June 17, 2024

French resi service group Emeria clears out FirstPort management in take-over

Will much change with the take-over from the usual service – service, that is, to the freeholders who employ FirstPort?

And what – sacrebleau – is going on with the leaseholders at St David’s Square, on the Isle of Dogs, who are litigating in January?

FirstPort, the biggest residential property manager in the UK, has been taken over by French private equity firm Emeria – which will almost immediately face a major rebellion from prime London site St David’s Square on the Isle of Dogs, which is due in court in January next year.

Emeria announced in March 2022 that it was buying out Equistone Partners, although the price paid has not been disclosed.

Emeria is the latest is a long line of private equity owners of FirstPort. Until 2012 FirstPort, then known as Peverel, was owned through a series of companies headed by Euro Investments Overseas Inc based in the British Virgin Islands. In turn, that company was controlled by the Tchenguiz Family Trust which was, and is believed to be, held primarily for the benefit of Vincent Tchenguiz.

Emeria’s empire

Following Mr Tchenguiz’s arrest, with his brother Robert, on wrong evidence by the Serious Fraud Office in February 2011, Bank of America Merrill Lynch called in its loans to the then Peverel Group and forced it into administration. In 2012, FirstPort was bought out of administration by its managers and private equity funds Electra (subsequently Epiris) and Chamonix Partners (no relation to the Chamonix managing agent business).

In 2019, Epiris and Chamonix sold FirstPort (excluding the Appello technology business) to another private equity fund, Equistone.

Less than three years after that sale, Equistone sold on FirstPort to Emeria, a French private equity firm backed by Partners Group and TA Associates.

Emeria’s debt was recently rated as non-investment grade B / B+ (or “junk”) by ratings agency Fitch. The low credit rating of Emeria, not uncommon in private equity firms, means it has to pay an interest rate premium to be able to issue bonds to investors. It is unknown if borrowing (called leverage in the private equity trade) is being used as part of the FirstPort takeover.

According to filings at Companies House, Nigel Howell resigned as a director of DriveTopCo, FirstPort’s holding company, on 18 August 2022. Mr. Howell is replaced by Kully Sahdra as managing director. At the time of writing Ms Sahdra has not been appointed as a director of DriveTopCo.

Ms Sahdra joined FirstPort in November 2020 as Director of Customer Experience. Ms Sahdra previously spent most of her career at Centrica, owner of British Gas.

David Young, former Chief Operating Officer of FirstPort and another Centrica alumnus, resigned as a director of DriveTopCo on 25 May 2022.

Long-time chairman of the Board, Paul Lester CBE, a former chief executive of retirement housebuilder McCarthy & Stone, also stepped down as a director of DriveTopCo on 18 August. Mr Lester appears not to have been replaced.

Equistone legally exchanged the deal to sell FirstPort to Emeria at the end of March this year, but the deal required Financial Conduct Authority approval owing to the insurance aspects of the business, which was granted at the end of July.

Mr Howell, who was 63 in May and had served nine and a half years, discussed the deal with LKP at the joint ARMA / IRPM conference the same month.

It is unclear what has happened to the debt and equity held by FirstPort’s senior managers. Trade press reports at the time of Emeria’s takeover suggested managers would continue to co-invest alongside Emeria.

FirstPort’s website shows that almost all of FirstPort’s senior management has now been replaced. The sole survivor of the ancien régime appears to be chief financial officer Ouda Saleh. Mr Saleh remains a director of DriveTopCo.

On 18 August 2022, Mr Saleh was also appointed as a director of Emeria Res UK Limited, the acquisition vehicle used by Emeria to buy out Equistone.

Mr Howell now advertises his services as an independent consultant looking for non-executive director appointments. Mr Howell describes himself on LinkedIn as “an experienced customer-centric board member and CEO”.

