Victory for leaseholders as landlords are brought to book

Home battles: After two landlords were convicted of failing to provide full information on service charges to a leaseholder, Karen Woolfson examines how the legal tide is turning against those who flout the rules and abuse their positions of power

In a landmark judgement, Haringey magistrates' court has convicted two landlords of criminal offences for failing to grant a leaseholder his legal right to inspect accounts and receipts for service charges. The judgment is expected to alter the course of future cases in this area.

The landlords were found guilty under Sections 22 and 25 of the Landlord & Tenant Act 1985. David Marcus, partner at solicitors Franks, Charlesley & Co, comments: "This judgement shows the law does have teeth when people exercise their rights." He says the outcome will strengthen the ability of leaseholders to enforce their rights in the future.

The verdict will give a significant boost to leaseholders, who are awaiting the outcome of the first full civil action over service charges. A leasehold valuation tribunal is expected to complete its first full decision on the issue in the next three weeks.

Leaseholders can quote the criminal case in court. They can also quote the verdict to landlords who fail to supply information which is legally required, and deny access to the accounts.

Bernard Rimba, a leaseholder, decided to prosecute his landlords, Hallam Tennyson and Andreas Stavrou, after receiving a summary of the service charge accounts which he considered questionable. Mr Rimba requested access to inspect the original documentation on many occasions, but says the landlords refused to comply.

Peter Clark, who acted on Mr Rimba's behalf, says: "The landlords, who own two out of the four flats in the Edwardian house in Crouch End, were pretending to comply with the rules when they were in fact flouting them."

The case was heard in Haringey Magistrates Court and the two landlords were found guilty on three different counts for failing to allow inspection of the "original" documentation. They were fined a total of pounds 1,500 and ordered to pay pounds 7,000 in costs to Mr Rimba. The magistrate also ruled that the two convicted men may not place any of their legal costs against any future service charges.

John Stephenson, partner at the solicitors Bircham & Co, says: "I'm delighted by the judgment and hope it sends a few shockwaves around the leasehold community. It reminds landlords they can't just act how they want, but that they have to obey the law." He adds that the judgment reflects the increase of criminal sanctions against landlords.

Although Mr Rimba has won his case in the magistrates' court, he is still awaiting the outcome of a full hearing with the leasehold valuation tribunal in London which took place on 12 February. However, he may have to wait another three weeks before the LVT makes its final decision, which will be the first ruling made by an LVT since they were introduced in September last year.

Mr Rimba has asked the LVT to look into several issues relating to the service charge accounts. One of them is to do with a bill for legal costs which the landlords put on the service charge accounts.

A leading surveyor in this field says that a trustee - a freeholder or managing agent - must use trust funds for purposes of the trust. If the trustee uses the money in other ways, the leaseholder can sue the person who has received money from the trust. He stresses that "solicitors cannot be paid out of the service charge accounts for defending the landlord against claims of incompetence, harassment and questionable criminal activities."

The same surveyor notes that some landlords employ a solicitor who has previously acted for one of the directors personally. This creates a potential conflict of interest. Under Law Society rules, a solicitor cannot act in cases where there is a conflict. In effect, a solicitor should be barred from acting in these cases.

Mr Rimba also asks whether the landlords have been using the service charge fund to pay premiums for contents insurance on their own private flats. If he was able to inspect the accounts, then he could check whether or not this was the case. But he is still waiting to gain access to all original documents, including bank statements, cheque stubs and insurance papers.

Mr Clark, who is acting as his representative, comments: "We're pioneering the way for a lot of people. So that without too much fuss and too much expense, they can stand in a tribunal and explain [their grievances] without being shouted at or belittled."

The first full hearing of a service charge case at an LVT will help to determine what further changes the Government needs to make to tackle the issue of leasehold abuse. At the same time, this week has seen the first full hearing of a case on the appointment of a manager. The decisions of both cases will be known within three weeks.

The outcome of these first hearings from leasehold valuation tribunals are being watched carefully by leaseholders and freeholders. Like the far-reaching judgment convicting two landlords of criminal offences this week, the LVT decisions have the power to enforce leaseholders' rights in a way that has not happened before. If they come up to expectation, the LVTs, and the growing expertise in courts on this subject, will empower leaseholders to enforce their rights with greater ease.