Update on legal proceedings following the Tribunal's decision to appoint a manager to remedy management failings of the landlord.
** Update 17th June **
Following the three-day hearing on 4th-6th June and a site visit on 12th June the Tribunal determined that it is not ‘just and convenient’ to appoint either Mr Duncan Rendall/Mr Richard Daver (nominated by the Landlord, CREM) or Mr Jonathan Edwards (nominated by Palm Trees Paradise Holdings) as the s24 Manager to replace Mr Coates. Regrettably Mr Felix Keen (nominated by Leaseholders represented by RACR) had found it necessary to withdraw his nomination on 10th June.
The FTT has directed the parties to nominate an alternative manager, and their applications will be heard on July 8th.
Following recent correspondence sent by CREM to lessees we wish to remind residents of some of the reasons stated in the Tribunal’s decision when they removed CREM (our landlord) from the management of Canary Riverside.
CREM was criticised for failing to engage with leaseholders. They are now seeking to criticise the tribunal-appointed manager for doing exactly that. They allege that, by engaging with residents and RACR, Mr Coates (who was appointed to manage the residential buildings) is somehow not being ‘impartial’. Strangely enough, the only place CREM has not made that allegation is at the FTT - the tribunal responsible for ensuring Mr Coates is impartial.
Update 19th April
The Tribunal has issued:
A supplemental decision and varied Management Order, incorporating the FTT’s decision in respect of further representations made by the parties following the hearing of 4th December 2018. This Order, dated 12th April 2019, supersedes all previous versions, and is in effect until 30th September 2021.
Update 27th March:
The Tribunal has issued further directions in respect of the Manager’s application to be discharged, which vary some of the dates set out in the original directions dated 15th March. These further directions, dated 22nd March, can be found here.
RACR has received a letter from CREM regarding RACR’s letter of 18th February concerning fire safety. It appears that CREM is continuing its injunction action against Mr Coates following the (withdrawn) LFB fire safety notice.
Update 22nd March 2019:
(1) Tribunal issues Directions in respect of the applications to discharge Mr Coates as the S24 manager.
FTT directions in respect of Mr Coates’ application
The FTT has issued directions in respect of the application by Mr Coates, the current tribunal-appointed manager, seeking to be discharged on the grounds of: his health; the extent of litigation that has followed his appointment, which he asserts has been driven by the landlord’s overzealousness; and the poor financial situation.
The FTT’s directions can be found here - and a copy of the original application submitted by Mr Coates to the FTT here. In addition, Mr Coates has submitted his ‘Manager’s review - March 2019’ report to the FTT, which can be found here.
The Tribunal has listed this application together with that made by Palm Trees Paradise Holdings Ltd (see below) and a three-day hearing will take place on 4-6 June inclusive.
Additional directions in respect of Palm Trees Paradise Holdings’ application
The Tribunal has issued further directions in respect of the PTPH application to discharge Mr Coates. These directions can be found here. The Residents’ Association recommends that lessees oppose the application. Please contact us for further information on how you can do this, including a copy of a Word version of the FTT’s form that can be emailed. The form should be returned to the FTT by 8th April.
(2) Letter detailing experience of PTPH proposed S24 manager
In accordance with the FTT’s directions the manager nominated by Palm Trees Paradise Holdings, Mr Edwards, has submitted a short statement detailing his relevant experience. This can be found here.
Mr Edwards resides in Shrewsbury and is currently the tribunal appointed (S24) manager in respect of a retirement development of 36 flats in Essex. He intends to appoint HLM* Croydon as the managing agent. No information is provided regarding Mr Edwards and HLM Croydon’s experience of managing large mixed-use estates like Canary Riverside. HLM Croydon are part of HLM, who do not appear to be members of ARMA.
*HLM are not to be confused with the current managing agent HML.
Background to the Section 24 appointment of a Manager
Following an application by 124 leaseholders to the First Tier Tribunal, responsibility for the management of Canary Riverside was removed from the landlord (CREM) and placed with an independent manager, accountable to the Tribunal. The Tribunal found that there had been serious default by the landlord in respect of breaches of the lease, and this warranted placing the management of the estate in the hands of an independent person.
The Management Order is the official document that sets out the scope of the manager's responsibilities, and the legal basis of the appointment is set out in Section 24 of the Landlord and Tenant Act 1987. The Tribunal's S24 decision stating its reasons why a manager should be appointed can be found here.
Because of the mixed-use nature of Canary Riverside, leaseholders here were unable to apply for Right to Manage or Enfranchisement. This left Section 24 as the only option available to deal with CREM’s poor management of the estate. Other developments that have had a S24 manager appointed include our neighbours at Cascades, and Charter Quay, a large mixed-used estate on the Thames in Kingston.
Following the FTT's decision to appoint a manager, subsequent applications were made in late 2016 by both CREM and the manager to vary the management order. These applications have been the subject of further hearings during 2017 and 2018.
This webpage provides updates on these legal proceedings: the most recent legal update can be found at the top of this webpage, and previous updates can be found by scrolling down.
21st February 2019: Tribunal issues letters in respect of its 4th December 2018 Decision and Directions in respect of Application by Palm Trees Paradise Holdings Ltd.
