Maharaj & Lo Porto v Richard Davidoff (Tribunal appointed manager) LON/00AL/LSC/2020/0111 (decision here)
A cautionary tale of a Tribunal appointed manager behaving badly and a reminder that the appointed manager’s duty is to carry out what is in the order appointing them, and that they answer to the Tribunal as an officer of the Tribunal.
In January 2019, Richard Davidoff was appointed by the Tribunal as manager, with the order to expire on 31 January 2021. The purpose of the order was for the manager to execute a package of internal and external works that had been identified and costed by a surveyor. Davidoff had produced a draft budget for year 1 of £26,000, with major works of £10,000.
The appointment was on the leaseholders’ application as the freeholder had not carried out the works. The freeholder, by the Tribunal’s order, was to pay 50% of costs of internal works and 60% of external works (holding two flats and commercial premises in the building.)
In June 2019, the leaseholders received the first service charge demands, totalling more than £106,000, with £93,000 for a reserve fund for future works. The projected works were far more substantial that the original surveyor’s schedule and costing.
The leaseholders paid some, though not all, of the amounts demanded. The freeholder did not pay anything, but protested vigorously at the increase in amounts.
Relations between the leaseholders and the manager broke down completely when the leaseholders discovered that a company which had provided the lowest quote for various works was owned by the wife of a Mr Mark Reed, an employee (or as Mr avidoff had it, a self employed contractor) of ABC Block Management Limited, of which Richard Davidoff was the director and shareholder and which company Davidoff had told the leaseholders ‘was instructed to commence management of the building’. Mr Reed had served the s.20 notice of estimates for the works, and had denied any connection to the company. (More on this below).
No works were done before the expiry of the management order in January 2021.
I won’t go into detail on the application by the leaseholders (supported by the freeholder with whom common cause had been found), but will list the Tribunal’s findings on Davidoff’s actions.
i) The management order appointed Richard Davidoff as manager, but permitted him to delegate to other employees of ABC Block Management. The order specified a fixed management fee of £1875 plus VAT, plus 5% and VAT of estimated costs of major works.
Mr Davidoff then entered a contract with ABC appointing it as managing agent at an annual fee of £2,250. The Tribunal found that the quality of management fell far short of what would be reasonably expected, and substituted an annual amount of £900
Mr Davidoff’s contract with ABC also allowed for supervision costs of major works at 10% and ‘abortive fees’ of £2011.50 and £819 were charged. The Tribunal found:
It is unacceptable for a Manger to seek to subvert the express terms of a Management Order in this way. No works have been commissioned. The Manager has incurred these costs in connection with a specification of works which was outside the scope of what was contemplated in the Management Order. These sums are not payable by the Applicants.
ii) The contract provided for £360 pa for an ‘out of hours helpline’. The Tribunal held:
This is not a service for which a fee was sought in the Management Order. The welcome letter (at A.896) made no reference to this service. The Applicants state that they were not informed of this service, did not need it and never made use of it. No repairs were executed during the two years of the Management Order.
Mr Davidoff referred the Tribunal to the contract which he had signed with ABC. It is not open to a Manger to subvert the express terms of a Management Order in this manner. We disallow this sum.
iii) The original surveyor had not provided a specification of works. After the manager’s appointment, the surveyor withdrew from further involvement. Davidoff, with the Tribunal’s permission, appointed a new surveyor. However, the scope of works was far broader than that in the original surveyor’s report or contemplated in the management order itself, predicted on the original report. Mr Davidoff had proceeded to section 20 consultations on this extended scope of works without making any application to the Tribunal for directions:
It should have been apparent at this stage that the Management Order was doomed. The Manager was proposing a Schedule of Works completely outside the scope of what was proposed when the Management Order was made. The tenants were unable to afford the sums demanded. The landlord was refusing to pay. Mr Davidoff should have brought the matter back to the tribunal for further Directions. He gave no explanation for his failure to do so.
After the first tenders, a company that hd previously not being willing to tender, suddenly did so, and at the lowest amount (albeit still far in excess of the amounts contemplated in the management order. What was described as Valens Ltd by ABC, was discovered by the leaseholders to be Valens Contractors Ltd. One of the leaseholders emailed ABC to ask
“can you confirm whether any staff members of ABC Estates have any connection to any of the companies that were asked to tender for the work?” Mr Reed replied: “Not that I am aware of”.
About a month later in March 2020, the leaseholder
sent a further email, having discovered that Lisa Velenski, Mr Reed’s wife, was the sole director and secretary of Valens Contractors Ltd. On 2 March, Mr Reed responded: “It should be noted that I am not a Director, shareholder, nor do I receive any financial remuneration from Valens Ltd”.
The leaseholders had paid some £28,000, under protest, toward the service charge demands. This was far in excess of what the Tribunal determined that they were liable for – figures below.
iv) Davidoff/ABC had transferred some £13,000 out of the reserve account (to which only the leaseholders had contributed). These transfers were for
a) sums that were due from the freeholder
“We are satisfied that Mr Davidoff was not entitled to draw on the contributions made by the tenants to the reserve fund to meet the shortfall of the sums due from the landlord. Mr Davidoff cannot rely on his agreement with ABC to subvert the express terms of the Management Order.”
b) £720 to ABC apparently for accountants for the final accounts which the Tribunal had directed must be prepared before the hearing, but had not been. This was a breach of fiduciary duty.
c) “On 20 January 2021 sums of £2,011,50 and £819.50 were transferred to RD Estate Services Limited, a company in which Raziel Davidoff is the sole director. Mr Davidoff was unable to provide an explanation for these transfers.”
d) On 12 January 2021 £600 was transferred to ABC, apparently in respect of a ‘handover fee’ on the expiry of the management order, “albeit that no provision was made for this in the Management Order and no handover has yet occurred.” This was a breach of fiduciary duty. Moreover the Tribunal refused Mr Davidoff’s application for authority to charge such a fee.
