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LVT Meet Bill... Solicitor Simon Painter explains the current appeal of the LVT

It is inevitable in a recession that peo- ple will consider it worthwhile trying to protect their hard-earned money by challenging the financial demands made on them. Service charges lev- ied on flat-owners are no exception. A few years ago a flat-owner, let’s

call him Bill, may have been sitting comfortably with the value of his property increasing year by year, his mortgage decreasing, a steady job with a healthy annual pay rise and perhaps a bonus. If Bill received a service charge demand from his landlord he might be able to pay the sum outright or borrow

from his mortgage lender and pay it off over the remaining term of the mortgage, barely noticing the difference in his monthly outgoings. In that situation Bill would probably just have paid up and carried on with his life. Now things have changed. Even if Bill is still in his steady job he may

be nervous about extending his borrowings in the present economic climate. What’s more, his lender will almost certainly have tightened

its borrowing criteria so that he may be unable to borrow any more against his flat. All in all, borrowing is likely to be a less attractive proposition in 2011 than it was in 2007. Added to this, the cost of living is rising all the time with fuel and food bills reaching an all time high. Not a great time to be faced with a large service charge bill for building repairs. Bill is aware of his right to challenge his service charges from the

summary served with the demand - a legal requirement since 2007. This informs him that he can make an application to the Leasehold Valuation Tribunal (LVT). He has heard from some of his friends that this is worthwhile, as tenants often achieve a major reduction in the amount they will have to pay. The other four leaseholders in the building all have similar concerns about the proposed works and charges and they make a joint application to the LVT. Bill’s scenario is one which will be repeated in thousands of similar situations around the country in the current difficult financial climate. It is therefore not surprising that there has been a significant increase in service charge disputes over the last year or so. My guess is that this is set to continue over the next year or so.

Simon Painter is a Partner at Bircham Dyson Bell LLP specialising in property litigation.

Lessees count the cost of LVTs

Taking your dispute to the LVT should always be considered a last resort, warns Konrad Grosse who, together with his fellow residents, has recently fallen foul of a flaw in the LVT system

If a lessee loses their case at the LVT they only risk a maximum £500 in costs being awarded against them. However there is no limit to what it could cost a Resident Management Company (RMC) - a cost that is non-recoverable and is likely to be re-charged to the lessees via future fees. In Konrad’s case, the unrecoverable costs levied against the residents of

his London block amounted to a staggering £25,000 after the LVT allowed a maximum of £40,000 recoverable legal costs. He estimates that the cost to you and me, the taxpayer, in running a 7 - day LVT hearing would be about the same. Konrad explains what happened: “In 2008, our RMC took legal action to recover arrears of service charge from one lessee. The action commenced in the County Court and some matters were referred to the LVT. After a 7 - day hearing, the determination was handed down allowing £40,000 to be recovered in legal costs from the service charge but a balance of £25,000 to be found by the RMC. “The management company responsible to all the lessees of a block

is under a duty of care to ensure everyone pays their service charges. The legal process, should it come to it, is very strict and procedures have to be followed but it appears that any lessee with even the smallest of gripes (whether genuine, or not) can request the County Court to refer the case to LVT. This not only carries with it a minimal (£500 maximum) financial risk on costs to themselves, but of greater


concern, the very real possibility that the service charge or the RMC (if it has funds) will end up being responsible for the costs of the action. In our case other lessees joined the LVT, as is their right, but this still amounted to less than 6% of the flats in the development. “The leaseholders who pay, find themselves not only penalised

for honouring their lease covenant but also having to effectively pay for the actions of others over which they have no control. Why can an LVT allow such significant costs to be unrecoverable in whole or in part from the lessee(s) who have run an action through the judicial process without fear of having to pay anything like their reasonable costs? The process is fundamentally flawed and a system that was set up to protect lessees can actually present a very real financial risk to them.” Arbitration and mediation are available to leaseholders in the first instance,

providing they are willing to use it. “In our case this option was refused by the errant lessee, the reasoning being ‘there is no point talking to them unless they are going to agree with us’ and to the best of my knowledge the LVT did not question whether the option had been explored,” says Konrad, who believes this leaves the LVT wide open to abuse. “In my opinion, the LVT is well intentioned but potentially highly vulnerable to any unscrupulous lessee who can use the system to their own advantage at serious detriment of their neighbours”, he says.

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