What's the best way for a group of 3 flats to set up a maintenance fund?

moneysaverlover

Hi all,

I'm a leaseholder for my flat and the freeholder for the building with three flats in (including mine). I'm looking for a way to set up a fund/account which we can pay regular amounts into. The fund would then be used for any maintenance costs e.g. we had to pay for a new roof last year.

Ideally we wouldn't be linked to each other's credit ratings or anything.

I'm happy to be responsible for maintaining this fund but I'm not sure on what the options are? Any advice would be greatly appreciated!

Thanks in advance

eddddy

If you're the freeholder, typically you would open a bank account (in your name) and send the other two leaseholders service charge demands, which you allow them to pay on a monthly basis. (Unless the leases specify something else.)


You can make some other arrangement, if everyone agrees. But a joint account between 3 people might be messy.

Who would be allowed to withdraw money or make payments from the account? On a more general level, how would it be decided what maintenance and repairs need doing?


And bear in mind that somebody might sell their flat, and the new owner might be very 'difficult' and/or have different opinions about maintenance and repairs etc.

eddddy

... or, if you want to absolve yourself of the responsibility for sending out service charge demands, creating annual accounts, and the general legal responsibilities of being a freeholder etc - just ask for payments on an ad-hoc basis.

For example...

"The communal areas need repainting, I'm attaching a quote for £600 from my mate George. If you're both happy for George to do it, give me £200 each and I'll get it sorted.

If either of you aren't prepared to give me £200, it wont get done."

moneysaverlover

Both the other two owners have been put off the ad-hoc basis idea after we had roof repairs costing around £9k last year.

Leases just say that funds need to be split ad-hoc really. Think the others just want this in place to make sure we have some kind of fund in place which is available when people move in and out of the building.

I think in theory I have the final say so on which repairs get done to the building but in practice it's a bit more fair than that and if someone wants something doing, and we all agree, then it'll get done.

Who actually has access to the fund is an interesting question. Ideally I think I'd want all three of us to have to sign off on any withdrawals.

eddddy

moneysaverlover wrote: »

I think in theory I have the final say so on which repairs get done to the building but in practice it's a bit more fair than that and if someone wants something doing, and we all agree, then it'll get done.

OK - so you'd need a watertight agreement that explains all that.

For your protection, and their protection, you can't really just say "Pay (say) £100 per month and it will somehow be decided later what it's spent on"

The agreement needs to cover topics like:

• What happens if somebody doesn't pay their £100?

• Exactly what the money will be used for, so people can't later argue about what the money's spent on ("You never said that my £100 per month would be used towards painting the front door green")

• What happens to the funds when somebody sells their property?

moneysaverlover wrote: »

Who actually has access to the fund is an interesting question. Ideally I think I'd want all three of us to have to sign off on any withdrawals.

So why bother with a joint account? What's the benefit? Just suggest to everyone that they set up their own personal maintenance account in their name, and pay £100 per month into it.

Then they can then each pay their share from their personal maintenance account.

That will remove a mountain of hassle, and reduce the scope for arguments and litigation.

sal_III

It's mighty kind of you that as a Freeholder you accept the leaseholders input on what needs fixing etc. But I wouldn't give them access/control/veto over the shared fund. You have responsibility as a Freeholder. It's perfectly normal to demand contributions toward a sinking fund as part of the service charge, seems like your leaseholders are on board.

Don't overthink it - setup a bank account in your name and give them the details for their monthly contributions. Provide them with receipts/invoices for their records. That's it.

If they are not happy with you as a Freeholder having sole access to the funds (which would be the case with every other freeholder), let them each setup their own savings and slap them with Section 20 notice for a lump sum next time a major work is needed.

eddddy

sal_III wrote: »

It's mighty kind of you that as a Freeholder you accept the leaseholders input on what needs fixing etc. But I wouldn't give them access/control/veto over the shared fund. You have responsibility as a Freeholder. It's perfectly normal to demand contributions toward a sinking fund as part of the service charge, seems like your leaseholders are on board.

But as a leaseholder - I wouldn't pay the freeholder on a "goodwill" basis. I would want the full protection of the law.

For example, what if the freeholder got the money in his account, and then used it to...

• Pay himself a consultancy fee of £5000 per year
• Install a pink glittery water feature in the front garden
• Pay his cousin's building firm £2000 to change a broken light switch

Realistically, if the freeholder wants to do stuff like collect advance service charges (sinking fund), they either have to do it properly or not at all.

The law lays down very strict rules and procedures that freeholders must follow, primarily to protect leaseholders.

moneysaverlover

eddddy wrote: »

So why bother with a joint account? What's the benefit? Just suggest to everyone that they set up their own personal maintenance account in their name, and pay £100 per month into it.

Then they can then each pay their share from their personal maintenance account.

That will remove a mountain of hassle, and reduce the scope for arguments and litigation.

The main benefit is that when someone moves out the money that they've contributed over the years is still there. I got stung by this, I moved in a couple of years ago and then shortly after the roof needs replacing.

In an ideal world the previous owners and the two flats above me would have contributed to the fund and so I would have had to pay a smaller contribution.

I guess now that we're all living here there's not actually much benefit for us, it only benefits future owners. Although it does start to spread out the cost.

Sounds like if we want to do this properly we're going to need to go through some solicitors which is gonna be a pain!

Socajam

Look up how Homeowners Associations work in the US
Bear in mind some of these HOAs are really good, whilst some are really bad.
But it would give you an idea how the funds are used and how money is set aside for future renovations.

eddddy

moneysaverlover wrote: »

Sounds like if we want to do this properly we're going to need to go through some solicitors which is gonna be a pain!

Why re-invent the wheel (and spend thousands on solicitor's bills doing it)?

Why not do what almost every other freeholder does?

i.e.

• 1. Do what the lease says.

• 2. Do what the legislation says, including:
  The Commonhold and leasehold reform act
  The Landlord and Tenant Act

That's hundreds of pages of 'rules', but it covers everything you want to do.

Otherwise, you'll probably end-up paying your solicitor thousands of pounds to create your own set of similar 'rules'.

And if your neighbours don't like your rules and refuse to agree to them, you'll have wasted thousands of pounds.

sal_III

eddddy wrote: »

But as a leaseholder - I wouldn't pay the freeholder on a "goodwill" basis. I would want the full protection of the law.

For example, what if the freeholder got the money in his account, and then used it to...

• Pay himself a consultancy fee of £5000 per year
• Install a pink glittery water feature in the front garden
• Pay his cousin's building firm £2000 to change a broken light switch

Realistically, if the freeholder wants to do stuff like collect advance service charges (sinking fund), they either have to do it properly or not at all.

The law lays down very strict rules and procedures that freeholders must follow, primarily to protect leaseholders.

It's going to be included in the service charge bill and receipts/invoices provided. What more protection do you need? How is it any different than any other block of flats with sinking fund?