Sinking Funds for Maintenance

ridpath

Hi everyone,

I live in a converted flat that is a converted house in central Bristol, there are three other flats. There is a management company in place, the company secretary is one of the owners. The MC is used to administer items such as building insurance, however there is no sinking fund in place.

The building is in a terrible state, it has not been maintained and the only work carried out is of an emergency nature, tending to be expensive and without warning. There is routine maintenance/checking/decoration. Three of the owners including me are in favour of setting up a fund, the company secretary is strongly opposed stating that it requires complex financial submissions to HMRC/company house and also incurs high cost. I find this hard to accept as it's common practice in my area, how difficult/costly can it be?

My questions are:
- how complicated is it to (from a tax submission) point of view to set up a sinking fund?
- are there any related costs?
- if three people are pro and one against, do we have any options?

Thanks.

propertyman

Oh dear what a nonsense.

Your leases are the contracts between each flat owner and your company and set out
-the companies obligation, presumably as freeholder, head lessor or party to the lease manager, for repairs and services
-the timing and calculation of service charges that fund the above
-the leaseholders obligation to pay

Whether that includes a sinking fund or not depends on the lease and if it does not, then you cannot have one, but that doesn't preclude you doing the work.

I suggest that you take a good look at the leases and the building as to what needs to be done and have a meeting to decide what and when it will be done.

The company will do its annual accounts each year which are quite simple, and the only HMRC return is for any interest earned on money in the bank.

ridpath

Firstly, thank you for the detailed reply, I will check the lease as you suggest. What I'm uncertain about is why, if the lease does not specify a fund, why we are unable to set one up?

To provide clarity, the management company has four participants, a property owner from each flat. There are no external parties. It has now transpired that here was a sinking fund in place up to 1997 (before I moved in), however the company secretary disbanded it stating that the HMRC paperwork was too complicated (which is sounds like it wasn't/isn't!). He is still the current company secretary.

Thank you again.

bitmadmax

ridpath wrote: »

..It has now transpired that here was a sinking fund in place up to 1997..

So.. what happened to the money?

ridpath

bitmadmax wrote: »

So.. what happened to the money?

I'll be finding out!

AlexMac

Your "Company Secretary " sounds a nightmare. I was Treasurer of a similar Freehold Management Company made up of the 6 leaseholders; we shared the two or three annual returns (look at Companies House website) and I did the Companies House accounts; which you can do online or as paper. The returns require you to be able to read, write and count, but are not that complex or demanding. It makes no difference to Companies House wheter you have a sinking fund or not; unless things have changed in the 2 years since we sold and moved on, Companies have to file returns even if they only have a few quid in the bank - and I assume you don't deal solely in cash?

If you put them off however, it can get embarrassing; I simply forgot to submit the online accounts on time and we were fined £150 even though they were only one day late! Luckily the other leaseholders were tolerant and forgiving!

But, returning to your OP, I'd take a look at your lease, which presumably places the usual insuring and maintaining obligations on the 'freeholder' (i.e. the Company). So if your neighbour really has disbanded the Company, he is no longer the Company Secretary, is he? So he has no staTus? And if he found a couple of simple annual returns too much hassle, and was too shy to ask for help, is he still doing other essential stuff- especially insuring the building, or checking whether you need asbestos surveys in communal areas (we're buying a flat and the solicitor insists this is required)?

If the Company is still active (again, check Companies House online) you may be racking up fines for failing to do the returns. And if it doesn't exist, he has no more status than you and the others, and even if he is, you're three to one?

So, as I said, I'd look at the lease and try to get some cheap legal advice about your rights and obligation and joint freeholders, maybe starting with the solicitor who you used to buy the flat, who should have reported to you on the lease and its implications and your responsibilities and those of the Freeholder. In the case of our Company, the 'memorandum and articles of association' which set it up in the 1980's were silent on sinking funds, which didn't mean that we couldn't have one; we did. And while we operated by consensus, I'm sure that common sense or Company law should apply to voting procedures.

Either way, I'd get advice and sort it out before you next sell, or the process will be a nightmare when the idle 'non-company secretary' is asked to fill in the pre-sale enquiries: http://www.rics.org/Global/Leasehold-Property-Enquiries-Form.pdf

propertyman

If neither the lease or articles do not allow collection of funds for a sinking fund then the only way to do so is to agree with all of you and set up a trust with a declaration saying what it is for who controls it and how it is dispersed when a participant sells up.

that too is fairly simple to account for and respond to HMRC