Shared Ownership: Sinking fund going from £13 to £114 a month!

PierceUK

Hey All,

Sorry if this is the wrong forum location, seemed like the best fit.

I just received a letter from our shared ownership provided, apparently our sinking fund does not have enough money in to cover the works planned for up to 2035 and as such my monthly payment will be increasing from £13 to £114 a month. Block of 9 flats and 3 hours and all in the same boat (but mixed payments, depending on flat/house and floor space).

Any advice on what to do? Seems like a rather big unexpected increase, also every year they get the accounts wrong and we suddenly owe an extra £2-300 in fee's due to under charging us.

Happy to provide the yearly breakdown if that would help, this seems to have stemmed from a cyclic decoration, cost us £20k, repainted and cleaning. Seems like a bigger charge than I expected or remembered seeing in the previous notifications but I could be wrong.

thanks,
Pierce

moneyistooshorttomention

What is the wording of the bit of documentation you have that mentions cost of living rises re the sinking fund?

Is there nothing down there that states "Yearly rises to be no more than x% above bank rate?/Retail Price Index? or whatever" ? Or is one of these vague things that says "Rises from time to time as decided by the following person/group"?

AdrianC

There's work planned on the building over the next twenty years. The money currently going into the fund isn't enough to pay for it.

That really gives two options - don't do the work, and watch the building go downhill and your flat value drop. Or do the work, but find enough money to do it.

Remember, the money in the fund isn't "spent". It's a savings account to be dipped into to do the work. If there's not enough in the savings account, you need to get the money at the time.

Would you rather save a hundred quid into there a month now, or would you rather keep the inadequate savings, then get a bill for a grand or two in a few years time? You'd then be going "Oh, why couldn't we have saved towards this...?", right?

£13/mo, between 12 properties, is going to save up less than two grand a year. That really isn't going to go very far against planned work - as your £20k decoration shows. Take that to £16k/year into the fund, and you start to build a buffer up.

Let's say £5k/year is planned to be spent, with an extra £50k every ten years. So £100k spent every ten years. Right now, you're only saving £18k in that ten years... But with the higher payments, you'd still have a good chunk left over for anything unexpected.

PierceUK

moneyistooshorttomention wrote: »

What is the wording of the bit of documentation you have that mentions cost of living rises re the sinking fund?

Is there nothing down there that states "Yearly rises to be no more than x% above bank rate?/Retail Price Index? or whatever" ? Or is one of these vague things that says "Rises from time to time as decided by the following person/group"?

Just took a skim through our agreement, Don't see anything either way, there are comments around if there are additional charges then these are to be payable after the accounts are confirmed and provided us with the certificate(which they do, so far every year has been extra)

PierceUK

AdrianC wrote: »

There's work planned on the building over the next twenty years. The money currently going into the fund isn't enough to pay for it.

That really gives two options - don't do the work, and watch the building go downhill and your flat value drop. Or do the work, but find enough money to do it.

Remember, the money in the fund isn't "spent". It's a savings account to be dipped into to do the work. If there's not enough in the savings account, you need to get the money at the time.

Would you rather save a hundred quid into there a month now, or would you rather keep the inadequate savings, then get a bill for a grand or two in a few years time? You'd then be going "Oh, why couldn't we have saved towards this...?", right?

£13/mo, between 12 properties, is going to save up less than two grand a year. That really isn't going to go very far against planned work - as your £20k decoration shows. Take that to £16k/year into the fund, and you start to build a buffer up.

Let's say £5k/year is planned to be spent, with an extra £50k every ten years. So £100k spent every ten years. Right now, you're only saving £18k in that ten years... But with the higher payments, you'd still have a good chunk left over for anything unexpected.

Agreed, the letter indicates that the decoration was higher than expected. So if I ignore the decorating charges (£20k every 5 years) that still leaves £60k needed every 10 years as an approximate. And as you kindly worked out current payments are putting in approx £2k a year or £20k over 10 years.

It seems like its yet another case of our shared ownership team winging it and then making us all suffer with random charges and increases. I would much rather they were upfront and put this at £50 to begin with that I could have been paying over the last 6 years and not be left with yet another random expense from them.

Also several people in the flats are key workers and on low incomes so I do worry about how this is going to affect them(Its annoying for me, but I luckily can afford it)

AdrianC

PierceUK wrote: »

It seems like its yet another case of our shared ownership team winging it and then making us all suffer with random charges and increases. I would much rather they were upfront and put this at £50 to begin with that I could have been paying over the last 6 years and not be left with yet another random expense from them.

This isn't a shared-ownership thing. This is a leasehold thing. Even if you had a freehold house, there are big bills pop up every few years, together with various bits of ongoing maintenance. The only difference is that, in a flat, you don't always immediately _see_ the bits that need work.

