Sinking fund for roof - where/how to protect monies

Lulu58

Hi all, we own a flat in a block which has a flat roof.  The flats were built in the 1970s and, to our knowledge, the roof has never been replaced although it appears to have had repairs carried out.

The building is looked after by managing agents who are not affiliated to any professional bodies.  

We've had the roof inspected and it is showing its age.  The leaseholders would like to start a sinking fund to cover some/all of the costs which could be in the region of £100k.

As property managing agents are not covered by any legislation to prevent them from taking clients money, we would like to put the funds into a separate account in order to protect it.  We've been looking at different ways to do this, but cannot find anything aimed at this type of situation.

The best we can do appears to be to set up a bank account with a number of signatories but that is not without its problems.

The Leasehold Advisory Service did not know of anything other than a multi signatory bank account.

Has anyone dealt with this type of situation and, if so, what did you do to protection the fund?

Any thoughts or ideas would be welcome. Thank you.

eddddy

To be honest, there are so many potential problems, and such limited benefits - that I would run a mile from an idea like that.

To list a few of the problems...

• How would you 'force' all the leaseholders to contribute - not just current leaseholders, but any future leaseholder who bought a flat in the future? (Would you be doing this in your capacity as joint freeholders? If so, do the leases allow it?)

• What enforcement action would you take, if a leaseholder refused to pay (either because they can't, or they simply don't want to)?

• What would be the approval process for spending money from the account?

• Who would be signatories on the account? All leaseholders or a subset? How many signatures would be required to withdraw money - or more realistically, how many people need to authorise a transfer out of the account? (Can you stop a rogue leaseholder or leaseholders from doing an unapproved transfer?)

• How would you stop a leaseholder (or clique of 2 or 3 or 4 leaseholders) mis-spending the funds?

• Who would be liable if funds were mis-spent or stolen?

Assuming one or more leaseholders are made signatories - how much do you know about your fellow leaseholders?

• Have any of them been convicted of fraud or other dishonesty offences?
• Have any of them got gambling addictions?
• Are any of them severely in debt, and might be tempted to steal from the account?
• Do any of them have 'weird' views about what it's acceptable to spend sinking fund money on?

i.e. Are they fit and proper people to control a bank account containing other people's money?



A far better solution would be to say to the leaseholders something like...

"We anticipate that the roof will need major repairs within the next x years, and we expect that the the total cost will be around £100k, meaning that you will have to contribute your share of £x.

So we suggest that you open a savings account in your own name, and perhaps save £y per month / per year - so that you are in a position to pay your share when the time comes."


That approach removes all the problems.

Lulu58

eddddy said:

To be honest, there are so many potential problems, and such limited benefits - that I would run a mile from an idea like that.

To list a few of the problems...

• How would you 'force' all the leaseholders to contribute - not just current leaseholders, but any future leaseholder who bought a flat in the future? (Would you be doing this in your capacity as joint freeholders? If so, do the leases allow it?)

• What enforcement action would you take, if a leaseholder refused to pay (either because they can't, or they simply don't want to)?

• What would be the approval process for spending money from the account?

• Who would be signatories on the account? All leaseholders or a subset? How many signatures would be required to withdraw money - or more realistically, how many people need to authorise a transfer out of the account? (Can you stop a rogue leaseholder or leaseholders from doing an unapproved transfer?)

• How would you stop a leaseholder (or clique of 2 or 3 or 4 leaseholders) mis-spending the funds?

• Who would be liable if funds were mis-spent or stolen?

Assuming one or more leaseholders are made signatories - how much do you know about your fellow leaseholders?

• Have any of them been convicted of fraud or other dishonesty offences?
• Have any of them got gambling addictions?
• Are any of them severely in debt, and might be tempted to steal from the account?
• Do any of them have 'weird' views about what it's acceptable to spend sinking fund money on?

i.e. Are they fit and proper people to control a bank account containing other people's money?

A far better solution would be to say to the leaseholders something like...

"We anticipate that the roof will need major repairs within the next x years, and we expect that the the total cost will be around £100k, meaning that you will have to contribute your share of £x.

So we suggest that you open a savings account in your own name, and perhaps save £y per month / per year - so that you are in a position to pay your share when the time comes."

That approach removes all the problems.

Hi eddddy and thanks so much for your post.  You've raised some really good and thought provoking points.

To answer your questions:
- all leaseholders agreed this was the best way forward after discussion at our AGM
- we own the freehold and are all shareholders of the lease

We have agreed we will start collecting the monies this year.  The question is where to put the money.  As you suggest, opening a bank account is fraught with problems.

The main reason behind this move is that solicitors are asking more frequently about the condition of the roof, have we had quotes for a new roof, whether we have a sinking fund, how much is in it etc.

Your suggestion of writing to leaseholders is a good one, but the leaseholders were concerned that they would have to find a large sum of money at some point in the next few years, that some people wouldn't have put money by, some would refuse to pay at that stage etc.

At this stage, I'm looking at options to protect the sinking fund as it grows.

