Residents Association problems - Flats with share of freehold

Taradiamond

Hello all,
I am in a bit of a dilema at the mo. I own a flat that I previously lived in for 8 years, then moved in with my partner and had kids, so have hung onto but now let out.

It is a beautiful old flat in a block of a few flats, basically an old house converted into a number of flats. All owners have a percentage of the freehold to the property. Management of the building and grounds is carried out by our own residents association which is set up as a company, registered with companies house. Myself and the existing secretary are named as the two sole company directors.

The flat is an old building and is beginning to need various repairs, however, we have no funds in the pot due to carrying out major repairs to the roof. One flat sold recently and the new owners are up in arms about no money remaining to carry out drainage work to their side of the property, so they have taken it upon themselves to carry out the work and bill the association for it. We recently all met, agreed to put the maintenance up to get funds back into the pot and discussed the work needed. We did not however, agree to the work going ahead at this present time.

Basically, the new owners are not happy with the way the company is run and accusing the secretary of wasting our money, by using a chartered accountant to file our accountants, of course, at a fee. They also feel that we could do the paperwork ourselves. Its got so personal against the existing secretary to resign and hand everything over to me.

My questions are:

What are my legal responsibilites as far as being secretary of the company goes?
Do I have to use a chartered accountant to look after the accounts/file tax returns etc?
How much money do other residents associations have in reserve?
Is it necessary to have a treasurer, secretary and chair person for a block of a handful of flats?


I have looked online and found some useful bits and pieces of factual info but I really would like to hear some first hand experiences from people who actually do this.

Thanks in advance everyone :T

Taradiamond

Anybody??
Someone help me here?

I have taken on this role and have ended up receiving a rather shirty email from one of the residents, it is becoming a daily thing now. The resident would like herself and another flat owner she in in cahoots with, to become companies directors. We already have 2, myself and the previous secretary.

Does this mean that every time a cheque is signed/documents for solicitors completed etc all 4 directors need to sign? How does it work? I know we need to fill out forms from companies house and that there is no fees for this but please someone help me here, just about had enough of her!!

propertyman

yes, me, later today

clw1

No advice on your specific query but companies house run free half day training sessions about directors responsabilities / forms etc - I have been to one and it was very useful.

http://www.companieshouse.gov.uk/about/chEvents.shtml

Jenniefour

Will chip in later as well - there's a lot on info you need here to resolve all this.

Jenniefour

OP. Difficult situation so here's my bit for you. There are now two major issues - sorting out the 'business' side of all this and relationships between the flat owners. Have tried to address both.

1. It sounds as though you have all been running the building on an ad hoc, informal basis. It's fine to have that approach (i..e. friendly, co-operative) but, at the same time, you need to make sure that the building is indeed being run properly i.e. compliant with the legal documents of the Company. This will prevent no end of future problems, it will mean no more difficulties like the present one, everyone's proper interests will be appropriately attended to and it will protect you all from any leaseholder feeling so disgruntled by poor management that they decide to take legal action. Or just decide to be terrible neighbours.

2. As Company Secretary essentially your job is to make sure accounts are submitted on time to Companies House. Which you are already doing. I would agree that using an accountant is not necessary and will save money. You are not obliged to use a Chartered accountant for this kind of company, you are not in the business of making a profit, paying tax etc.

3. Directors of companies have legal obligations and responsibilities to run the company for the purpose for which it was created, and to run it properly. Essentially, what that means for you and your fellow Director is that you manage the building properly and in compliance with the Memorandum and Articles of Association. These are legal documents which state the aim of the company and how it should be done. If necessary find a friend with legal knowledge who can translate it for you if you don't understand it - or post the sections on here and someone will help.

3. All the flat owners (who are also the joint freeholders because you each have a share in the company) have rights and responsibilities which are set out in your leases (which will be identical except for the obvious - flat number, share of maintenance and so on). Leases are also legal documents, parts of which may not be readily understandable. Again, if you have a friend with legal knowledge, great. If not, post the bits not clear here.

5. You have already decided to build up a sinking fund - the right thing to do. What you need to ensure is that this money builds up over time so, ideally a) the flat owners are never expected to cough up lump sums because the sinking fund has sufficient in it to deal with all major repairs etc. and b) no needed work is ever delayed because there is a shortage of funds and c) no-one ever gets to own a flat there for a few years without making sufficient contributions to the sinking fund, regardless of whether major work is needed in their time. That accounts for wear and tear, they have the use of the building and must contribute to future repairs.