FTT letters re variation of the Management Order
Following correspondence from the parties the FTT has issued two letters seeking to clarify the FTT Decision dated 4th December 2018.
In its letter dated 20th February the FTT seeks to distinguish between its determinations/decisions and comments/opinion. By way of example the letter confirms:
It is the Tribunal’s view that the parties should not apply set-off, eg, Mr Coates should not set-off the insurance premium payable to CREM against service charges due from CREM.
It is the Tribunal’s view* that CREM should pay service charges demanded and challenge them at the FTT if they consider a determination of payability is required. * This is the second letter received from the FTT.
In respect of CREM’s demand for £380,000 p.a. for Residential buildings insurance, the FTT has declined to order CREM to provide to Mr Coates with documentation and schedules supporting the demand. Instead the FTT has said Mr Coates should either appeal to the FTT or apply to the FTT for such a determination. Having determined on appeal that CREM should retain responsibility for buildings insurance it is astounding that the FTT does not find it necessary to direct CREM to provide the associated supporting documentation - instead the FTT appears to be inviting yet more litigation in order that Mr Coates and/or lessees can obtain information that CREM should be providing.
This schedule is the sum total of information provided by CREM in support of the £380,000 annual premium payable by residential lessees. For such a complex estate it is hard to believe that Allianz have ‘lumped together’ the hotel, apartment blocks, gym etc into a single valuation. By contrast, leaseholders at the neighbouring Landmark E14 buildings receive this detailed schedule in support of the insurance premium demanded.
Directions in respect of Palm Trees Paradise Holdings Ltd application to vary the Management Order
The FTT has issued directions in respect of the application by a leaseholder, Palm Trees Paradise Holdings Ltd (PTPH) to remove Mr Alan Coates as the Tribunal-appointed manager and replace him with Mr Jon Edwards. The FTT’s directions can be found here - which includes the form that lessees can complete and return to the FTT opposing the application - and a copy of the original application submitted by PTPH to the FTT here.
The Residents’ Association recommends that lessees oppose the application. Please contact us for further information on how you can do this, including a Word version of the FTT’s form that can be emailed. The form should be returned to the FTT by 28th February.
31st January 2019: Tribunal issues Decisions in respect of 3rd December 2018 hearing (variation of the Management Order) and a costs application
Decision - variation of the Management Order
The FTT’s decision (dated 4th December 2018) was issued on 30th January 2019 and can be found here.
Both Mr Coates and the landlord/freeholder had proposed variations for the FTT to consider. The FTT’s determination includes the following decisions:
CREM/Octagon cannot recover their costs of complying with the Management Order [from lessees]. The judge noted that “they are costs incurred as a consequence of CREM’s breach of its management obligations” [para 44].
A licence granting Mr Coates the use of the Security Office was agreed at a cost of £500 plus VAT (to cover the legal costs of drawing up the licence) [para 39].
CREM/Octagon did not act unreasonably when it decided to license various common areas within the estate [previously used in the management of the estate] to third parties [landlord-owned companies] [para 36].
CREM/Octagon should provide to Mr Coates an explanation and the underlying documentation supporting the charge of £380,000 to residential lessees in respect of buildings insurance [para 65].
Mr Coates is empowered to set up a fund/float to enable him to demand advance payment of the insurance premium from leaseholders so that he has the funds available by 1st April in order to be able to pay CREM/Octagon the insurance premium demanded at that date [para 63].
CREM/Octagon and Mr Coates should each comply with all reasonable requests [made by the other] in respect of meeting statutory obligations [para 55].
Decision - costs application
The FTT’s decision (dated 16th January 2019) was issued on 29th January 2019 and can be found here.
The application had been made by:
CREM [the landlord];
John Christodoulou [a lessee and the beneficial owner of CREM and Octagon];
Everest Investments Trading Ltd [a lessee, registered in the British Virgin Islands]; and
Octagon Overseas [the freeholder].
following Mr Coates’ decision to withdraw the S20ZA application in respect of replacing the electricity meters.
The FTT determined in favour of Mr Coates:
“I do not consider it just and equitable to make a s.20c order in this case. In my judgement, the evidence before me suggests that Mr Coates, at all times, acted in good faith…” [para 39] “I do not accept that it is appropriate to make a rule 13 (1(b)) costs order” [para 44].
Update following FTT hearing (variation of the Management Order) on 3rd December 2018
The issues before the FTT were summarised in each party’s Scott Schedule. A number of issues had been agreed between the parties, leaving a relatively small number of outstanding issues for the FTT to determine.
The manager had one issue before the FTT, relating to the withdrawal from use 11 areas previously used in the management of Canary Riverside (office, workshops, storage, staff welfare etc). CREM had licensed these areas to various companies, all of which appeared to be related to the freeholder’s group of companies.
it was agreed that the FTT had no jurisdiction to cancel the licenses and return the ares to use in the management of the estate.
the manager’s barrister (‘MB) stated that CREM had only disclosed correspondence in respect of 2 of the 11 licenses. CREM’s barrister (‘CB”) stated that his client had complied with the disclosure direction. This enhanced the lessees’ suspicion that the licenses had been granted primarily in order to prevent the manager from having access to these areas, thereby impeding the efficient management of the estate. CREM had claimed they were commercial licenses made in order to satisfy loan covenants.
