Proposed Tribunal Fee Increases : a Threat to Leasehold Justice

The Ministry of Justice consults on fees for First-tier Tribunal and Upper Tribunal cases, proposing substantial increases that if adopted threaten to contribute to the systemic inequality suffered by leaseholders at the hands of their landlords

Residential property in the UK, particularly in London, is regarded as one of the most lucrative investment areas by both domestic as well as foreign investors. From the foreign perspective, it is often perceived as a good choice due to the security and protections afforded by the English legal system which in many cases offers far greater protections in comparison to overseas jurisdictions. It therefore follows that there is a correlation between legislative changes and the marketability and value of such assets. One example of such an influence is illustrated by the reforms to stamp duty and the implementation of ‘mansion tax’ which are reportedly at least in part responsible for the recent decline of house prices in central London by 22% since last autumn (according to the property services group LSL).

It is arguable therefore that investments into leasehold properties are affected by legislative changes as they influence the desirability of leasehold ownership. While perhaps only the savviest foreign investors will be aware of the subtle changes to leasehold law, a gradual erosion of the equity inherent in leaseholder law could have a compounding effect ultimately devaluing such investments.

In the most recent consultation paper released by the Ministry of Justice, it has proposed that Tribunal fees should be increased in efforts to cut government spending, which has caused a significant amount of controversy. To understand where this controversy stems, one must examine the roots of our modern leasehold legal system.

When the Leasehold Valuation Tribunal (which is now named the First-Tier Tribunal, and which I will refer to as "Tribunal") was originally created under the Housing Act 1980, this was part of a group of legislative reforms to UK residential property law, most notably the statutes enacted in 1985, 1987, 1993 and 2002 that were designed to address the imbalance between leaseholders and their unscrupulous landlords. These new rights, amongst many, enabled flat owners to take control over the management of their building, purchase their freehold, extend their leases, and challenge unreasonable service charges. The Tribunal was devised effectively as a non-costs court enabling leaseholders to take necessary action without incurring significant costs in so doing. While even today, the system is still generally regarded as being more favourable to landlords; it is undeniable that it has made leaseholder's lives significantly fairer.

Returning to the consultation paper’s proposals, while one can appreciate the desire to reduce public spending and it being in tune with now implemented fee increases across employment and family court proceedings, it has been argued that these new fee proposals fly in the face of the spirit of the leasehold reforms. The law society, for example, has commented that the new proposals are tantamount to “selling justice like a commodity”.

While the proposals have quite widespread implications, in specific reference to Leasehold Reform services of which I specialise, they are such that applications and hearings that are currently free of charge will become £400 and £2,000 respectively.

I provide the following example which highlights the unfairness that will result from the changes both to cases of lease extension and collective enfranchisement:

It is prescribed that only after the elapse of a two month period to allow for negotiations over the terms between the landlord and the leaseholder, can either of them apply to the Tribunal for their assistance to resolve the dispute. However, if no application at all is received by the Tribunal within a particular time period, the legislation stipulates that this counts as a deemed withdrawal of the leaseholder’s claim, which can have devastating consequences. This leads to the invariable situation where a leaseholder has no choice but to incur these considerable tribunal fees, even where the landlord may have been responsible for the necessity of the application in the first place due to his unreasonable demands or uncooperative behaviour.

The situation is exacerbated by the fact that the Tribunal, despite recent increases to its cost-awarding powers, still behaves as a non-costs court, their tendency to only award costs in the most exceptional of circumstances. As it stands, the leaseholder is unlikely to ever be reimbursed for these unnecessary costs. This ultimately creates a situation whereby a landlord can potentially use these fees as leverage to impose extra conditions on leaseholders and exploit these changes to full effect.

A possible way this damage could be mitigated, at least from the leaseholder’s perspective, is if the Tribunal were more inclined to exercise its cost-awarding powers. However, even were it to do so, it would increase the amount of litigation involved in cases as parties will invariably dispute who was to blame for the necessity of those costs. It is these repercussions that appear not to have been considered within the consultation paper and why, among other reasons, it is arguable that the fee increases are misjudged.

The resulting shifts to the balance of power and the consequential litigation may not turn out to have the anticipated impact on lifting the burden on the tax-payer, who would still be expected to pay at least 25% of Tribunal costs. The erosion of leaseholder rights and the potential  impact on the property market revenue may turn out to be detrimental and contrary to what was the original intention behind the Ministry of Justice’s proposals.

We will know if the proposals will be adopted after the consultation paper closes on the 15th September 2015.

For any queries relating to this article please contact Daniel Tang on 0208 7373 or email dtang@judge-priestley.co.uk