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

3mph

This is interesting since we have the same issue at present with our flat. Redecoration of the block with extra charges of £3K to £6K per leaseholder. A few are refusing to pay although only one has gone down the invalid Sect 20 route, the others say they will pay but have not. I suspect the one going down the Sect 20 may end up with the court deciding. The others most likely will pay but if not I guess that the Management Company will put a charge since you cannot transfer a lease without written approval from the Management Company.

I not sure how you could own a flat in a block of flats without some form of leasehold type arrangement that controls everyone and sorts out the common areas.

eddddy

jennifernil wrote: »

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

I'm not familiar with the Scottish system, but that sounds pretty flawed, as well.

For example:

• One owner in a 3-flat conversion is unable to pay a £10k bill (or claims they are unable) - so the other 2 owners are forced to pay an extra £5k each.

• (Maybe those 2 owners have to increase their mortgages or take out loans to raise the extra £5k.)

• And they have to wait until the first owner sells to get their £5k each back - maybe 5, 10 or 20 years.

• Or if that first flat owner is in negative equity, the other 2 owners never get their money back.

davidmcn

eddddy wrote: »

I'm not familiar with the Scottish system, but that sounds pretty flawed, as well.

Well, no system is going to be perfect. The money has to be stumped up by someone if the works are going to happen. The advantage in Scotland is that we don't have the concept of third-party freeholders, so the flat owners have much more control over what happens.

One owner in a 3-flat conversion is unable to pay a £10k bill (or claims they are unable)

If they do actually have the funds then they can be sued to pay that over immediately.

Or if that first flat owner is in negative equity, the other 2 owners never get their money back.

They will eventually, if only because the charge will need repaid on e.g. a repossession sale too.

Though things rarely get this bad - and in a 3 flat conversion you're unlikely to have £30k of communal works needing done at once. And most blocks are larger so you're spreading the risk more.

There is also the possibility of the council stepping in to carry out compulsory repairs if the owners don't get it organised, though these days councils are much less likely to get involved.

G_M

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....

People will be wearing differnent legal hats at different times.

'The Freeholder' is a single legal entity (with rights and obligations eg to maintain the property, and collect service charges etc).

The fact that 'The Freeholder' is comprised of multiple peple as opposed to a single person does not change that.

The fact that some/all of the people who comprise 'The Freeholder' are also leaseholders (a different legal hat) is also irrelevant.

The various individual Leaseholders each have their own rights and obligations (eg to live there for 99 years and to pay service charges etc).

The fact that a Leaseholder is also one of the people who make up the Freeholder is irrelevant. They will wear different legal hats at different times.

So Leaseholder A could refuse to pay. Leaseholders B to M could don their 'Freeholder' hats and vote to ttake legal action, as tthe Freehlder, against Leaseholder A.

A, of course, could put on his Freeholder hat and vote not to take action - but is likely to be outvoted, with the result that 'The Freeholder' could take legal action.

IRememberItWell

Many interesting replies - thank you.
Just to clarify: the arrangements are pretty conventional. The block is in England and there are some 80 flats, each owning a share of freehold. There's a managing agent and a number of directors who are also residents and leaseholders.
IRIW

NeilCr

I've got to say there doesn't seem to have been much forward planning here. Water ingress for years and, it would appear, instead of building up a contingency fund, residents are now having to face a bill of £37,500 each.

I get that the work has to be done but, as you suggest, I can see why there are going to be people who will struggle to pay. And may feel aggrieved that this has "suddenly" happened.

moneyistooshorttomention

NeilCr wrote: »

I've got to say there doesn't seem to have been much forward planning here. Water ingress for years and, it would appear, instead of building up a contingency fund, residents are now having to face a bill of £37,500 each.

I get that the work has been to be done but, as you suggest, I can see why there are going to be people who will struggle to pay. And may feel aggrieved that this has "suddenly" happened.

Agreed - with bells on:T

A lot are likely to have some difficulty getting one-tenth of that amount together on the spot and even if there was a cast-iron guarantee no-one would come back to them asking for more if costs turned out to be higher.

As for getting that high an amount together - I hope they're all pretty wealthy!! I can't visualise myself or anyone else I know having a hope in heck of getting that amount of money together without having literally years to do so (if then).

It would have been much more realistic to think in terms of everyone had been paying, say, £1,000 pa per household for years building up said contingency fund. It would also be much more realistic if it were clear builders have been prevented from raising the costs and demanding even more money part way through the job - with an absolute watertight cap put on the costs that they simply couldnt exceed (whereas the way you've put it - I'd be fearful you'd come back asking for even more money part way through - as the builders had found a way to up the costs part way through).

Basically - someone has mucked up big-time somewhere along the line and you'd better hope it's not you (though, judging by the way you're thinking along lines that people might get equity release - even though some of the flat-owners would be discriminated against and get less money from that than other flat-owners well...........).

I wouldnt be unduly surprised if some of those flat-owners that voted for this were quietly telling themselves "I'll vote for it - so that I don't fall out with anyone right now. But I'll quietly put my flat on the market - and lie to potential buyers about any costs due to come up and hope I can be well clear of the scene before it comes to it". Lots of people aren't very realistic - or very open about their intentions...

AdrianC

NeilCr wrote: »

I've got to say there doesn't seem to have been much forward planning here. Water ingress for years and, it would appear, instead of building up a contingency fund, residents are now having to face a bill of £37,500 each.

So are you suggesting that the leaseholders should have put an extra £1k/year for nearly four decades into the sinking fund? Or £4k/year for a decade? Or...?

And what about the next big bill that might come up? How much over how long for that?

Sometimes, big bills need to be dealt with as they arise, rather than via a long-term savings pot, simply because of the size of 'em. If there was a £40k bill on your freehold house, would you extend the mortgage, or would you have drip-fed that much into a savings account to cover it?

NeilCr

AdrianC wrote: »

So are you suggesting that the leaseholders should have put an extra £1k/year for nearly four decades into the sinking fund? Or £4k/year for a decade? Or...?

And what about the next big bill that might come up? How much over how long for that?

Sometimes, big bills need to be dealt with as they arise, rather than via a long-term savings pot, simply because of the size of 'em. If there was a £40k bill on your freehold house, would you extend the mortgage, or would you have drip-fed that much into a savings account to cover it?

I'm suggesting that, on the face of it, I am surprised that the issues weren't dealt with earlier. OP has said there has been water ingress for years. We have blocks of flats (including a listed building) on our estate and they are regularly checked for problems - just like these. I'd have thought that someone has been remiss (being kind) in not seeing what was happening before.

Of course I understand that some big bills come along suddenly. But, in my experience of being a director of two developments (and talking to quite a few managing agents) they are quite unusual - and good budgeting, planning and estate management stops quite a few of them occurring.

moneyistooshorttomention

Indeed - very much the equivalent situation to a householder thinking "Well I've had to replace a couple of slates on my Victorian roof, then I've had to do it again - better be aware there's a roof replacement coming up soon (given the age of the roof) and start putting money to one side for it".