CB reiterated CREM’s claim that the manager had no right to occupy the security offices and that he required a licence to do so. MB pointed out that security was required per the leases. The lessees pointed out that the concierge offices were no different and queried whether CREM would also be claiming the manager required permission to use these areas.
CB asked that the manager be directed to pay the legal fees of drawing up an occupational licence, adding that to date he had refused to pay. MB stated CREM had refused to provide details of the fees. The FTT stated that a simple agreement should surely cost no more than £500 - to which CB replied ‘does that include VAT?’.
FTT’s determination awaited in respect of further disclosure and whether licence required to occupy security and any other common areas made available to the manager.
CREM’s list of issues included:
Whether CREM was entitled to recover it's “reasonable” costs of complying with the Management Order:
FTT stated it was unaware of any order that had previously been made with such a provision
when asked by FTT for the level of costs CB replied no schedule yet existed. CB said there were two points: a) the costs at handover, which had not been done by Marathon Estates b) on-going costs of complying.
Lessees stated it would be unfair to make them pay when it was CREM’s breaches/poor management that led to the Order being made.
FTT’s determination awaited as to whether CREM is entitled to all/part/none of its costs.
A request to direct the manager to pay invoices due for works carried out prior to 1 October 2016.
MB stated that for a number of the disputed invoices there were no purchase orders or details of whether the works had been undertaken, and to a satisfactory standard
CB claimed CREM was being sued in respect of various debts.
FTT to determine.
Including within the MO specific dates on which CREM/its representatives (and leaseholders) would be allowed to inspective the accounts and underlying records.
dates were discussed for inclusion in the Order
[NB: leaseholders had never been given access by CREM to inspect past accounts’ supporting documents, and following the S24 appointment CREm has failed to respond to lessees’ requests]
Asking the FTT to direct that the manager pay to CREM in full on 1st April the residential part of the buildings insurance premium (c. £330k).
MB raised the matter of service charge and electricity arrears payable by the hotel and apartments owned by CREM and/or the freeholder. The manager would pay provided CREM/the freeholder/the hotel paid their arrears and future service charges demanded.
It became apparent that the FTT judge did not understand that CREM had been granted permission by the FTT to place the insurance [and thereby retain the significant commissions earned] and that the manager was directed to process insurance claims - a responsibility for which it received no compensation [ordinarily this was what commissions were intended to cover - with commissions payable to either the broker of the placer of insurance, depending on who processed claims].
FTT to determine.
This concluded the outstanding issues in respect of the MO and the FTT did not need to convene for a second day.
Tribunal hearing on 3rd & 4th December (variation of the Management Order)
An FTT hearing is to go ahead on Monday 3rd & Tuesday 4th December at 10 Alfred Place in order to deal with outstanding issues between the tribunal-appointed manager (Mr Coates) and the landlord (CREM).
Issues before the tribunal include:
access by the manager and HML to on-site office, staff welfare, workroom and storage facilities which had for the previous 16 years been used in the management of the estate and which were withdrawn from estate use by the landlord.
whether the landlord should be entitled to recover its costs of complying with the management order from the service charge.
whether a penal order should be made against the landlord for failing to provide accounting information and electricity accounts to the manager.
It is regrettable that, more than two years after the management order took effect, disagreements continue which are having a fundamental impact on the management of the estate.
The objective of a Section 24 appointment is to provide leaseholders/the estate with a remedy to the past management failings of CREM. It is the FTT’s responsibility to ensure that an order is in place that facilitates this.
We hope that at this hearing the FTT will assert itself and bring closure to this costly dispute so that the management order is able to deliver management which is in the best interests of all stakeholders at Canary Riverside.
July 2018 update: new 5-year Management Order agreed. Lessees' appeal against FTT's decision re sales packs, lease assignments and consents rejected.
A new Management Order is now in force, which will end on 30th September 2021.
A Tribunal hearing took place on 16-18thJuly. The FTT was asked to make changes to the Management Order (MO) and address issues raised by the Tribunal-appointed Manager. The main issues agreed at the hearing include:
The Manager's appointment has been extended to five years, and now ends on 30th September 2021.
The FTT confirmed the Manager is responsible for maintaining/repairing roofs and the building exteriors and amended the MO for the avoidance of doubt.
An understanding was reached confirming that the Manager provides services to Circus Apartments.
A timetable was set for the agreement of outstanding transitional financial issues.
CREM/Octagon will arrange a payment of £400,000 in respect of service charges within 7 days.
Variations to the MO were agreed between the parties in order to facilitate good and co-operative estate management by the Manager of the premises. Judge Vance’s Decision following the hearing can be found here.
While a few issues remain we hope that this hearing has ended the majority of CREM's challenges to the MO that were impeding the management of the estate by Mr Coates and HML. It is now clear to all parties what the scope of the order is and who is responsible collecting service charge monies. The FTT has given directions to the parties regarding the remaining issues and applications. It is hoped that these can be resolved over the coming months: if required, another hearing will take place on the 3rd & 4th of December.
There are a few areas that remain unsatisfactory to the lessees. For example, we still have not been given access to the accounting records for the 2013-2016 accounting periods, and are concerned about the provision of information to support the buildings insurance charges - the cost of which, equating to an average of > £1,000 per flat p.a., appear excessive/unreasonable.