At some point very soon it would be very helpful to work out this more accurately. Because there has not been a sinking fund in the past this means that, unfortunately, the present freeholders will have to pay in more than they would have otherwise and for some years to come. That's life, it needs to be done. No repairs, including major ones like the roof, should ever deplete the sinking fund to nothing.

6. Keep anything at all to do with the proper running of the building including finances impersonal. The financial status of any individual leaseholders is not the business of the Residents Association, and should not be allowed to become so. What that means is that in exchange for having a flat in a very nice building then people who live there need to be prepared to deal with repairs in a timely manner - which is not necessarily the case if you own your own house where you can choose to let the roof fall off.

7. New flat owners who have had repair done. Yes, they did it without prior agreement. However, they made that choice because the building is not being properly run. That money must be refunded to them right away without any admonition/argument. They should not have been in that position.

8. Why should they not become company directors? If you consult you Articles I think you may find you will not be able to prevent this. Even if you could it will simply escalate the damage being done to neighbourly relationships. So I would welcome this. It might well be that one of them does understand how to run the building in a way that is complaint with leases etc. There is nothing to prevent all of you being a director as far as I know. How many flats in the building? In fact, I would invite them to do this and explain that what all this has drawn to your attention is that the company has been run in a well intentioned but possibly poorly informed manner and it is now clear that it would be very useful to review this together.

9. You do need to agree how to deal with urgent repairs - a lot of repairs and maintenance can be planned well ahead, some things can't. The deal we had for urgent repairs was that it only needed agreeing by one other flat owner by phone/email. No meeting needed and no drawn out process going through three quotes. That also meant if some owners were away (two were actually landlords so didn't live there) nothing urgent would every get held up.

10. First thing is to repair relationships if possible. How about calling a meeting and having a calm discussion about all this. Not really understanding leases and other documents is very common, and is the cause of many difficulties like the present one. It is in all your interests to get acquainted with your leases and your obligations concerning running the company. Take the personal out of it. In your shoes, I would be sending out a somewhat conciliatory email asap - something along the lines I have suggested in point 8.

11. The flat I had in a similar building (old Victorian detached house, huge rooms, big garden, proper car park etc,) was one of 5. For years, we ran it on a shambolic and totally irresponsible way - but, fortunately it worked. Sheer good luck. We did change it when we got an education on our leases and other legal documents. We upped the service charge massively - to achieve the aims I put earlier. I no longer live there but those changes were put in place 7 years ago. My friend who still lives there tells me that sinking fund now stands at 40k. They have had major work done last year -complete refurb, re-wiring and re- carpeting of common parts (huge hallways and staircase), they have paid for roof repairs and all other repairs needed. They are now considering reducing the service charge by about 20% as they now have the proper contingency for a building of that size. But a substantial amount will still go into the sinking fund. They also review the service charges annually - even if they don't put them up.

Hope that helps!

Taradiamond

Wow, thank you Jenniefour, I was not expecting something quite so comprehensive.

I called a meeting last month and it was all amicable. Its just the resident in question likes to continually bombard me with emails, I do not live there anymore as I rent my flat out, but am often there - I will be tomorrow to sort out fire alarm testing,hence my desperate plea for help before I encounter her tomorrow. The chap who looked after things previously resigned as secretary due to her nature and accusing him of mismanaging the money and implying some sort of fraud. I can see no evidence of this and have put the account spreadsheets on a shared 'cloud' storage system with read only access so everything is there for all the residents to see.

It is a block of 5 flats, similar to what you describe, an old house converted into 5.We have put together a list of things that need doing and put them in order of priority to work out how our funding is used. Everyone agreed at the meeting, however, the resident in question took it upon themselves to carry out minor drainage that directly effected their property which we had put at a lower priority than other issues that needed addressing ....i.e upgrading and sorting our fire detection/alarm system etc. She is now not paying maintenance each month as she has paid for this work to be done....incidentally by her partner, a builder. Unsuprisingly some of the other residents are not happy. I can understand her point but the lack of adequate and certified fire systems was a higher priority to everyone in the flats!

Jenniefour

Tomorrow. See my last paragraph on bottom of post.

Taradiamond wrote: »

I called a meeting last month and it was all amicable.

Good!

Its just the resident in question likes to continually bombard me with emails, I do not live there anymore as I rent my flat out, but am often there - I will be tomorrow to sort out fire alarm testing,hence my desperate plea for help before I encounter her tomorrow.

What exactly is she saying in her emails?

The chap who looked after things previously resigned as secretary due to her nature and accusing him of mismanaging the money and implying some sort of fraud. I can see no evidence of this and have put the account spreadsheets on a shared 'cloud' storage system with read only access so everything is there for all the residents to see.

