QUESTION
We bought the freehold ground rent at auction in August 2015. The lessees have a right to manage company. The previous freeholder has been taken to the Tribunal by the RTM company three times and the determination required the previous freeholder to pay the RTM company just under £5k. This amount has not been paid. Are we liable and what contribution can we seek from the previous freeholder?
ANSWER
We are happy to provide our initial advice in relation to this matter. There are a few points that may require further clarification for a fuller and more definitive advice to be provided. We have however, considered the 2 decisions provided from the First Tier Tribunal. It is clear that the Tribunal has been approached on two or more occasions by a group of leaseholders from Dolphin Court to assess the amount of service charges that they have paid. The test for the Tribunal is whether the amounts charged are reasonable and they normally decide this based on the evidence provided, an inspection of the property and knowledge of market rates. When the Tribunal is asked by leaseholders to make a decision about the reasonableness of any items of expenditure charged under the service charge the evidence provided is usually the service charge accounts or invoices in relation to the work undertaken. The Tribunal do not currently hold powers of enforcement for money claims and therefore the decisions provided do not go as far as making an order for the freeholder (Ideal Investments Ltd) to actually pay the Leaseholders (court fees aside). In fact, the Tribunals decision simply outlines what it finds are the reasonable amounts that they deem to have been payable. It should be noted that the proceedings were brought in the name of the individual leaseholders - not the RTM company (as is usual). Therefore, any sums deemed to be overpaid would be due back to the individual – based on their individual contribution if they were to choose to request such sums and take action. Following the Tribunals assessment of this particular situation some of the charges paid have been deemed as unreasonable and a suggested rate has been given. Following a determination of this sort the freeholder or management company normally credit the individual leaseholders service charge accounts or provide a refund for the overpaid amount. If this is not done then the leaseholders can make a special application to the county court for enforcement of the Tribunals decision. It is not clear whether the leaseholders reached this stage and it is not clear at which stage the RTM company was formed and therefore whether the crediting process would have even been possible. Regardless of all of the above and based on the information to hand it is our opinion that the overpayment owed to the leaseholders (that were party to the proceedings) normally remains with the previous freeholder (Ideal Investments Ltd) to pay. If the lessees require repayment of this amount then they would need to pursue the previous freeholder for it. It is Ideal Investments Ltd that are specifically named within the Tribunals decision. To reiterate, normally in these circumstances the burden of the previous freeholder regarding monies owed are not passed to the new freeholder with the sale of the freehold.
Laura Severn, Director at LMP Law