It's quite likely that once the pot's built up a bit, the monthly will go down a chunk - £50ish sounds reasonable. But, right now, you have no buffer for any work that's needed. Not a good place to be in.

PierceUK

Thanks AdrianC,
Very helpful advice and comments.

Just added up the identified works. Generally its £20k every 5 years for cyclical decorations and a few replacements. then 2035 seems to be replacing and fixing everything and comes in at £183k, I suspect this will be staying at £100 forever and not going back down to £50 at some point.

Happy to provide the breakdown if you have any interest, some seems reasonable and some seems grossly over estimated

moneyistooshorttomention

PierceUK wrote: »

Agreed, the letter indicates that the decoration was higher than expected. So if I ignore the decorating charges (£20k every 5 years) that still leaves £60k needed every 10 years as an approximate. And as you kindly worked out current payments are putting in approx £2k a year or £20k over 10 years.

It seems like its yet another case of our shared ownership team winging it and then making us all suffer with random charges and increases. I would much rather they were upfront and put this at £50 to begin with that I could have been paying over the last 6 years and not be left with yet another random expense from them.

Also several people in the flats are key workers and on low incomes so I do worry about how this is going to affect them(Its annoying for me, but I luckily can afford it)

This shared ownership team do sound spectacularly inefficient, with the way they are so far out in their calculations as to how much money will be needed for various things. A bit of error could perhaps be expected...but such a huge margin of error is expecting a lot.

How are these people selected for this position? Is there a way to get them replaced with more efficient people?

PierceUK

Indeed, I think that's the worse bit, they have sent a two page document with estimated charges which clearly won't be covered! So have they just created this, or did it exist all the time and just now its come to light. I have spoken to some other tenanets and we are going to come up with a group letter and send it off. Maybe they can review their staffing or come up with a gradual increase that gets us to where we need to be but maybe not as drastically as this.

I vaguely remember some offer to go in and check their accounts. Might be worth it to see what other stupidity awaits me further down the line.
It's a shame, its a nice flat on a quiet street but this shared ownership team just keep on creating frustrations!

moneyistooshorttomention

Well I'd certainly be in checking those accounts in your position.

I would imagine you have the legal right to do so, so I do agree you should use this right. Just as well to know just how the "pile of sh*t" they have created with their mismanagement is.

AlexMac

The bad news is that you've just had an almost tenfold increase in sinking fund contributions

The good news is that you have a shared ownership, rather than being in thrall to a remote, exploitative freeholder, or a corrupt, moneymaking managing agent! So, subject to what your conveyancing solicitor told you about the structure of the Freehold Company you have a degree of control over management, maintenance and charges.

Your solicitor will have outlined what your rights and powers are; they'll have asked for, given you, and hopefully talked you through or reported on the Lease and the freehold Company Constitution or 'Memorandum and Articles' of incorporation. This will hopefully tell you whether you are a Company 'member, director or shareholder', how and whether Directors (the 'Team' you mention?) are elected, arrangements such as AGMs or meetings... I assume these provide an official forum to discuss, plan and scrutinise budgets, allthough in practice, there may also be unofficial networks or even cliques.

Having owned three such leaseholds (blocks of six, thirteen and six flats respectively; all in old-maintenence-intensive Victorian properties) I'd caution against going on the offensive and assuming the existing team are a automatically a bunch of corrupt or incompetent wasters.

You can see who directors are via a search at
https://www.gov.uk/get-information-about-a-company

It's quite a lot of work to run such a company; to collect service charges, sinking fund and insurance contributions, maintain accounts and file annual returns and statutory accounts, plan, budget for, commission and supervise maintenance and repairs, even if you engage professionals for some of the admin. (I've preferred a DIY approach to save cash, but once when I was treasurer I landed a £150 penalty by missing Companies House filing deadline by one day!).

In some places, leaseholders all chip in to share the tasks; elsewhere a little group do all the work (your Team?) while the rest coast. Or as one of my co-owners once said; " I just let the old buffers get on with it!"

So unless you're prepared to get involved, don't automatically assume the worst.

On the other hand, not seeing a 20 grand bill coming for something as foreseeable as cyclical decorations seems a bit limp, especially as your solicitor will have asked whoever speaks for the freeholder for detail of planned maintenance when you bought?

And, extrapolating from your £100-odd per month sinking fund divvy of the contribution implies that the £20k costs will be covered in 12-15 months. So even assuming a redec every 6-7 years, they'll have built up a £300k surplus by 2035 unless the roof blows off or they gold-plate the garden...?! So you're right to seek information as that's the kind of budget strategy which I'd have expected the 'team' to consult at an AGM or otherwise.

But ask nicely - or they might reward your interest by making you Company Treasurer