

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