Carlex / LKP has serious concerns about events at Elim Court in Plymouth, whose right to manage application failed on appeal last month.
The application is being handled for the residents by the Right To Manage Federation, headed by Dudley Joiner, which has repeatedly stated that it is assuming all legal costs in the matter.
The RTMF now proposes to take this application, which has failed twice, on to the Court of Appeal, it stated on its website yesterday.
The residents are to meet with Mr Joiner next Wednesday to decide whether to approve this course.
At this point Carlex has to ask: is continuing this action in the best interests of the residents?
Or, is the action being continued because the RTMF is facing significant legal costs from the freeholder – which we roughly estimate at £25,000 – for the two failed court actions? Only by winning will it avoid the costs.
Should this gamble be taking place, with the risk of serious consequences for the RTM members of Elim Court (in fact, all the leaseholders) – explained below – who with the freeholder are the other party in the dispute?
It is painful for Carlex to raise these questions: the RTMF has taken 70 retirement sites to right to manage and around 250 in total. We have in the past recommended that leaseholders use its services, most recently at Brixton Hill Court which won right to manage thanks to the RTMF after the first effort was an expensive failure.
Hundreds of leaseholders have cause to be grateful to the RTMF Limited, which with RTMF Services Limited and Team property management form part of Mr Joiner’s interests in leasehold.
At Elim Court, what began as a right to manage application in the lower tribunal now risks becoming major-scale litigation where the costs could be open-ended.
Costs for actions in the Court of Appeal can start at around £20,000 for each side and could escalate. It would be a big bill if the leaseholders are unsuccessful. Then there is the possibility that they win, but the freeholder takes the matter on to the Supreme Court and is finally successful.
Carlex does not dispute the good intentions of the RTMF in taking up Elim Court’s right to manage application at minimal upfront cost (it receives more substantial payment when RTM is successful from the new incoming managing agent in the form of commission).
Carlex also fully shares the outrage of most fair-minded people that a simple right to manage application can be successfully frustrated on the most trifling grounds. The RTMF made mistakes in the Elim application, but there is no doubt that the majority of the leaseholders living there want the right to manage that Parliament gave them.
The choices the Elim residents face are these
Drop the action
This means accepting defeat and paying Avon Freehold’s costs. These were £12,600 in the lower tribunal and are unlikely to be any lower for the upper tribunal.
These costs of roughly £25,000 might be reduced a bit by a court, but they will have to be paid.
The RTMF has said it will pay all the legal costs in this action. But if the leaseholders reject its advice to take the matter on to the Court of Appeal, will it still feel an obligation to do so?
We do not know and the agreement is imprecise.
Mr Joiner criticised Carlex for raising this issue on October 12 in a comment on our website. Carlex had “raised unnecessary fears in the minds of Elim residents who have already been given assurances the costs will be paid by RTMF”, he said.
We do not agree. If the RTMF expects residents to support its continuing litigation, the conditions on which they do so must be clearly understood, drafted by an independent lawyer, involve secured cash or property (see below) and be legally binding.
Carry on litigating, as the RTMF advises
The possibility of further defeat and more costs has been addressed, as has the possibility of victory and eventual defeat in the Supreme Court.
Of course, it is equally possible that the RTM is eventually won.
That would be a very desirable result for all of us who campaign on leasehold issues, with senior judges at last addressing the issues surrounding right to manage.
But it is far less clear that this is in the interests of the residents of Elim Court.
Had they scrapped this flawed right to manage application after it failed the first time in January 2013, they could have started another – or, perhaps better in this case, asked for a court-appointed managing agent – and they could have been rid of their freeholder’s management a year ago.
Curiously, the Court of Appeal is shortly to consider “90 Broomfield Road” right to manage, which is being fought on the issue of a multi-block site qualifying for RTM. But this is a battle over an important point of law. At Elim Court the appeal would be an attempt to reverse a decision on a right to manage application that two tribunals have agreed has basic flaws.
In the event of failure, the freeholder’s legal bill will be first directed to the directors and members of the Elim Court RTM Co Limited, which has no assets.
It will be their liability. It is not a concern of the freeholder, or the court, that an agreement exists for the RTMF to pick up the other side’s legal bill on behalf of the residents.
But what if the legal bill is so large that the RTMF goes into liquidation?
What if the RTMF ceases to exist for any other reason when this matter is concluded?
Carlex’s concerns about the RTMF’s repeated, breezy undertaking to pay the legal costs – no matter how high – first surfaced in January 2013, after Elim Court lost its case in the lower tribunal and it was resolved to continue that application with an appeal.
Carlex offered to try to obtain free barrister assistance through sympathetic MPs, as at Oakland Court in Worthing. But the RTMF rejected this as it was confident of eventual victory and it was “our case”.
Carlex / LKP has sought advice on the dilemma facing the Elim residents, and offers these thoughts:
1/ They should not agree to continue this litigation at the open meeting on Wednesday, but to insist on time to consider the issue carefully. A week, or several, is required.
2/ If this legal action continues, the residents should insist on a legally enforceable agreement with the RTMF, drawn up by lawyers.
3/ It is very important that this should include the RTMF putting forward a substantial secured sum of money, or asset, sufficient to pay all the legal costs of both sides in this case.
4/ The meeting on Wednesday should include all leaseholders, not solely the members of the RTM. If the nightmare scenario occurs – the freeholder wins, the RTMF goes under – the Elim Court RTM Co Ltd will also fold as it has no assets. It is very likely that a freeholder, in these circumstances, would be able to obtain its legal costs from all the leaseholders.
5/ The directors of the Elim Court RTM need to consider their position carefully, if they decide to continue this action.
It is easy to see why leaseholders have turned to the RTMF – and similar “free” or low-cost right to manage facilitators – who offer a simple right to manage service that appears to be free of risk.
But behind these offers is the assumption that the right to manage application will always win.
And most are won. Only a small minority of RTM applications actually involve court action. Of these, most have eventually ended in victory for the residents.
But at Elim Court the RTMF’s luck has run out.
The case also demonstrates the downside of using these supposedly low-cost services against a freeholder determined to resist right to manage.
Left to their own devices, the Elim residents could have hit the brakes after the first application had failed, paid the freeholder’s legal costs and started again.
If they do decide to follow the RTMF’s advice to fight on to the Court of Appeal and (possibly) beyond, then it is Carlex’s duty to alert them to the potential risks of doing so.
The full ruling the upper tribunal on Elim Court RTM can be read here: