Loan for a flat management company

Soundgirlrocks

Hi All,

Hoping to pick the collective brain power on MSE. I am director for a flat management company (which owns the freehold), I took over as director in September after years of mismanagement. There is no sink fund and the building is in a pretty poor state, we need to do some fairly urgent work to the building & the leaseholders all plead poverty. We are in a position where we do have a massive asset in the form of the garden which has potential to get planning and have an offer from a developer. This would provide money to do all the works need and leave us with a sizeable sink fund.

However we have hit a problem, the leases need amending in order to sell the garden. I know that if I go to the other leaseholders they won't have the money (£750 per flat aprox) for the legal cost of changing the leases, 7 flats in total.

I wondered about the possibility of getting a loan which is then repaid via ground rent over a 5 year period? (all laid out in the new leases) Would it be possible for the flat management company to get a loan?

Is this a possibility or am I just going to have to try and get the lease holders to cough up?

I should add everyone wants to sell the garden.

Yolina

It certainly was possible in the past for a management co to get a loan and it being repaid via ground rent but I don't know if it's still the case. That's what we did in my development in order to buy the freehold, however that was over 20 years ago.

It would probably be better to try and get the leaseholders to fork out for their share to have the lease amended as it would avoid having to pay interest, not to mention that they'd then probably complain about the ground rent increasing :rotfl: I'd point out to them that selling the garden is to their benefit since it means that they don't then have to pay for all the repairs and it would also kick start the sinking fund. £750 is a bargain given what they stand to gain from it. Give them the estimated cost of the required repairs too just to drive the point home.

skintpaul

Don't pay out up front, from your own money. lessees may need to seek funding from their respective lenders.

andyfromotley

Could you approach the development company? They may be happy to foot the bill?

Soundgirlrocks

Yolina wrote: »

It certainly was possible in the past for a management co to get a loan and it being repaid via ground rent but I don't know if it's still the case. That's what we did in my development in order to buy the freehold, however that was over 20 years ago.

It would probably be better to try and get the leaseholders to fork out for their share to have the lease amended as it would avoid having to pay interest, not to mention that they'd then probably complain about the ground rent increasing :rotfl: I'd point out to them that selling the garden is to their benefit since it means that they don't then have to pay for all the repairs and it would also kick start the sinking fund. £750 is a bargain given what they stand to gain from it. Give them the estimated cost of the required repairs too just to drive the point home.

In an ideal world yes but realistically they don't have the cash. What I would like is to go to them with the three options:

• Get a loan: Pro - No inital outlay. Con- Pay more in the long term
• Pay upfront
• Increase the service charge, forget selling the garden and do the work over a much longer period, (10 years +)

We can then have a vote and all agree on how to proceed, but there is no point putting options out there if we wouldn't be able to follow them up, so I would like to have a potential loan sorted out before speaking to the leaseholders.

It would be great if the development company would pay the costs but as there are no guarantees for them that we would proceed once the leases were changed they aren't prepared to spend that kind of money on the project yet.

Foxy-Stoat_3

How much is the work going to cost and how much is each leaseholder going to have to pay?

There was a similar thread a few weeks ago and a viable option was that all leaseholders take out a loan to pay for the repairs that they are reasonable for. They have enjoyed years of under paying for a sinking fund, now they will have to.

Good lucks

Soundgirlrocks

Foxy-Stoat wrote: »

How much is the work going to cost and how much is each leaseholder going to have to pay?

There was a similar thread a few weeks ago and a viable option was that all leaseholders take out a loan to pay for the repairs that they are reasonable for. They have enjoyed years of under paying for a sinking fund, now they will have to.

Good lucks

We are looking at £60k £70k worth of work to the building, and that wouldn't leave a sinking fund. Selling the garden is the perfect solution as the garden is huge and a nightmare to maintain (currently its a bit of a mess I have been dealing with it as best I can but there are other priorities) The road block is amending the leases, I should also add all the leases are running short around 70 years each so it makes sense to amend the leases and extend them at the same time. Im 90% everyone will be onboard with that, trouble is they have no money to pay for the legal fees.

Can any recommend who to approach about a loan?

antrobus

Soundgirlrocks wrote: »

....However we have hit a problem, the leases need amending in order to sell the garden. I know that if I go to the other leaseholders they won't have the money (£750 per flat aprox) for the legal cost of changing the leases, 7 flats in total.

...

Do any of these leaseholders have mortgages secured on their flats? If so, then you may need to get the permission of their lenders before you can dispose of a chunk of their security.

Foxy-Stoat_3

If all you need is just over £5K, can you not go to the bank that the Ltd company uses with a written offer of the purchase of the land. Surely they would give you an overdraft of £5K on the back of you selling the asset.

It would make the Freehold worth less though, without the garden and possibility of another block right next to yours. Does the Ltd company own the Freehold outright or is there a mortgage on it?

Soundgirlrocks

antrobus wrote: »

Do any of these leaseholders have mortgages secured on their flats? If so, then you may need to get the permission of their lenders before you can dispose of a chunk of their security.

Yes I'm aware of that that is why the legal fees are around £750 per flat as it will involve the mortgage companies as well.

Foxy-Stoat wrote: »

It would make the Freehold worth less though, without the garden and possibility of another block right next to yours. Does the Ltd company own the Freehold outright or is there a mortgage on it?

We own the Freehold outright, the developer wouldn't get permission for another block. It would be a bungalow type build, as there are already 3 down the same access road, and would be a condition of sale. At the moment the garden is liability (there is knotweed at the bottom & along the access road, the developer is aware and happy to treat it, as part of the deal to get right of way) it is also huge so we would still be left with a good sized garden. The money would enable us to dramatically improve the property which would add value to all the flats so I don't think the mortgage companies would object.

Foxy-Stoat wrote: »

If all you need is just over £5K, can you not go to the bank that the Ltd company uses with a written offer of the purchase of the land. Surely they would give you an overdraft of £5K on the back of you selling the asset.

Thank you that is useful advise, we don't have our own bank account service charge money is collected by the agent we employ to deal with the administration and held in a client account. But it has got me thinking I should put a proposal together to show the bank why we need the loan, & how it will be repaid

eddddy

H soundgirlrocks

I know your specifically asking about a loan for legal costs, but it sounds like there are many risks associated with the project (and hence the loan).

Is the developer going to sign an 'option to purchase' or 'conditional contract' which is dependent on getting planning consent? If so, what happens if they don't get consent? You'll have paid all the legal fees and have no sale.

(Obtaining planning consent may cost many thousands and take up to 2 years - if there are appeals etc.)

Or is the developer buying without planning consent? If so that sounds very suspicious. e.g. they tell you they will only apply for consent for a bungalow to get the land cheap, then apply for consent for a block of flats.

What happens if you get all the legal work done, then a leaseholder changes their mind or gets stroppy. e.g. because "I think we should hold out for a higher price" or "I think I deserve a bigger share of the sale than him, because..."

What if somebody wants/needs to sell their flat during this process? Or even worse, gets it repossessed? You need to cater for this in your planning.


It sounds like you've got a quote from a solicitor - is that just to vary the leases? i.e. to follow your instructions?

Or is it for advice from a specialist property lawyer, who will advise you the best way to do the process from end-to-end? (And would therefore be much more expensive.)