9:46 AM, 8th June 2016, About 5 years ago 109
In this article we reveal the detail of:-
The history behind our legal action against West Bromwich Mortgage Company
In September 2013 over 6,000 buy-to-let mortgage borrowers received a letter from West Bromwich Mortgage Company advising them that an additional premium was being added to their lifetime Buy-to-Let Tracker Mortgages. As if that wasn’t enough to spark outrage, the letter also contained a veiled threat to call in the mortgages with just 30 days notice if the lender deemed them to be unprofitable business.
The letters quoted spurious terminology from a generic mortgage terms and conditions booklet. From the outset, many affected borrowers believed the terms quoted were not applicable to their mortgages, especially given that the general conditions contained an inconsistency clause which gave greater weight to special conditions in the mortgage offer letters.
In a similar scenario, six months prior, Bank of Ireland also decided to charge an additional premium to over 13,000 of its lifetime tracker rate mortgage holders. Representations were made to the FCA on the grounds that their principles of Financial Promotions Regulations had been breached on the basis that the mortgage documentation falling short of being “clear, fair and not misleading”. The FCA chose not to take up the matter and said buy-to-let mortgages were not regulated under their remit. This was despite consumer based homeowner mortgages having also been affected. It was a strange decision to say the least, hence conspiracy theories were rife. Borrowers wanted to take legal action but the fund-raising to do so was unsuccessful.
When the West Bromwich Mortgage Company tried the same thing, that became the straw that broke the camels back for several buy-to-let borrowers. Many were affected by the rogue decisions of both lenders. I fondly refer to these borrowers who backed my case as Spartans, for their fighting spirit, there were just over 300 of them.
Several organisations refused to back the Property118 Action Group fund-raising campaigns for legal action. Instead they chose to direct their members to the Financial Ombudsman Service, which is what the West Brom had encouraged them to do. This could so easily have derailed fund-raising attempts to seek justice through the judiciary but thankfully, enough borrowers who were affected by the West Brom were sufficiently incensed and undeterred so the fund-raising went ahead regardless.
Mortgage brokers refused to back the Property118 Action Group campaigns too, perhaps fearful of reprisals from mortgage lenders who might perceive them to be trouble makers.
Despite conveyancing solicitors potentially being in the firing line, for not identifying the potential ambiguities in the mortgage conditions and advising their clients accordingly, they too failed to get involved with the funding of the legal action.
Some highly regarded bloggers, online forum owners and mortgage brokers even went on the offensive in an attempt to persuade affected borrowers that they were wasting their time and money by backing the Property118 Action Group campaign.
To a very great extent we were on our own.
Despite all of the knock-backs, over £400,000 was raised initially by Property118 Action Group members to fight the case through the judicial process. We unanimously appointed Cotswold Barristers as our legal representatives on a direct access basis. As a result, Property118 Action Group made history for being the largest direct access representative action case ever in the UK and received widespread publicity. The Telegraph Newspaper seemed to be the only major organisation on our side and we will be eternally grateful to them for that, in particular to Nicole Blackmore and Richard Dyson. We are also thankful to David Lawrenson, author of Successful Property Letting and a partner in the consultancy firm Letting Focus which ran numerous supportive blog articles.
More knock backs
The cases referred to the Financial Ombudsman Service were all rejected. Complainants felt the FOS decisions to be illogical and biased but the majority of those who were not already part of the Property118 Action Group became resigned to accepting the decision nonetheless.
Then came the first hearing at the High Court. We lost that too and the Judge refused leave to appeal.
Persistence paid off
Those of us who had pored over the contract terms and related case law beleived that all the knock backs were just bumps in the road on a very long journey. We all had faith in the judicial system. We raised even more money, as we were adamant that the case needed to be escalated to the highest possible level to prevent other mortgage lenders from trying on something similar.
The end began to appear into sight when we were eventually granted leave to appeal by the Court of Appeal in May 2015. The date set for the Appeal hearing (April 2016) seemed so far away at that time.
On the day of the Appeal we were delighted to have three of the UK’s most senior Judges hearing our case, the best-known being Sir Brian Leveson, President of the Queen’s Bench Division. At last we were being taken seriously! We left Court that day feeling a lot more confident that we had been given a fair hearing and we felt we stood a very good chance.
The Court of Appeal ruling against West Bromwich Mortgage Company and the knock on implications
Today was judgement day.
I am delighted to announce that the Appeal Judges found in our favour on both of our legal arguments. To summarise:-
This ruling sends a clear message to other lenders who have acted in a similar manner, and to those who might have been considering following suit. There are thought to be in the region of one million tracker buy-to-let mortgages which could have been affected in this case had gone the wrong way.