The FTT has rejected the lessees' appeal against it's previous decision that the Landlord should be given responsibility for providing lessees sales packs, lease assignments and consents to alter. The FTT decision can be found here.
This decision is very disappointing: it is likely to lead to increased costs for lessees, particularly if there is no agreement reached between CREM and the S24 manager/HML in respect of an equitable allocation of fees in respect of the work required. For example, with respect to sales packs a significant amount of information required by the standard "LPE1" enquiry form relates to service charges, planned major expenditure, account arrears etc, which is information held by the managing agent. We have asked CREM to confirm their intended charges to lessees for sales packs, lease reassignments and consents to alter.
The sections below are past updates on Tribunal and other legal proceedings following the Tribunal's decision to appoint a manager.
12th July 2018 update:
Following another application made yesterday by the Landlord to try and delay next week's hearing dealing with the disagreements over Management Order the Tribunal today issued its Decision confirming that the hearing will proceed as planned.
Judge Vance said: "I agree [with the leaseholders] that further delay will result in significant prejudice to the s.24 applicant leaseholders in resolving these long-running issues and that this weighs against postponement. A postponement has already been refused by Judge Powell on 3 July 2018...and a postponement at this stage would result in an unjustifiable waste of the tribunal's limited resources that deprives others of their proper entitlement"
6th July 2018 update:
There are three updates to report:
Hearing scheduled for 16th-19th July for the Tribunal to consider the Manager's application to vary the Management Order
Leaseholders' appeal against the FTT's decision that responsibility for sales packs/lease assignments and consents to alter remain with the landlord
Dismissal by the County Court of the landlord's allegations that the Manager was not being impartial and was working to the benefit of residential leaseholders
1. Manager's Application to amend the Management Order: hearing on 16th - 19th July 2018
The Manager's original application to vary the Order was made in November 2016. However, because it has taken the Tribunal over a year (and 8 days of hearings) to deal with the Landlord's application to vary the Order (and subsequent appeal by the Landlord) the matter remained unheard.
In March this year the Tribunal set aside four days in July to hear the Manager's application, and despite the Landlord's last-minute attempt this week to have that hearing adjourned, the Tribunal determined that it must proceed.
The hearing will take place at FTT at 10 Alfred Place, WC1E 7LR. Matters being dealt with include the Landlord's claims that:
The Manager is not responsible for maintaining the exterior and roofs of the residential buildings, and that this is the landlord's responsibility. The lessees strongly disagree that this is the intention of the Tribunal and the Order. The s.24 hearing dealt with the landlord's failure to maintain the estate including the exterior of the buildings, and notably the leaking windows and issues with roofs.
Circus apartments do not share any services with the residential buildings - and therefore should pay its service charges to the Landlord and not the Manager. Ditto the Commercial tenants. Given Circus is part of Eaton House and contributes over 10% of the Residential service charge it is hard to comprehend the Landlord's claim.
The Landlord should be paid costs (out of the service charge) for complying with the court order that removed it from the management of the estate. This would penalise leaseholders, by making them incur additional costs that arise solely as a result of the Landlord's failure to properly manage their estate.
It appears the Landlord is seeking to break up the management of the estate (with an associated increase in costs), despite having previously argued to the Tribunal that the estate was designed and built to be managed as a single entity. Its actions appear only to serve its own interests, and are not in the best interests of the estate or its occupants.
A statement has been submitted to the Tribunal on behalf of the s.24 leaseholders, who will be represented at the hearing. You can find the written submission here, and part 2 of the exhibits referred to here.
2. Leaseholders' appeal against the Tribunal's decision re. assignments and consents to alter
The s.24 leaseholders have appealed the Tribunal's decision that the Landlord should be responsible for sales packs, lease assignments and consents to alter. Their submission can be found here.
In respect of sales packs, all of the information that is required has to be supplied by the managing agent: by placing responsibility with the landlord, lessees are at risk of additional delay (with the Landlord having to ask HML to supply the necessary information) and of having to pay two sets of fees: to cover HMLs' costs of providing the information, and the Landlord's fee for passing this on to the lessee's solicitor. Sales packs should be issued (and the lease reassigned) only if the lessee has paid all outstanding service charge demands: this is best dealt with by HML, who are responsible for the service charge.
In respect of consents to alter, the Landlord's excessive fees (£2,500 per consent plus a £2,500 refundable deposit to cover damage to common parts) were raised by the leaseholders in their evidence at the s.24 hearing.
3. Dismissal by County Court of Landlord's claims against the Manager
As reported below (see April 12th update) the Landlord had taken legal action against the Manager alleging that he lacked independence and was managing the estate to the benefit of a few residential leaseholders.
The County Court threw out the charges in May, with the Judge apparently asking the Landlord's counsel 'what planet he was on'. The draft order of the Court can be found here. The Judge also refused to grant the Landlord their costs.
