How Brady Solicitors used clear communications to resolve a 3-way dispute between developer, agent and leaseholders
The role of the managing agent can often be a thankless task; management is not a perfect science. Things can become increasingly difficult when an agent is appointed by a developer, but has a duty to serve the best interests of the leaseholder. Ultimately the managing agent will have the longer relationship with the leaseholders, once the developer moves away from the scheme.
This issue raised its head for one Brady Solicitors managing agent client, struggling with a long running dispute that had created a service charge deficit for their management company client. Under pressure from the ever-louder voices of the other leaseholders, they turned to Brady Solicitors for help.
The background – high service charge values and unsold units
The development is a large inner city high value apartment block, with celebrity designed gardens, a full-time concierge, and a gym. The development had unfortunately been caught in the housing market crash, meaning the developer had retained several units they could not sell. From a transactional viewpoint, the developer could not contractually disengage from the lease until the final unit was sold, and remained as the sole director of the management company – ultimately remaining the agent’s client.
The issue – unresolved boiler breakdowns and a developer who won’t talk
The gas central heating boiler had stopped working in several apartments across the building. Despite maintenance checks from boiler engineers, it was discovered there was a flaw with the boiler flue. The dispute remains in the High Court to this day and involves a dispute between the supplier of the flues and contractor who installed them; with the developer being in the middle.
Whilst the dispute is highly complex and required numerous expert reports, this didn’t ease the burden for the leaseholders who were left with no central heating. The developer closed ranks whilst the High Court litigation continued, and the affected leaseholders had to make claims from the 10 year build-safe insurance policy, which came with a hefty premium.
Disgruntled and out of pocket, the leaseholders took their frustrations out on the only person who continued to speak and deal with them: the managing agent.
They decided to stop paying the service charge, claiming a lack of service was to blame for their predicament.
What did the lease say?
After nearly three years of allowing service charge arrears to accrue, and one heated Annual General Meeting later, the agent instructed Brady Solicitors. When we reviewed the documents, it was clear this had to be handled with care.
Not only were the service charge values high but there was ongoing litigation from which our client needed to cut a clear line and, ultimately, the leaseholders had already been burdened enough without further legal costs and court action.
Our first port of call is to always check the lease, and to establish some basic but key issues.
In this particular case, these were:
- How is the demise (the apartment) defined?
- What makes up the demise – is the boiler and flue included?
- What are the leaseholders’ covenants and obligations?
- What are the management company’s covenants?
Dispute resolution through open communications
If all parties can agree that the lease is the sole, binding and ultimate authority in the relationship between landlord, management company and leaseholder, then we can start to look at the terms of that lease.
Through dialogue with the leaseholders we could explain how our client (the management company) had no contractual right, obligation or ability to do anything to individual boilers. In fact, to go further than this, it would have been a breach of lease had the agent used service charge monies collected from the other leaseholders to fix individual apartment defects.
Whilst it did not resolve the ongoing boiler dispute, it did leave one less problem on the table. The leaseholders understood the issue and had more clarity on who their disputes should be directed at – which ultimately was not our client but the development company. All this was done without the need to go to court.
What can we learn from this service charge dispute?
Managing agents operate in an imperfect world where theory meets practice. In theory, there should be clean lines between the landlord, management company and the agent. However, in practice, building work, slow unit sales and market fluctuations can often get in the way.
This often leads to leaseholders viewing the developer, management company and agent as one entity. When disputes cannot be resolved then leaseholders take action in the easiest, most cost efficient way they know: by withholding the service charge.
This dispute on face value looked complex and difficult but, when broken down was fairly straight forward: it just required a clear explanation of the terms of the lease and some tactful and open dialogue. The lease should always be the first and last port of call in these disputes and it will usually help to temper high emotions.
These types of service charge disputes are always evidence driven and, once all parties understand their position, a successful resolution can usually be achieved.