Exactly the right thing to do - accounts in your kind of set up should always be transparent and available for any of the owners to take a look at.

We have put together a list of things that need doing and put them in order of priority to work out how our funding is used.

That, as a general decision, was fine.

Everyone agreed at the meeting, however, the resident in question took it upon themselves to carry out minor drainage that directly effected their property which we had put at a lower priority than other issues that needed addressing ....i.e upgrading and sorting our fire detection/alarm system etc.

This is the bit that wasn't fine. Anything that directly affects the enjoyment of anyone's home and is causing on going nuisance, damage or inconvenience should not be voted on at all - it should simply be dealt with in a timely manner i.e. the length of time it takes to get a tradesperson in to fix it. This would be compliant with the company rules. Please read them.

This item should have probably had first priority because one of your obligations as members of the management committee is to protect the rights of owners/residents to enjoy their home. Even if it is only an issue for one flat. Sometimes issues which affect one owner only are not seen to be as important as something which affects everyone. This is not the case - an issue for one flat owner should be sorted out with the same sense of urgency and importance as one which affects everyone.

She is now not paying maintenance each month as she has paid for this work to be done....incidentally by her partner, a builder.

I can't blame her - she must have been terribly angry that the drain issue was put to the vote and, to add insult to injury, she lost!! So, on this occasion, it's appropriate to turn a blind eye to her reclaiming her money by not paying the service charge and using her boyfriend to fix it. If there are sufficient funds in the account right now you have the option of giving her the cheque for the outstanding amount. Do this if possible, it might help. Your neighbour was put in this position by the wholly inappropriate decision made at the meeting. Inadvertent, but caused by a lack of clarity about how to manage the building in a way that is compliant. More constructive to take the learning from it.

To prevent this ever happening again please acquaint yourselves with your obligations as shareholders. It is clear from your posts that you, and your fellow flat owners, are making mistakes by not being well enough informed about your responsibilities although it is clearly not intentional. Make sure issues which directly interfere with anyone's enjoyment of their home (one or all, no difference) do not go to a vote (or similar) and simply get dealt with promptly. Create a simple system for dealing with immediate emergencies like flooding from an upper floor flat.

Go forwards on the basis that no-one's boyfriend, brother and so on will be doing any work. Then in the event the work is unsatisfactory no unnecessary bad feelings are created and there are no conflicts of interest.

Unsurprisingly some of the other residents are not happy.

Everyone can be happy when they are fully informed and confident about how to manage the building properly, including your new neighbour. When that is sorted out - and your neighbour is assured you do all understand why she was angry and took the action she did - I suspect calm will reign once more.

I can understand her point but the lack of adequate and certified fire systems was a higher priority to everyone in the flats!

No, it wasn't a higher priority. The fact that she was the only one affected by the drain was totally irrelevant. Her right to have her enjoyment restored by getting the drain repaired was well and truly breached. Not to mention the clear mis-use of voting/agreeing. Your neighbour was unfairly outnumbered - in a situation where everyone was obliged to protect her rights as a leaseholder and effectively voted to ignore her rights instead. Dealing with the drain should have been priority and then she wouldn't have needed to get her boyfriend to do it or withhold her service charge to get the money back. This was the inadvertent error that led to this messy situation. It wouldn't go amiss for her to receive an apology about this. No-one should have to ask for an issue affecting their enjoyment to be attended to - they should only need to report it. The committee must stop dealing with issues like this by using some kind of voting system - the only things to be decided is which tradesperson/how many quotes. If they like a good vote now and again they can do this to agree the annual accounts and things like what colour to paint the garden gates.

It's possible that what you're experiencing as a bombardment of emails are actually further valid points, but perhaps getting lost because of how angry your neighbour is and/or how she's trying to get her points across. Both the issues she's raised have been valid. So it might be wise to look again at the contents of these emails. If these specific issues are anything to go by (drains and accounts) then it's highly likely that she is well informed about proper management of the building. So your new neighbour could well be a valuable person to have as a director - difficult though it may appear right now.

If you need more help e.g deciding on whether she's raising further valid points in the emails feel free to post away.

A couple of further points. The management committee can agree to pay you a modest amount from the company account as thanks for all the work you're putting in. I used to get £200 a year as thanks, I was secretary and also did lots of other things. I get the impression that you're very committed to taking care of the house and that you put in a lot of time to go over and get things done.

Whilst your new neighbour does have a point about not needing a chartered accountant and saving money for the company do you really want to take this on as well? I assume, since your new neighbour brought it up, she may well have the know how and be willing to do this for the house. So do ask her - tomorrow? That would be a way of helping her feel part of the "team", instead of having to fight it.

Good luck!!