30th May 2018 update:
The Tribunal has now issued its review decision following CREM's appeal against the FTT decision issued on 29 September 2017 in respect of CREM's application to vary the management order. [Please see previous legal updates]
Judge Vance has determined that:
responsibility for dealing with assignments [of the lease on a change of owner] and application for consent under the residential leases lies with the landlord and not the manager.
the term of the Order shall be for the three years as originally determined by the FTT [i.e., ending on 31 September 2019].
it was not agreed that CREM should be entitled to their costs for complying with the management order.
It was not agreed that the manager should be reporting to the FTT [or CREM] on a quarterly basis.
We are disappointed that the FTT has determined that responsibility for lease assignments and consents to alter should be the responsibility of the landlord, and will be considering our position. Lessees may recall that the landlord has charged lessees £2,500 per approval (licence to alter) together with a £2,500 refundable deposit in respect of damage to common areas.
In his decision [para 29] Judge Vance states that the suggestion by the Tribunal in their letter to lessees stating the manager "had stepped into the shoes of the landlord" was incorrect. This is at odds with the guidance provided by LEASE, the government-funded body providing independent advice to lessees - see here.
**Open letter from RACR to CREM - 24th April 2018**
We have sent an open letter to CREM in response to the letter they sent to lessees on 12th April which, in our view, seeks to misrepresent the current situation. You can read our letter here.
12th April 2018:
1. Submissions made to the Tribunal following the Landlord's appeal against the new Management Order: the leaseholders have made their written submission to the Tribunal as directed by Judge Vance, in respect of the review of the Tribunal's 29th September 2017 decision and new Management Order. The key issues under review are the length of the Order (the Tribunal extended it by 11 months), and whether, under the Order, responsibility for consents to alter, sales packs, lease assignments etc are the manager's or the landlord's. The Tribunal clarified that it was their intention that the manager be responsible. The landlord has challenged the decision to extend the term of the Order and the responsibilities in respect of consents etc.
The landlord will make its final submission to the Tribunal on 18th April and lessees will then await the Tribunal's ('paper') determination. The landlord stated at the hearing that they will appeal the decision if it is not in their favour.
2. Manager's application to vary the Management Order: the Tribunal has set a hearing date for w/c 16th July. It should be note that the manager originally submitted his application to vary the Order 16 months ago - on 17th November 2016, i.e., three weeks after the landlord submitted their application to vary. The Tribunal decided to hear the landlord's application first, and has yet to deal with the manager's application.
3. Fire alarm panels s20ZA dispensation: the manager carried out emergency works to replace fire panels and applied to the Tribunal to dispense with s.20 consultation. The FTT issued its determination granting dispensation on 28th March 2018. In response to the landlord's criticisms of the manager, Judge Vance commented "...leaseholders received a clear explanation as to why the works were required as matter of urgency and we see no reason to criticise the Manager's communication with leaseholders nor his compliance with our directions".
4. Electricity meter replacement s20ZA dispensation: the hearing date set for 31st May 2018 was unexpectedly cancelled by the Tribunal, following the unavailability of Judge Vance on that day. Having obtained 'dates to avoid' from the landlord and the manager, the Tribunal has rescheduled the hearing for 31st July 2018. It is unfortunate that this application, made over a year ago by the manager, is taking so long to be heard.
5. County court proceedings: as previously reported, the landlord and associated companies appear to be claiming in the County Court that the manager is not acting independently, leading to the (incontrovertible) declaration by the County Court that "the [manager] must exercise his powers as manager in accordance with the terms of the Management Order and in a non-discriminatory and independent way, in the interest of all lessees and tenants of the Estate and not in the interests of only some of the lessees and tenants or in his own interests".
Claims by landlords that a s.24 manager lacks independence are commonplace following s.24 appointments, as anyone familiar with our neighbours in Cascades will know. It is important to recall the reasons why a s.24 manager was appointed in the first place.
The s.24 appointment was made as a result of the landlord's failure to properly manage our Estate, with financial issues being top of the list of concerns raised with the FTT. The Tribunal found that the landlord placed no real importance on accounting for service charges; utilised money from the service charge account to which it was not entitled; had heavily redacted accounting records so as to make them of little use to leaseholders; and had only begun to address issues such as the outstanding accounts because of the s.24 application.
In respect of the landlord's case in the High Court regarding having allegedly been 'locked out, it is understood that the issue was in respect of the access cards that provide entry to the estate and buildings. It is understood that the manager sought to control the landlord's and associated companies' (eg Tower Quay lettings) access to the buildings of the estate by requiring them to be buzzed in by security/concierges, instead of having access cards. The High Court judge determined that some 50 access cards should be made available to the landlord's companies, giving the holders access to all of the residential buildings.
6th March 2018
The FTT convened for a case management hearing (CMC) on March 6th 2018, in front of Judge Vance. The matters being considered included:
an 'application to vary' by the landlord to prevent the manger registering the Order with the Land Registry (intended to ensure successors in title are bound by the Order).
a revised 'application to vary' the Order made by the manager. NB: His original 'application to vary', which was made 16 months ago (in November 2016, immediately after the Landlord's application to vary) had still to be heard by the FTT. In view of the landlord's application having been heard, resulting in the September 2017 decision and the new Management Order, the manager has updated and re-submitted his application.