CSI_Yorkshire

If you (between you) own the freehold, and you don't trust the managing agents not to steal your money, perhaps you should think about changing managing agents.

eddddy

Lulu58 said:

At this stage, I'm looking at options to protect the sinking fund as it grows.

What is it that you want the sinking fund protected from/against?

Is it protection again failure of the financial institution that holds the money?

Or protection against mis-spending?

If it's protection against mis-spending, how exactly would you want that protection to work?

Lulu58

CSI_Yorkshire said:

If you (between you) own the freehold, and you don't trust the managing agents not to steal your money, perhaps you should think about changing managing agents.

It's not so much that we don't trust the agents, more that we are trying to protect our monies as best as we can given that property managing agents are not regulated.

Lulu58

eddddy said:

What is it that you want the sinking fund protected from/against?

Is it protection again failure of the financial institution that holds the money?

Or protection against mis-spending?

If it's protection against mis-spending, how exactly would you want that protection to work?

We're trying to protect the monies against mis-spending.  We want to raise as much as we can before the roof needs replacing, keeping the money safe in meantime.

The easiest thing would be to open a separate bank account with multiple signatories but for all the reasons you've pointed out, this is not without its problems.

We would have left it with the managing agents but we are concerned by the lack of regulation, ie protection for leaseholders money.

ciderboy2009

One other thing you need to consider is what happens if one of the owners sells their property and wants their contributions to the sinking fund returned?

The suggestion by @eddddy of pre-warning the owners that this spend will be coming up in x years and advising that they start saving now seems to be your best way forward.

eddddy

Lulu58 said:

We're trying to protect the monies against mis-spending.  

So who decides what is mis-spending and what is legitimate spending?


There are so many potential risks with your plan, it would take pages to discuss them all.

As a starting point, on what legal basis will you be collecting the money?

• Are you collecting it as an advance service charge, in your capacity as freeholders?

• If so, you will be bound by the lease and by all the leasehold legislation - such as the Landlord and Tenant Act 1985

Or...

• Are you collecting it on the basis of an agreement between leaseholders?

• If so, will you get a solicitor to write up the terms of the agreement as a deed for all the leaseholders to sign? (I suspect the legal cost would be in the thousands.)

• (What happens if a leaseholder sells? Presumably you will need the new leaseholder to sign a deed.)

Or...

• Are you planning to collect £100k of other people's money with no formal agreement in place?

If a leaseholder (current or future) happens to know more about this stuff than you do, they could cause you huge problems, and leave you massively out of pocket.

Lulu58

ciderboy2009 said:

One other thing you need to consider is what happens if one of the owners sells their property and wants their contributions to the sinking fund returned?

The suggestion by @eddddy of pre-warning the owners that this spend will be coming up in x years and advising that they start saving now seems to be your best way forward.

Thanks for your post, ciderboy2009.

We have agreed that the monies will stay in the sinking fund, but the test will come when someone sells their property.

We're past that point.  We have all discussed and agreed we will start saving towards the roof now.  The only question is where to hold the monies until the roof needs replacing.

Lulu58

eddddy said:

Lulu58 said:

We're trying to protect the monies against mis-spending.  

So who decides what is mis-spending and what is legitimate spending?


There are so many potential risks with your plan, it would take pages to discuss them all.

As a starting point, on what legal basis will you be collecting the money?

• Are you collecting it as an advance service charge, in your capacity as freeholders?

• If so, you will be bound by the lease and by all the leasehold legislation - such as the Landlord and Tenant Act 1985

Or...

• Are you collecting it on the basis of an agreement between leaseholders?

• If so, will you get a solicitor to write up the terms of the agreement as a deed for all the leaseholders to sign? (I suspect the legal cost would be in the thousands.)

• (What happens if a leaseholder sells? Presumably you will need the new leaseholder to sign a deed.)

Or...

• Are you planning to collect £100k of other people's money with no formal agreement in place?

If a leaseholder (current or future) happens to know more about this stuff than you do, they could cause you huge problems, and leave you massively out of pocket.

You have raised some interesting points, many of which we discussed during our meeting. Thank you.

The money is purely to replace the roof which will likely be required within the next few years.  We have a separate maintenance charge for the upkeep and maintenance of the flats.  Both are held by the managing agents at this time.

There is no legal basis.  The leaseholders commissioned an inspection of the roof and, on the basis of the report, obtained quotes for a replacement roof.  We met to discuss the report, quotes etc and collectively we decided to start saving towards the cost of a new roof from now.

We have agreed, in principle, the monies will stay in the fund if a leaseholder sells their property.  Whether someone contests that remains to be seen.  Maybe we need to draw up a legal agreement.

How could a leaseholder cause us, 'huge problems, and leave you massively out of pocket'?  I can't see any of us having an appetite for legal battles. 

Worst case scenario, the monies would be returned to leaseholders and everyone would have to start saving.  However, I don't think that is in anyone's best interest.  The bottom line is solicitors are asking about the condition of roofs on flats, whether a roof fund has been set up etc.  We feel what we are doing is a positive move for existing leaseholders as well as for potential buyers.

In the meantime, we need to decide where the money is going to be held until we have either saved enough to get a new roof or the roof fails and we have to get a new roof.