Should we go self-managed? (6 x share of freehold flats)

gsmyth123

Hello, we as a group of joint freeholders are fed up with our management company, and would like to 'go it alone' and manage the block ourselves. We have an accountant ready to do the books, and have agreed to all do our bit when it comes to finding tradesmen etc (a few owners are local and know a lot of people, which is great). 

My main concern is any legal issues that might arise, such as owners not being around to sign TR1 forms when selling, or the preparation of a Leasehold pack. Or any other issues such as missing service charge payments, or the accountant failing to do his job properly. 

These are all hypothetical as I’m trying to gauge whether a management company would have any more legal ‘power’ than we would as self managed? Is it worth the saving (around £1k per flat/ year) to potentially have legal issues arise in future? 

Also, from a legal standpoint, do decisions go down to a majority or does everyone have to agree? As I’m worried that for instance, they will decide to remodel the beautiful front garden and put decking down and we won’t want it to happen but will be ‘overruled’. 

Thank you for your time.

eddddy

If there are 6 'joint freeholders' that probably means the freehold is owned by a company, and you each own a share of the company.

The company's articles of association will say what the decision making process is (e.g. majority vote etc).

But removing the Management Company won't increase or decrease the freeholder company's power. In theory, the freehold company could tell the management company to install decking now.

The things that might stop decking being installed are:

• The leases don't allow decking to be built and/or
• The leases don't allow the freeholder to charge the leaseholders for decking (because it's an ''improvement')

But whether there is a management company or not makes no difference.

greatcrested

As above, it willmake little difference to the powers involved. The current Manco is employed by (and paid by) the freeholders, so must already do whatever they instruct. Removing the Manco just means the freeholders can still do what they could previously have instructed the Manco to do.

Or, as edddy says, they will still be prevented by the leases from doing what the Manco was previously prevented from doing.

The issue of TR1s and lease packs is relevant. There are occassional threads on this board from leaseholders trying to buy/sell and being unable to get lease packs because the joint freeholder is away (or has an axe to grind and refuses!). With a professional Manco, generally they are made available (though some Mancos can be pretty inefficient or unprofessional!), though sometimes at a ridiculous cost.

AlexMac

I agree what eddddy and greatcrested say, above, but would add my positive experiences in that over the past twenty years, I've been a leasehold owner in three different "shared freehold" properties without problems. They all had  Freehold Companies comprising the leaseholders as  "members" or Directors.

In the case of  the biggest one, a 13-flat block, they engaged an accountant but in the two smaller blocks, like yours, with only 6 flats, we took a DIY approach to all aspects of management, accounting and maintenence.  This was far more satisfactory than paying an agent; and meant that not only were the properties really well-maintained, but we enjoyed the cheapest possible service charges; usually less than half those of comparable local Managed blocks.  (despite the fact that both were conversions of Victorian buildings in Conservation Areas; one an early 19th Century block, the other Listed, so requiring regular maintenence).

 In both cases, prudent management meant that we were able to stack away significant sums from the (delightfully low) Service Charges into a sinking fund for major jobs; such as external scaffolding and decoration every 5-7 years, roof repairs etc,.  So we planned it so there was usually several grand in the kitty, avoiding the need for huge one-off invoices for these shared jobs.  Seeking quotes and letting contracts isn't rocket science; in the last flat my 80+ year old neighbour did it, bless her.

Similarly, as one of us (usually me) acted as Treasurer, we didn't pay an accountant hundreds of squids to; 
 
-  monitor the (online) bank account & chase the very occasionally leaseholders' forgotten monthly Standing Order payments,  and keep simple accounts
-  file the two annual statutory online returns to Companies House; the annual "Confirmation statement" of who the lead Directors are, and "micro-entity" accounts each took me about ten minutes to do once I'd got the hang of the slightly tricky new Companies House website.

We even simplified the process of responding to solicitors' "Leasehold Property Enquiries" when flats were sold on.   Solicitors imply this is a mystic process, but it ain't; the LPE forms ask standard questions, so I set up a word.doc template with standard answers, and kept all the usual required documents in computer format (simple 1-page summary accounts, notes of AGMs if you bother with them, Asbestos survey of common areas if you've had one done or Fire/evacuation procedures, which anyone can knock off in an hour...)  .  I got it so I could turn these responses round in a day if the conveyancing solicitors had heard of email!  And if they ask silly follow up questions (one purchaser wanted to know if the developer who did the conversion, 40 years or more ago had had building regs approval!) you do your best, but keep it short.