Following the CMC Judge Vance issued these directions. At the CMC, the manager's counsel and the leaseholders' representative argued that the review of the September 2017 decision should take place at the same time as the hearing for the manager's (long-outstanding) application to vary the Order. The leaseholders argued that not to do so would further delay the final agreement of the Management Order (given that the review decision may be appealed), and increase further the legal fees being charged to the service charge. There has already been over £300k charged to lessees in 2016/17 and similar amounts budgeted in the 2017/18 and 2018/19 service charge budgets. It is unacceptable that leaseholders should be penalised following a successful s.24 application because the Tribunal has not been able to enforce an effective scheme of management by way of an agreed Management Order.
The landlord's loan
The landlord continues to contend that their loan with Santander (which is secured against the residential head lease) places substantial restrictions on the FTT's powers in respect of the scope of the manager's responsibilities and powers per the residential leases. For example, CREM alleges that the manager cannot issue sales packs, lease reassignments or consents to alter in respect of the residential underleases, because this would place them in breach of their loan. The s.24 applicant lessees dispute this: Santander should have no say in the management of residential underleases, which includes consents, lease reassignments etc. CREM did not raise this issue at the original s.24 hearing: the only concerns raised were in respect of the commercial leases, in particular the collection of rents and granting of consents, and this was dealt with by the FTT in making its Order.
In his book 'Leasehold Disputes', the Landlord's barrister Justin Bates writes: "Because the role of the Tribunal is to create an effective scheme of management, rather than simply require the manager to discharge the landlord's obligations under the lease, the manager may be given the power over property owned by the landlord, but which is not part of any of the flats demised to the tenants". This was the lessees' expectations when making the s24 application, and they await the implementation of an Order that ensures the Tribunal-appointed manager has the powers that enable effective management.
It appears that the Landlord is claiming that the manager is not acting independently as a servant of the Tribunal but is allegedly placing the interests of the residential lessees above that of other stakeholders in the estate. There is no substance to this allegation, which appears to be an attempt to smear the manager and the residential lessees, and also to incur further legal fees (with the manager having to respond to the allegations in court). For example, this letter was sent to the FTT in October 2017 but not copied to lessees - thereby denying them any right of reply to the false accusations it contained. It was only disclosed to lessees on 2nd March 2018, as part of the bundle of documents for the CMC.
The Landlord's continued challenges to the scope and content of the Management Order and allegations of impartiality are, in our view, undermining the manager's ability to provide the effective management of Canary Riverside estate, which is what the s24 application sought to achieve. The manager's focus must be on managing the estate, and not on responding to legal advisers and tribunal actions. It is 17 months since the Tribunal appointed the manager, giving him "the power and duty to carry out the obligations of the Landlord contained in the Leases" and "all such powers and rights as may be necessary and convenient and in accordance with the Leases to carry out the management functions of the Landlord".
CREM (joined by other landlord-related companies) applied for permission to appeal the FTT's decision of 29 September 2017. In a decision dated 12 January 2018 the FTT president refused permission to appeal, and instead determined that the FTT should review its decision. Directions have subsequently been issued by Judge Vance, who has replaced Ms Hamilton-Farey as the chair of the FTT panel dealing with Canary Riverside matters.
A review is a more restricted legal process than an appeal, looking at technical legal issues rather than revisiting the evidence originally heard by the Tribunal.
26th October 2017:
The Tribunal has issued its new Management Order (referred to in our July update below) together with the accompanying Decision. The new Management Order took effect on 1st September 2017 and runs through to 31st August 2020. This means that Mr Coates is responsible for the management of the services provided to residential lessees together with the shared ('Estate') services provided to residential and commercial lessees at Canary Riverside.
The FTT has subsequently clarified in its letter of 13th October that the Tribunal-appointed Manager, Mr Coates, has effectively 'stepped into the shoes of the Landlord' - i.e., his appointment takes over the management responsibilities previously held by CREM (our landlord), and Mr Coates' responsibilities includes all matters concerning the residential leases, with the exception of the placing of the buildings insurance policy and legal action in forfeiture matters.
The FTT confirmed that Mr Coates' management responsibilities include granting consents to carry out alterations, issuing sales packs and assignment of leases. This clarification was received following a letter from RACR to the FTT.
For further information on what a Tribunal-appointed Manager means, please see the Leasehold Advisory Service's ('LEASE') explanation here.
19th September 2017:
The Tribunal has referred to the Upper Tribunal the outstanding matter of Marathon Estates' compliance with a 'Rule 20' disclosure order. We understand that a case management conference will be held on 22nd September at the Upper Tribunal.
The Upper Tribunal has the contempt of court and enforcement powers that the FTT lacks. The FTT had ordered Marathon Estates to handover to HML Andertons various financial and other records and documents necessary for the management of Canary Riverside, together with the computer containing the Qube accounting records.
Inenco, the Landlord's electricity billing provider, is, we understand, also potentially in breach of a Rule 20 disclosure order issued by the Tribunal.
Tribunal issues a new (draft) Management Order and extends the term of the Tribunal-appointed Manager to August 2020
Following the Landlord's application to the FTT to try, amongst other things, to reduce the scope and length of the Management Order (under which Alan Coates was appointed by the Tribunal to manage Canary Riverside) the Tribunal has issued a new Management Order:
The total length of the Tribunal-appointed Manager's term has been increased to 47 months, and the appointment will continue through to 31st August 2020: the Landlord had wanted the Tribunal to reduce the length of the appointment down to two years.