The reserve funds were held on trust for the leaseholders for the proposed major works. It was not open to the manager to utilise them in this way.
The Applicant Tenants seek a Direction that the Manager repays the sums that are due to them. We are satisfied that Mr Davidoff was not entitled to draw on the contributions made by the tenants to the reserve fund to meet the shortfall of the sums due from the landlord. Mr Davidoff cannot rely on his agreement with ABC to subvert the express terms of the Management Order.
The Tribunal rather turns to the terms of the Management Order which are discussed in Section 8. The Order grants the Manager the power to establish a reserve fund (see (42(v)) above). However, the Manager is required to deal with those funds separately. Specific reference is made to Section 42 of the 1987 Act. Paragraph 21 of the Schedule to the Order (at (47(iii)) above), requires the accountant to certify any over or under payment. Any overpayment is to be credited to the payee; any underpayment is to be recovered as a debt.
We reject Mr Davidoff’s contention that this Tribunal has no jurisdiction to consider how the two service charge accounts have been handled. We follow the guidance provided by the Upper Tribunal is Suchorski v Norton. The Manager has held these on trust for the tenants pursuant to section 42 of the 1987 Act. We are satisfied that he has been in breach of his fiduciary duties towards the Applicants.
The Tribunal has computed that Mrs Maharaj is entitled to a refund of £11,844.32; whilst Mrs Lo Porto is entitled to one of £12,196.92. We direct that the Manager refunds these sums to the Applicants. They should have been refunded on the expiry of the Management Order on 31 January 2021. If these repayments are not made, the Applicants will be able to recover them as a debt in the County Court.
The Tribunal apologised to the leaseholders for not responding to three emails in Dec 2019/Jan 2020 setting out concerns about the scope of the management order.
On Richard Davidoff’s (and ABC) conduct generally, the Tribunal found:
(i) The Management Order has failed. None of the works identified by Mr Dobson have been executed. Our enquiries revealed that no money had been spent on improving the physical fabric of the Property.
(ii) Mr Davidoff must accept the primary responsibility for this failure. We were surprised by Mr Davidoff’s limited knowledge of the details of this case. Whilst it is open to a Manager to delegate, he retains ultimate responsibility to ensure that the outcomes sought through the Management Order are delivered.
(iii) Mr Davidoff failed to have sufficient regard to the terms of the Management Order. The outcome to be secured was the execution of the relatively modest package of internal and external repairs and decorations which had been identified by Mr Dobson. A period of two years was considered sufficient for the Property to be put into proper order and to give both IDM and Mrs Nasr time to come to grips with their management responsibilities.
(iv) The Applicants’ primary case is that the Respondent has sought to inflate the fees that he can claim through the Management Order. Regardless of whether he sought to do so, the Tribunal is satisfied that his actions have led to inflated and wholly unreasonable sums being demanded from the Applicants and the landlord/freeholder. Mr Davidoff failed to fulfil his duties as the tribunal would expect from a tribunal appointed manager who acts as an officer of the tribunal.
(v) We can see no justification for the agreement which Mr Davidoff signed with ABC. This seems to have been no more than a device to enable Mr Davidoff to levy charges and to deal with service charge funds outside the scope of the Management Order
As a coda, one perhaps still further illustrative of Richard Davidoff’s approach, he sought a direction from the Tribunal in this application that he should be entitled to recover his costs in this application of £9,360 from the freeholder, Mrs Nasr.
He states that as a “gesture of goodwill” he has only billed for 50% of the time spent on the preparation work.
We refuse to make this Direction for two reasons. First, the Interested Party has played a limited role in this application. Mrs Nasr has not sought any specific relief from the Tribunal. Her involvement has not led to any significant costs. Secondly, the basis of the application is that the Management Order failed because Mrs Nasr refused to pay the contributions that were due from her under the Management Order. Mrs Nasr refused to pay the sums of £59,613.17 which were demanded on 11 June 2019 because she considered them to be excessive. She described them as “outright extortion”; she would not be “held to ransom” on her own property. The total sums demanded exceeded £106,500. The Management Order had been premised on a Year 1 Budget of £25,805. The sums demanded were outside the scope of what was contemplated by the Management Order. Had a sum been demanded in line with that contemplated in the Management Order, it may be that the landlord would have paid. It is not necessary for the Tribunal to make any finding on this point.
The manager was given authority to sue Ms Nasr, the freeholder, for arrears arising under the management order. But the application for this should have been made during the currency of the management order. As such, the manager would be personally responsible for any costs relating to such an action. It was no longer appropriate to require the leaseholders to indemnify the manager for any such costs.
There might well have been a suggestion on how things might go in the original Tribunal decision making the management order, in which it was observed
The Tribunal noted that Mr Davidoff’s evidence had been delivered “in a somewhat arrogant manner”. He would need to reflect on this as “some harmony and good working relationship” with Mrs Nasr was essential to his appointment.
Instead, it appears that Richard Davidoff continued in the somewhat arrogant (and wrong) belief “that the Management Order gave him complete discretion as to how he managed the property. His duty to engage with the tenants was limited to that required by the 1985 Act.”
The many breaches of fiduciary duty, the attempted contractual justification for his company to charge higher and additional fees than those specified in the management order, and the failure to understand the trustee’s duty to the reserve funds, instead dipping in to them whenever it suited him (or ABC), are disgraceful behaviour for a supposedly professional manager, let alone one who is acting as an officer of the Tribunal.