What if Flat Owners Can't Pay for Essential Refurbishments?

IRememberItWell

A large block of flats is in need of major refurbishment due largely to water ingress over the years. A £3 million plan has been voted through by the residents, all of whom own a share of the freehold. However, some may be pushed to fund this refurbishment – matters made even worse if the works were to run over budget due to unforeseen problems. Thus, a few defaulters could stymy the whole project. Presumably equity release could be a solution – but can such a measure be imposed if some are unable (unwilling) to take that option?
Comments appreciated.
IRIW

G_M

Well if a leaseold refuses/cannot pay, the ultimate sanction is for the freeholder to take legal action.

If a court then orders the leaseholder to pay, and they still do not

* they'll get a CCJ
* the freeholder can enforce the court's decision, potentially by forcing the sale of the flat, or taking possesson of it in liue of payment.

eddddy

The freeholders could take the route G_M describes, or...

Assuming everything is done correctly (section 20 consultation etc), a leaseholder who fails to pay is breaching the terms of the lease.

So the freeholder can start the process to forfeit the lease. i.e. the leaseholder loses their flat, with no compensation.

So in theory, a leaseholder might lose a flat worth, say, £250k because they refuse to pay, say, a £10k service charge demand.

The freeholder would have to go to court, to get a court order, but occasionally, it really does happen - e.g. if a leaseholder just sticks their head in the sand and doesn't pay and ignores court papers etc.

However, if there is a mortgage on the flat, the lender will almost always step in and pay - otherwise if the lease is forfeited, they lose the security for their loan.

So once forfeiture proceedings start, the lender will be informed, and they will almost certainly pay...

Some more detailed info on this: https://www.mortgagefinancegazette.com/features/leasehold-issues-lenders-forfeiture-disclaimer-leases-15-03-2018/

IRememberItWell

Many thanks for the replies thus far.
I confess that I do find the article in 'Mortgage Finance Gazette' somewhat complicated. If I'm correct, this scenario applies merely to cases where a resident still has a mortgage to pay off ... (?) However, I doubt this would be the case in the block to which I refer above.
IRIT

eddddy

IRememberItWell wrote: »

Many thanks for the replies thus far.
I confess that I do find the article in 'Mortgage Finance Gazette' somewhat complicated. If I'm correct, this scenario applies merely to cases where a resident still has a mortgage to pay off ... (?) However, I doubt this would be the case in the block to which I refer above.
IRIT

If there's no mortgage, the freeholders can follow the process and take the leaseholder's flat and then sell it (and keep all the money).

https://www.lease-advice.org/faq/im-a-landlord-how-can-i-forfeit-the-lease-if-the-leaseholder-is-in-breach/

diggingdude

Makes you wonder why anyone buys a flat. Less security than a rental in many ways

jennifernil

Up here, in Scotland, where this situation arises, the rest of the owners would pay and then place a "charge" on the offending property.

This means that when the property is to be sold, the money due for repairs has to be paid before the owner can actually sell the property, or as part of the sale.

Obviously, it could be a long time before the other owners get their money back, but they will eventually get it.

moneyistooshorttomention

I'm confused as to why people seem to be saying "The freeholder can belt them - as they are a leaseholder" in effect.

Reason being - OP stated they are all freeholders (post 1 - "they have a share of the freehold").

Different ballgame....

NeilCr

I am a director of an estate. 99% of the residents pay their service charges (which include a contribution to a sinking fund) on time. The rest, with a bit of persuasion, follow suit. We have one person, at the moment, who is withholding part of his service charge which we accept as he has a valid argument.

We did have someone (freeholder of a house as it happens) who just refused to pay anything and caused damage to the estate. In the end it did end up in court and we got a charge on the property. It was very difficult and, I know that, however bad a resident somebody was, I'd have great issues with actually kicking someone out.

I am aware that the other directors felt the same. Perhaps, one of the slight negatives about residents owning the freehold?

moneyistooshorttomention

Neatly explains why my suspicions are that the only remedy for this will prove to be putting a charge on these properties - to be paid in the event of them deciding to sell their properties (eg in the event of their demise).

I'd have severe doubts anyone could be forced into equity release - for a start off any female home-owners could/probably would start talking about discrimination (as these equity release schemes are still at the moment indulging in sex discrimination by paying women less than men). You don't want to go there - ie getting yourselves mixed-up in a potential sex discrimination claim. In your position - I'd be distinctly concerned that you would be the one getting such a claim aimed right at your head (as it's not currently possible yet to sue these companies for it - but you might be a possible target for that). They're still being allowed to get away with that behaviour at present - but I'd be willing to bet you wouldn't be...

AdrianC

moneyistooshorttomention wrote: »

I'm confused as to why people seem to be saying "The freeholder can belt them - as they are a leaseholder" in effect.

Reason being - OP stated they are all freeholders (post 1 - "they have a share of the freehold").

Different ballgame....

No, not at all different. Exactly the same.


There is a freeholder. In this case, it's a company whose shares are owned by some people.


There are leaseholders. They are the people who own the leases to the individual flats.

If some of the leaseholders are also shareholders in the freeholding company, that makes zero difference to the fact the freeholder and the leaseholder are two completely different entities.