The Order clarifies that the Manager is responsible for services provided across the entire Estate, including residential, the car park, Circus apartments and commercial lessees. The Landlord wanted the Order to refer to the residential buildings only, effectively trying to split the management of the estate between residential and commercial.
The Order has been strengthened, clarifying the Manager’s powers and duty to carry out the obligations formerly vested with the Landlord, access rights and borrowing rights.
The Manager’s first service charge accounts will be for the period 1st October 2016 - 31st March 2017, with expenditure incurred in the first six months of the service charge year under Marathon’s management separately identified.
The new Management Order follows a total of eight days of hearings during which the Landlord's companies, represented by two barristers (Justin Bates for CREM/Octagon and Nik Yeo for the Hotel) presented their arguments for amending the current Order, including reducing the length of the Order to less than two years. You can find here a copy of the new Management Order, that comes into effect on 1st September 2017 for three years [subject to any drafting corrections], and here the Tribunal's letter in respect of Marathon Estates and the Rule 20 disclosure order.
Please scroll down for previous updates.
Click here for an open letter from lessees to CREM, 29th April 2017
The FTT's decision to appoint a Manager
The application to appoint a manager under Section 24 of the LTA 1987 was made by 124 lessees at Canary Riverside, and was supported by Residential Land, the owner of Circus apartments. A five-day hearing took place in May 2016 at the FTT.
The Tribunal found that it was 'just and convenient' to appoint a manager, and the appointment of Mr Coates was confirmed in the FTT's decision dated 5th August 2016. The FTT reconfirmed the appointment in their reviewed Decision dated 15th September 2016.
The Landlord's appeals/ application for a judicial review
The Landlord appealed the FTT's decision:
29th September 2016: Appeal dismissed by the FTT. The Decision can be found here.
30th September 2016: Appeal dismissed by the Upper Tribunal (UT). The full Decision can be found here, and a transcript of the oral Decision delivered in court by Mr Martin Rodger QC, deputy presidents of the Lands Chamber, here.
The Landlord made an application to the Administrative Court for permission to judicially review the Upper Tribunal's Decision of 30th September. This has been refused. The High Court's decision can be found here. It is unequivocal and states that "the First Tier Tribunal's findings amply justified the making of an immediate management order". There is no further appeal possible by the Landlord, and Canary Riverside is managed by an independent Tribunal-appointed manager.
June 20th/21st 2017 FTT hearing
The First Tier Tribunal (FTT) panel of Ms Hamilton-Farey and Mr Jarrero reconvened on 20/21 June to finish hearing submissions regarding the Landlord's application to vary the Management Order. We now await the Tribunal's determination in respect of the contested terms, which is expected by mid-July. These include determinations in respect of: the length of the Order - the Landlord wants it reduced from three years down to two years minus one day, so that lessees' right to make an application for an Acquisition Order (to purchase the head lease) under section 25 of the LTA 1987 does not arise; the scope of the Premises and shared services covered by the Order; whether Circus apartments should be deemed a commercial lessee; and whether responsibility for granting consents to alterations in residential premises should be the Manager's or the Landlord's responsibility. The Landlord's counsel has argued that the variations it has requested are necessary in order to protect it's multi-million pound bank loan for which the Canary Riverside estate (minus the Hotel), is security.
The FTT chair proposed to the parties that to deal with the Manager's application to vary the Order, which is currently subject to High Court action, she write to the parties suggesting that the matter be transferred from the High Court to the FTT to be dealt with by circuit judges.
The chair of the FTT also issued two orders: Marathon Estates is to hand over to the Manager the computer containing Qube software and data/information pertaining to the management of the Estate; and Inenco to provide to the Manager copies of invoices, meter readings, receipts and reconciliations pertaining to the electricity supply.
May 2017: FTT hearing update
The FTT reconvened on 4/5 April and 2/3 May to continue hearing the Landlord's application to vary the Management Order. These issues should have been sorted out last Autumn, prior to the Order taking effect, but the Landlord had refused to cooperate because it was appealing the decision to appoint the Manager.
The two FTT judges - who heard the original Section 24 application - have made it clear that the FTT's responsibility is to ensure that the Section 24 Order is an effective legal remedy for the lessees. The appointment of a Manager is made in order to address the previous management failures, as detailed in the S24 application and the FTT's decision.
On May 4th 2017 the FTT issued a 'Rule 20 Order' that seeks to compel Marathon Estates to handover to the Manager/HML Andertons all of the documents/financial records that it has retained (despite being replaced as managing agent eight months ago).
Two additional hearing dates have now been set to hear closing submissions and the Manager's application in respect of the Order: 20th & 21st June.
The Landlord has previously argued that Canary Riverside was designed to be managed as a single entity. Now that the management is with the Tribunal-appointed Manager the Landlord is arguing that the Manager should not have responsibility for anything relating to commercial lessees - even down to splitting the management of the car park spaces.
May 2017: Costs update
The FTT determined that the Landlord could not recover any of its legal costs via the service charge (see below), and ordered it to repay the monies it had already utilised from the service charge account. Before handing over the service charge balances to the S24 Manager the Landlord had already utilised at least £220K of service charge monies to pay its legal bills, and the FTT ordered that this be repaid.
