Slipped into the middle of this paper are some very significant proposed increases to the fees payable for enfranchisement and lease extension cases heard at the First-tier Tribunal (FtT) Click here for the document (go to page 27).
These changes will have catastrophic consequences for the vast majority of ordinary flat owners in this country and will further damage their chances of being dealt with fairly by their rapacious freeholders. This blog will explain some of these consequences in more detail.
What are the proposed changes to the FtT fees?
The Government’s consultation paper says the following about its proposed FtT fees:
- We are proposing to introduce a simple fee structure with a £100 fee to issue proceedings and a £200 for a matter to be listed for a hearing, which will be applicable across the majority of case types in the Chamber.
Our modeling indicates, however, that these proposals, applied to all proceedings, would not meet the objective of 25% cost recovery. We believe that in order to reach the target recovery rate for the Chamber there is a strong policy justification for charging higher fees in leasehold enfranchisement and leasehold valuation cases.
- Data obtained from the Leasehold Advisory Service suggests that for a sample of around 840 leasehold enfranchisement and leasehold valuation cases lodged between 1994 and 2006, the average value determined by the tribunal was around £142,000.
On this basis we believe that given the large amounts in dispute it is reasonable to expect those bringing these proceedings to pay a higher fee and have therefore modelled a proposal based on an issue fee of £400 and a hearing fee of £2,000.
This would have the effect of charging those cases at close to full cost and, based on current volumes, would bring the cost recovery percentage across the Chamber to around 25% after remissions.
However, an alternative to flat fees in these cases would be to consider a model where fees are charged as a percentage of the value at stake.
The figures used
Before I discuss how this affects flat owners I would make two points about the figures used in this document.
Firstly the data which was supplied by LEASE (What were you thinking LEASE?) is impossible to analyse or question. There are a few ‘pick and mix’ statistics used as supporting evidence but no real substance.
I have requested a copy of the full data supplied to the MOJ by LEASE by way of a freedom of information request, which you can see here.
Secondly I find it hard to believe that a mean average of the values disputed in the 840 FtT ‘sample’ cases quoted could be anywhere near as high as £142,000 per case! Unless it includes the £30 million arbitrary amounts for ‘development value’ the freeholders throw onto every enfranchisement case.
Leasehold Solutions is currently dealing with thousands of live lease extensions on behalf of ordinary flat owners and the vast majority of these cases have a value under £10,000.
At best these figures are Prime Central London centric and will completely price out a flat owner from Walthamstow who is trying to get justice against his gluttonous freeholder.
At worse, they are heavily skewered or just plain misrepresented.
Many predatory freeholders already successfully use the current flawed leasehold system against flat owners.
Although flat owners do have defined legal rights, which make us feel all warm and fuzzy, in reality these rights do little to help flat owners against a cognizant freeholder.
This is because the onus to take legal action against an unreasonable or just plain bloody-minded freeholder is nearly always on the flat owner. They also have to pay for this legal action, by way of current FtT costs, which are dwarfed further by the cost of their own legal and valuation representation.
For example, many freeholders refuse to engage with the flat owner’s professionals during the statutory six-month negotiation period and they are very smug in the knowledge that the flat owner will have to pay to protect their legal position and there will be no fiscal penalties imposed against the freeholder for their unreasonable behaviour.
Imagine the increased power this strategy will be given if the flat owner has to now pay an additional £2,400 of FtT fees to force the bloody-minded freeholder to act!
What lets freeholders get away with acting so badly is the fact that the FtT feels it has little or limited power with cost jurisdiction and so rarely awards costs against a party who has acted unreasonably or vexatiously (even though on paper, it is allowed).
This gives freeholders the scope to act in an unscrupulous manner in the hope of gaining a further fiscal advantage or just to ‘punish’ a flat owner for daring to want a statutory lease extension.
This proposed additional £2,400 price tag for FtT fees just plays into the hands of freeholders at the expense of the flat owner.
The MOJ’s consultation paper ignorers that their proposed increase comes with the additional cost to the flat owner of their own legal representation, a valuer and possibly a barrister too!
The cost of an average flat owner in the suburbs, trying to get justice against an unscrupulous freeholder, has just become prohibitively high!
This flawed proposal will also add a fourth dimension to the existing three valuation principles of ground rent, reversion and marriage value which determine how a freeholder is compensated for a lease extension or enfranchisement.
This fourth element would be the ‘FtT cost’.
The freeholder could easily add an additional four or five thousand pounds to the fair cost of each lease extension based on the fact it would cost a flat owner much more than that to challenge them in the FtT!
This is a real gift to the many predatory billionaire freeholders we have in the UK but really bad news to the four million flat owners who will have to pay for it.
They will be the ones who will always pay for these increases either by way of paying the new fees to the FtT or by paying more than they should to their freeholder who has used this system against them.
Another gift for the freeholder could be the terms of the new lease.
During a statutory lease extension basically both sides have the legal right only to alter defective clauses and not include new clauses or licences in the lease.
Not so with the proposed changes to the FtT fees. Now a freeholder could insist on inserting a new license which states if you rent out your flat to a third party you must pay the freeholder £1,000 a year for ‘permission’ to do so.
The freeholder can’t legally do this but now the onus is on the flat owner to challenge this in the FtT to get this licence removed. Now the flat owner will have to pay £2,400 for FtT fees plus more than this for their solicitor to prepare the case case and represent them.
This after the fact that the flat owner has just paid over the odds for his lease extension, plus his own legal and valuation fees and the legal and valuation fees for his billionaire freeholder, chances are he will just accept it!
The list of how these proposed changes will prejudice flat owners all over the country goes on and on but it is plain to see that this proposed change designed to plug a gap in the MOJ’s books will also give more power and money to freeholders.
This is the death knell for the average person owning a flat in the suburbs who is trying to force his freeholder to act reasonably. Justice has just become too expensive.
The consultation paper closes on 15 September 2015, so please let your voice be heard, the more of us who make our voice know the better chance we have of stopping these ludicrous proposals.
Please answer those questions and send them to the MOJ.
Also send a copy of your answers and thoughts to your local MP and:
The Rt Hon Michael Gove MP Secretary of State for Justice
102 Petty France
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