Greatcrested makes the pont about incompetence or conflict, but if you maintain good relationships, and groom the old buffers (like me) into doing the legwork, things will probably go well.  We (in both of the last two) used to use (the optional) AGMs as social occasions rather than formal meetings.  If you ever do have  incompetence or conflict, you'd deal with it ust as you would do at work or in other relationships.

Worth working at, because although I now live in a freehold, I've probably saved up to twenty grand in Service Charges over the years through our creative and collaborativ approach to fellow leaseholders.  Good luck!

gsmyth123

Wow AlexMac what a fantastic reply and exactly what I was after so I can proceed with this without being worried! We’re all great owners and like you say, we’ll make the AGMs a social affair. 

Thank you also to the other 2 repliees. 
My main concern was thinking a management company would be able to sort out any potential legal issues in a more clued up and professional manner than we would ourselves, but with a bit of trust and positivity I’m sure we can proceed and will do fine, as we’re all nice people. 

Cheers! 

trimigistus

Very interested to find this article as we plan to do the same. Having been managing ourselves for 7 years we wondered what exactly the Managing Agent did. It helps to have resident owners of course, who have the time to meet contractors. Some great points Alec Mac. It seems that owners are pre-conditioned to think that Managing agents are there to support them in their hour of need when the truth is often not the case. Time to move on..

AshAnders54

Hi There

So glad I found this thread! We are a group of 3 freeholders (4 properties total) and we would like to move to self manage the property.  The managing agent does nothing and we have incurred fines for late tax submissions and late payments he is old and based in the US so we don't see any value in keeping him on.

We have a dormant company set up already and are equal shareholders.

The questions I need to find answers to are:

Do we have to hold service charge money in a trust client account by law to protect the leaseholders?  Or can they pay directly into the same account we currently pay into?

If we need a separate account, where would we find one, and can we do it, or does it need to be via an fscs accredited 3rd party?

If we can hold a standard business account, we need to file a full tax return, as can no longer file dormant accounts. This would be seen as trading activity?

However we would pay tax on any interest, or ground rent, as this is seen as income?

Could an accountant do this for us?

If anyone on this thread has some recommendations on accountants that are knowledgeable in this area or a solicitor that they would recommend I would really appreciate it.  I have made a lot inquiries but can't seem to get any answers.

Thanks in advance!

eddddy

AshAnders54 said:

Hi There

So glad I found this thread! We are a group of 3 freeholders (4 properties total) and we would like to move to self manage the property.  The managing agent does nothing and we have incurred fines for late tax submissions and late payments he is old and based in the US so we don't see any value in keeping him on.

<snip>

Taking a step back - it depends if everyone is co-operative and happy to do things informally.

If everyone agrees, you can just take an informal approach - for example saying...

• "I've just received the buildings insurance renewal bill - it's for £600. If you each give me £150, I'll pay it."

• "The roof is leaking, I got a quote from George the roofer for £1200 to fix it. If you each give me £300, I'll phone George and ask him to fix it."

• "Would you all be happy to bung £50 a month into a bank account to pay for 'odd jobs' and general repairs to the building etc?"

If all 4 of you agree, that's great. No hassle and no admin needed. But you can't 'force' anyone to pay with that approach.

But I guess there's an argument that if the 3 joint freeholders can't agree on stuff like that, you're pretty much doomed to fail.

Or if it's the 4th Leaseholder who won't agree / won't pay - you'll have to go 100% by the book - and adhere to the leases, the Landlord and Tenant Act, the Commonhold and Leasehold Reform Act, etc, etc - which will cause lots of extra time, cost and hassle.

(For example, you'd have to do a full Section 20 consultation for that leaking roof repair - which might take 6 months.)

Or if that 4th Leaseholder knows more about the LTA and LRA legislation than you do, they might run rings around you, and leave you out of pocket.



As an aside...

What if the 3 joint freeholders can't agree on something? Maybe you'll have 3 different opinions on how a repair should be done. Do you have a contractually binding strategy for resolving that?

e.g. One person thinks part of the roof should be replaced costing £10k, another thinks it should be repaired costing £5k, and the other one is super-short of cash - so wants it patched up for £1k.