However, the Landlord has appealed the costs decision, delaying the repayment of the £220k back to the service charge account. It has asked that the FTT allow it to recover the relevant proportion of its legal costs from lessees who were not party to the S24 application.
Lessees not joined to the S24 application are entitled to write to the FTT to apply to join the S20C costs application. If you are not an applicant to the S24 but would like to be joined to the S20C costs application and prevent the Landlord from being allowed to charge you its legal costs please contact us ASAP.
March 2017: Upper Tribunal remits insurance issue back to FTT and allows Landlord to place the 2017/18 insurance
Martin Roger QC, Deputy President of the Lands Chamber, determined that he would allow the Landlord's appeal against the FTT's decision that insurance be the responsibility of Alan Coates. A summary of the appeal decision can be found on the Tanfield Chambers' website here. Mr Roger then went on to remit the matter back to the FTT to consider, and in the interim lifted the stay, thereby allowing the Landlord to place the insurance for 2017/18. The Upper Tribunal's decision can be found here.
March 2017: Lessees win Section 20C Costs Application
The lessees made a Section 20C application to the FTT to prevent the Landlord from recovering any of its legal costs associated with the Section 24 application from leaseholders via the service charge. In March 2017 the FTT issued its Decision which orders that the Landlord may not recover any of their costs of these proceedings from the service charge budget, and that they reimburse the service charge fund £320,826 accordingly.
Their decision commended the lessees' "desire not to litigate unless necessary" and states:
"The tribunal appointed the manager due to serious failings in the management of the estate"
"The decision was not over-turned on appeal or on an application for judicial review"
"It could therefore be said that the applicants 'won at every opportunity'"
"This tribunal considers that the applicants had no alternative but to make an application"
Legal update: FTT and Upper Tribunal hearings March 2017
The FTT panel convened on 2nd March to hear the Landlord's application to retain responsibility for insuring the Estate and managing claims in respect of the buildings insurance. Lessees will recall that evidence was presented to the FTT at the Section 24 hearing in respect of the problems experienced by lessees, including Residential Land (Circus apartments) when claiming against the buildings insurance. In making its Order last August to appoint a Manager under Section 24, the FTT gave responsibility for insuring the Estate to the S24 Manager.
At the hearing on 2 March the FTT heard that the majority of insurance claims at Canary Riverside were in respect of the Residential parts, and that 90% of all claims were water-related. In the past three years such insurance claims totalled more than £400,0000.
The FTT's decision issued on 7 March was in favour of the Manager. The Landlord appealed the Decision and this was dismissed by the FTT in their Decision dated 8 March. The Landlord has now appealed to the Upper Tribunal, and the UT issued directions on 13 March and further directions on 17 March which stated that the application to appeal would be heard on 22nd March and, if appropriate, immediately followed by the appeal hearing.
The insurance matter took up the whole of the hearing on the 2nd March. It was agreed that the FTT could make a 'paper determination' in respect of our costs application and their decision was received on the 21st March: see above. The Landlord's representative confirmed that they required an oral hearing for the S20ZA electricity meter dispensation application, and we await the FTT's further Directions regarding this matter.
The hearing scheduled for 4 & 5 April will hear evidence in respect of all other applications regarding variations to the Management Order. The parties have exchanged 'Scott Schedules', which are documents that set out the matters in dispute and the parties' position regarding each matter, and witness statements were exchanged on 20th March. Mr Coates has also sent the FTT his annual report (as directed by the Management Order), a copy of which can be found here.
Legal update: FTT applications to vary the Management Order (February 2017)
The Tribunal-appointed manager (the Manager) and the Landlord have both applied to the Tribunal to vary the terms of the Management Order. The FTT panel returned to Canary Riverside on 31st January 2017 for a site inspection to help re-familiarise themselves with the estate and to view various areas previously used in the management of the estate that are currently not being made available to the manager (or offered for use only if rent is paid). The FTT panel was to convene on the 6th February to hear the applications, this date having been set back in November 2016.
The hearing was unable to proceed on the 6th because the evidence 'bundle', which the landlord's legal advisers had agreed to coordinate, was incomplete: it did not include the manager's evidence, nor had a copy been provided to his legal advisers. The FTT had no choice but to adjourn and issue new directions, which included:
New hearing dates: 2nd March for the matters of buildings insurance and S20C costs. Directions will also be agreed in respect of the S20ZA application. 4th & 5th April for all matters relating to the Management Order (including finance and access issues) and the S20ZA electricity meters dispensation application.
10th February: any lessee who wishes to be separately represented at the hearings to notify the FTT and the parties by this date.
Manager's report: Mr Coates, the S24 manager, has been directed to produce a progress report to the FTT.
S20ZA report: Mr Coates is to provide to interested parties by 22nd February a report detailing further information regarding the S20ZA application.
Bundles: each party to be responsible for providing its own evidence bundle (a diversion from normal practice).
Lessees may be in receipt of a letter from CREM dated 8th February that seeks to mitigate their position regarding the various matters that are yet to be heard/determined by the FTT. Lessees are reminded that CREM were removed from the management of the estate through fault.