I cannot begin to thank our team at Cotswold Barristers enough. Mark Smith in particular, their Head of Chambers, went above and beyond to answer every single question posed on the Property118 open forum and also on a secret secure forum exclusive use of members of Property118 Action Group.
I am extremely grateful to all of the Property118 Action Group members who didn’t lose faith in our quest for justice. My win will now be automatically applied to them due to the fact they were represented by my case. It remains to be seen as to whether West Brom will apply the ruling to borrowers who were not represented by my case.
Is that definitely the end of the line?
It is indeed, the court order made no mention for permission to appeal to the Supreme Court having been requested or denied. Applications for the Supreme Court to hear an appeal are only permitted if the Court of Appeal refuse permission.
As history has been proven over and over again, it is incredibly difficult to persuade landlords and associated professional bodies to take on this type of “David and Goliath” legal battle.
The fund-raising for the Judicial Review of the 2015 Summer Budget clause 24 announcement and subsequent legislation restricting finance cost relief for individual landlords is another example of that. Donations required to progress the Judicial Review are falling short of target. Sadly there are many more examples of legal battles that should have been fought by landlords but never happened due to lack of funding, to name but a few:-
It is NOT too late to fight these battles!
The win against the West Bromwich Mortgage Company isn’t the only legal battle successfully organised on behalf of Property118 members either. We have also successfully brought together groups of landlords together to prosecute rogue agents. Many of these cases never actually get to Court on the basis that it is no longer in the interests of the public purse for a trial to take place when the accused chooses to settle with all complainants represented by Property118 and Cotswold Barristers.
As a direct result of these experiences we have amassed a huge amount of intellectual property.
Small UK housing providers (buy-to-let landlords) often lack the experience and finances to defend their legal rights. Property118 Action Group Limited will offer them a unique and powerful umbrella at a very reasonable price.
Successes in the Courtroom will enhance our public profile and drive an increasing number of landlords to seek the security and peace of mind that only Property118 Action Group membership can provide.
As all those affected by West Brom, BoI, Skipton etc. learned to their peril … when it comes to funding litigation of this nature, legal fees insurance policies are about as useful as a chocolate fire guard. Furthermore, other trade bodies have proven they don’t have the necessary experience, finances or other resources to get involved in action beyond referring their members to their preferred suppliers of legal services, the authorities or Ombudsmen.
Membership fees of just £10 a month will provide members with peace of mind, in that Property118 Action Group will assist to protect their rights under the following circumstances:-.
1) Organising Private Prosecutions of rogue letting agents and other service providers
2) Organising representative action against unfair manipulation of terms by mortgage lenders
3) Organising Judicial Reviews of adverse legislation
Where action is deemed viable Property118 Action Group will not only organise it, we will also procure and pay for legal assistance, where necessary, for the protection of our members rights. The business model will not be insurance based, it will be more akin to a Union which utilises members funds to protect their rights.
To raise standards from suppliers of products and services to the UK private rented sector.
To increase the awareness of the social and economic benefits of a healthy private rented sector in the UK.
To ensure that greater consideration is given to consequences of legislation affecting the UK private rented sector before it is implemented.
To provide an effective deterrent to rogue operators preying on private housing providers, not only with a voice but also with teeth in terms of legal capability and they contacts and money required to back it.
There are believed to be circa two million landlords in the UK.
Our initial target is to recruit 2.5% of UK landlords to become paying members within five years.
Prospective members are all UK landlords who recognise the value of an organisation which helps them to defend their rights.
Characteristics Of Target Market
The UK private rented sector is often described as one of the UK’s remaining “cottage industries”.
Private landlords are own around 4.8 million properties providing housing for around 22% of the adult population.
The PRS generally has become increasingly critical of trade associations for not taking up their legal challenges. However, these organisations do not possess the same level of experience, success and intellectual property as Property118 Action Group, hence the opportunity to unite the sector via this business model.
Reaching the market
Successfully defending our members rights will enhance our public profile through media based PR and reporting.
ARLA (Association of Residential Letting Agents) were the first to agree to promote Property118 Action Group at their landlord exhibitions, by having roll up banners on their own exhibition stand and by encouraging their own staff to hand out leaflets to attendees.
In 2015 the Property118.com website had over 3 million page views from over 1.8 million unique visitors. The projection for 2016 is over 8 million page views based on the results in the first half of the year, trajectory of growth and the anticipated additional interest off the back of the win against West Bromwich Mortgage Company at the Court of Appeal.