Rebellion at St David’s Square

The “customer-centric” focus has received a qualified response from leaseholders at one of FirstPort’s flagship developments in East London, St David’s Square. There, FirstPort admits it has been issuing incorrect service charge demands for a “period of some years”. FirstPort continued issuing incorrect demands even after it was told by leaseholders of its error.

Fed up with what they see as poor management and overcharging, a group of nearly 90 leaseholders has banded to together to challenge service charges between 2018 and 2020. Leaseholders at the site are particularly incensed at having to pay more than £140,000 a year to rent an intercom from a company called Countryside Communications.

According to documents seen by LKP, FirstPort’s approach was first to ignore and then refuse to answer any questions posed by leaseholders of St David’s Square regarding service charges.

When leaseholders at the site asked to inspect receipts and invoices supporting the service charge accounts, FirstPort’s response was that leaseholders could only do so if they attended the site office and personally paid overtime to the on-site staff.

Section 22 of the Landlord and Tenant Act 1985 provides that a leaseholder may only be charged reasonable fees for copies of documents and cannot be charged for staff time.

After the matter was raised with LKP, FirstPort eventually provided the documents for the 2020 service charge year electronically. The leaseholders then had to persuade the First-tier Tribunal to make an order forcing FirstPort to produce documents for the 2018 and 2019 service charge years, in the teeth of opposition from FirstPort.

New faces in FirstPort’s senior management include Phil Heywood, now titled Operations Director, Property Services. Mr Heywood was regional manager overseeing St David’s Square between January 2018 and July 2019.

During Mr Heywood’s tenure as regional manager, a leaseholder at St David’s Square successfully sued FirstPort for disability discrimination and for disrepair lasting eight years. In February 2018, FirstPort was ordered to pay costs and damages of more than £6,000 to the leaseholder in question, with further damages reserved to a later hearing.

Mr Heywood, on behalf of FirstPort, signed a 2019 settlement agreement with the leaseholder in question to avoid a further trip to the county court. Under that agreement, FirstPort agreed to pay damages for disrepair and to do works of repair worth around £7,000.

Having fought for disclosure of the 2018 and 2019 service charge invoices, St David’s Square residents were aghast to find that despite FirstPort losing the case and being ordered to pay costs, FirstPort nevertheless billed leaseholders around £25,000, including its own legal fees.

FirstPort has subsequently conceded that most of what it passed through the service charge in respect of the disrepair case should never have been charged, although it continues to insist it can charge around £5,000 under the terms of the lease.

In the same proceedings, FirstPort was also found to be in breach of lease terms by charging a 30% commission for arranging swimming lessons in the communal pool. FirstPort ignored the county court’s order until January this year, continuing to charge the 30% commission until it realised other leaseholders knew of the county court’s February 2018 order. FirstPort says that the commission was paid into the service charge fund for the site.

Freehold Managers, who oversee FirstPort on behalf of freeholder the ARC Time Freehold Income Fund, claims neither it nor the freeholder were aware that FirstPort had defended the claim, lost the claim or passed on costs to leaseholders.

Freehold Managers is part of the same corporate group as the Vincent Tchenguiz operated E&M Estates.

E&M is a founder member of the new freeholder lobbyist group the Residential Freehold Association, whose prime spokesman appears to be Mick Platt, of Wallace Estates. The Association claims that large sites such as St. David’s Square benefit from the involvement of organisations such as the ARC Time Fund and Freehold Managers.

The St David’s Square challenge is due to be heard at the First-tier Tribunal between 16 and 20 January 2023. FirstPort and Freehold Managers have retained solicitors JB Leitch and barrister Simon Allison to represent them at the hearing. FirstPort’s written arguments see it claim that it should be able to pass on all the costs it is incurring in these proceedings to leaseholders at the site.

FirstPort is also assisted by in-house barrister Caoimhe McKearney, formerly a tenant at Gatehouse Chambers, later working on leasehold reform for the government and as part of the Law Commission’s leasehold enfranchisement reform project.