A judge has ruled that owners of holiday cottages managed by Falmouth businessman John Hick have been wrongly paying service charges for eight years.
Mr Hick, 74, father of Falmouth MP Sarah Newton, who owns Pendra Loweth, at Maen Valley near Goldenbank, could now be forced to repay the money if holiday cottage owners successfully win a second hearing.
Mr Mr Hick is also chairman of the Falmouth Business Improvement District and of the Falmouth Tall Ships Association.
Pendra Loweth is made up of 116 holiday cottages, leased by a mixture of local people and others from around the UK.
Action was brought against him and the site’s management company by the Pendra Loweth Leaseholders Group, made up of a number of the cottage owners who were unhappy about the service charges they had paid. They first began challenging the accounts back in 2007.
A tribunal judge in Plymouth has now agreed that the service charges for 2006 through to 2013 inclusive are not payable under the terms of the lease.
However, leaseholders wanting to claim back the money already paid will have to do so in a separate action.
Solicitors acting on behalf of the leaseholders group claim that if successful each leaseholder is owed more than £16,500 – a total of around £1.9 million if every cottage owner makes a claim.
It was also pointed out by the judge that if the service charges were reissued under the correct terms of the lease then some of the charges would be applicable.
The tribunal heard that no audit of the service charge accounts was made – a requirement of the lease.
The leaseholders’ solicitor Mr C Knapper argued that as landlord Mr Hick and his company had “not addressed what was required by the lease, but had simply issued a demand for ‘maintenance’.”
However, Mr Hick’s solicitor Mr M Selway responded that this term was used and understood to mean service charge – something that was accepted by the judge, who said as such the charge should not be limited to items of actual maintenance.
Mr Knapper said the demand for maintenance was accompanied by a set of accounts for Pendra Loweth Management Limited rather than individual service charge accounts.
He stated that these management company accounts included wages, advertising costs and even the bill for taking an accountant out for an Indian meal – expenditures of which there was no reference within the lease.
The judge later said: “Apart from not using the terms used by the lease, there must be a real question as to whether the company was a business aiming to make a profit from the lessees or otherwise, rather than a company standing in the shoes of the landlord to maintain the property in accordance with the requirements of the lease.”
He said the demands for service charges were “defective in terms of the requirements of the lease” because estimates were based on “polluted” company accounts, and there was never any audit that “could have disentangled the service charge elements.”
“There was, in short, no realisation that the company accounts could not...be also the service charge accounts,” he added.
He also stated: “There is no suggestion here that anybody has acted in an untoward manner, rather that there is a significant level of ignorance as to what is required for the protection of the rights of tenants.”
Mr Hick’s solicitors Preston Goldburn also came under severe scrutiny from the judge, who said: “Here is a real conundrum, a situation where the solicitors draft a lease, the terms of which in relation to the service charge comply with statutory requirements and with the RICS guidance, but where those same solicitors go onto argue that the terms of the lease should not be applied.”
He referred to “some quite startling statements” from the solicitors in 2008, in which they said the management company did not produce audited accounts and “it was not necessary”, adding it was “also because of cost that they were not produced,” according to the judge.
He also claimed the solicitors had suggested the leaseholders could “always challenge the fairness of the certificate” if they believed there had been overcharging.
The judge went on to add: “It is crystal clear that the solicitors who produced a lease in a form compliant with statute and the RICS code had no real understanding of what the lease actually required.”
Similarly, the judge said a statement from Mr Hick’s Michael Godden “muddies the water even further” because he described how the company accounts were “effectively ‘fudged’”.
Mr Godden then “shows his apparent ignorance” of the both the lease and recommended best practice when he wrote in his statement that there would have been little or no benefit if the tenants had the accounts audited, said the judge.