We envisage spikes in new membership when groups of landlords feel they are being attacked. For example; in 2013 Bank of Ireland raised tracker rate mortgage margins and over 13,000 borrowers were affected. Many of them initially expressed an interest in legal action. However, when it came to having to commit substantial sums of money to fund legal action their enthusiasm quickly dissipated leaving less than a few dozen of the more militant campaigners with the impossible task of raising the required funds. Counsel’s opinion of the case was very optimistic. If each of those affected had only needed to commit to paying £10 a month the position might have been very different, as would the level of media attention on the case as it progressed through the judicial system. The Bank of Ireland case is likely to be one of the first we will seek to fund on behalf of our members, providing a sufficient number of affected borrowers become members of Property118 Action Group of course.
There are also many examples of landlords having been victims of fraud by abuse of position committed by their letting agent where Police and CPS have dropped cases due to lack of resource.
We believe our exposure to the market and our success in the Court of Appeal will eventually serve to unite all bodies representing landlords and letting agents by forming alliances with Property118 Action Group.
We do not envisage any realistic competition on the basis that no other organisation has the same level of experience, success and intellectual property to operate a similar business model.
Several Landlord Associations and professional bodies in the letting industry sector have encouraged the establishment of a membership based Property118 Action Group on the basis we will be non-competing and providing a level of support which they are unable to offer to their members themselves. These include Scottish Association of Landlords “SAL” and East Midlands Property Owners association “EMPO” and the Association of Residential Letting Agents (“ARLA”).
Letting Agent Support
We are confident that professional letting agents will soon begin to recognise the value of recommending their clients to become members of Property118 Action Group Limited. The effects of the restrictions on finance costs are a good example of that. If the availability of quality rental property was to contract as a result of adverse legislation the impact will be felt directly by them.
Whilst letting agents will not earn commission from recommending membership, they will be provided with a significant quid-pro-quo. Any agent with more than 200 landlord clients who belongs to a professional body including ARLA, NALS, UKALA, RICS that persuades 25% or more of their landlord clients to become members of Property118 Action Group will be granted PR privileges within the Property118.com community. These privileges will include the right to post one property market briefing for their area per month on the Property118 website, and to have a contact form below their articles and on their member profile completely free of charge. This will provide unparalleled exposure direct to the heart of their target market.
An additional benefit of these alliances will be joint PR. This is because media groups are always keen to report on matters of fairness, especially those resulting in Court action and where there is an opportunity to include a local angle in terms of supportive and affected parties.
It is in all of our interests for the PRS to continue to develop and for its image to be respected by the general public, we must all work together to achieve this.
Funding the working capital required for the new business
We aim to raise up to two million pounds of working capital in return for 25% of the shares in the business.
The valuation figure has been arrived at after careful consideration of the value of the intellectual property gained from experiences associated with legal actions organised by Property118 to date, and particularly the outcome of the representative action case against West Brom.
Use of proceeds
To raise awareness of legal and legislative issues affecting UK landlords and legal action brought on behalf of members.
To provide working capital to fund our core PR based marketing strategy which is based on assisting our members to defend their rights. Successful legal cases will enhance our public profile and encourage landlords to seek the security and peace of mind that only Property118 Action Group membership can provide.
The minimum required level of funding is £80,000 although we hope to eventually raise up to two million pounds of initial working capital in return for to a 25% stake in the company. The amount of funding raised will determine the pace of initial growth as it will have a direct impact on the number of cases we are able to organise and promote.
Our first objective is to recruit at least 50,000 paying members within 5 years, representing around 2.5% of the target market. This would produce £6 million a year of revenue based on monthly membership fees of £10 a month from each member.
66% of ongoing membership fees will be reserved to procure PR and legal services necessary to protect the rights of Property118 Action Group members.
Assuming 33% retained earnings from membership fees, and the membership target of 50,000 paying members being recruited, shareholders funds would grow by ** at least £2 million per annum **.
** Where litigation based legal action proves successful the costs are generally awarded to the winner. In the case of private criminal prosecutions The Crown picks up legal costs once Magistrates agree that a trial is in the interests of the public, regardless of whether the accused is found innocent or guilty. In both of these scenarios the money utilised to finance legal action would be returned to build financial reserves. **
We may not always be in a position to pay all costs associated with legal battles, regardless of their likelihood of success, but if/when we are short of money we are in a strong position to provide guidance to our members on fund-raising for their own cases, e.g. sharing costs with other members, insurance backed litigation etc. We have already proven that we are successful in this regard.
We believe investment into Property118 Action Group Limited should attract a tax credit of 30% of the value of shares purchased under the EIS scheme. There are also significant tax benefits on the eventual disposal of shares purchased under the EIS scheme such as no CGT being payable on gains after the shares have been held for a certain prescribed period.
If you are interested in membership of Property118 Action Group, or indeed investing into the Property118 Action Group Limited, please complete the form below:-
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