Sinking fund for roof - where/how to protect monies

eddddy

Lulu58 said:

 I can't see any of us having an appetite for legal battles. 

The "legal battle" would involve a leaseholder writing a statement and paying £100 to take the freeholders to tribunal.

• What if a flat is sold to a less "friendly" leaseholder - who likes the idea of taking you to tribunal to get a few thousand pounds from the other leaseholders

• What if a feud develops between leaseholders - and a leaseholder decides they'd like to get revenge by taking you to tribunal to get a few thousand pounds from the other leaseholders.

When you're dealing with a £100k of other people's money, it's a bit risky (and possibly naive) to assume it's safe because "we're all nice people, and we wouldn't do anything nasty to each other".

Lulu58 said:

 How could a leaseholder cause us, 'huge problems, and leave you massively out of pocket'? 

For example,

1) You replace the roof, and then a leaseholder takes you to tribunal because you haven't done a section 20 consultation.

The tribunal would almost certainly say that the leaseholder doesn't have to pay towards the new roof. (And then maybe other leaseholders would follow.)

Or are you planning to do a section 20 consultation?

If you have a very thorough understanding of leasehold law, you (or a specialist solicitor) could probably draw up an agreement that gets around the need for a section 20 consultation - but you would need the leaseholders to sign the agreement before you start collecting any money.


2) You use some of the money for replacing the roof, and some of the money for replacing the guttering/rainwater drainage.

A leaseholder then says you have breached the agreement, because at the outset you said the money was for replacing the roof.

eddddy said:

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

You still haven't answered the question above.

What if....

• One group of leaseholders wants the roof replaced by contractor A - who quotes £100k (because contractor A has a good reputation)

• Another group of leaseholders wants the roof replaced by contractor B - who quotes £75k (because they're cheaper)

• Another group of leaseholders say it's unnecessary to replace the roof - it should just be repaired instead at a cost of £40k 

• What if you can never reach a unanimous decision?

And do you as leaseholders know much about roof replacement? How will you know if a contractor is "hoodwinking" you?

If you somehow reach a decision to use contractor Y - and they do a rubbish job, or run off with your money - who is liable for the lost money?

eddddy

Lulu58 said:

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.

So your reply is along the lines of:

"We anticipate that the roof will need replacing in the near future. However, we have chosen not to implement a sinking fund, so the buyer should take this into account during their negotiations."


e.g Instead of the seller having put £10k in a sinking fund, the seller reduces the price of the flat by £10k.

daveyjp

There is nothing here which requires reinventing the wheel.

Thousands of,properties have sinking funds, you just need an agent that understands them and operates clients accounts or you set up a company with directors to manage it.

Lulu58

eddddy said:

Lulu58 said:

 How could a leaseholder cause us, 'huge problems, and leave you massively out of pocket'? 

For example,

1) You replace the roof, and then a leaseholder takes you to tribunal because you haven't done a section 20 consultation.

The tribunal would almost certainly say that the leaseholder doesn't have to pay towards the new roof. (And then maybe other leaseholders would follow.)

Or are you planning to do a section 20 consultation?

If you have a very thorough understanding of leasehold law, you (or a specialist solicitor) could probably draw up an agreement that gets around the need for a section 20 consultation - but you would need the leaseholders to sign the agreement before you start collecting any money.


2) You use some of the money for replacing the roof, and some of the money for replacing the guttering/rainwater drainage.

A leaseholder then says you have breached the agreement, because at the outset you said the money was for replacing the roof.

eddddy said:

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

You still haven't answered the question above.

What if....

• One group of leaseholders wants the roof replaced by contractor A - who quotes £100k (because contractor A has a good reputation)

• Another group of leaseholders wants the roof replaced by contractor B - who quotes £75k (because they're cheaper)

• Another group of leaseholders say it's unnecessary to replace the roof - it should just be repaired instead at a cost of £40k 

• What if you can never reach a unanimous decision?

And do you as leaseholders know much about roof replacement? How will you know if a contractor is "hoodwinking" you?

If you somehow reach a decision to use contractor Y - and they do a rubbish job, or run off with your money - who is liable for the lost money?

Thanks for your posts eddddy.

We will be doing a Section 20 consultation.

In the event we raised more than was required for the roof, the balance would go into the general maintenance fund.  Each year an annual budget is produced for the maintenance charge, including capital expenditure, along with a report and also accounts.

Your scenario regarding contractor A, B etc could well arise and would likely come up through the Section 20 consultation.  Previously we have talked these disagreements through collectively and agreed a way forward.

The replacement roof project would be looked after by our managing agents.  They have a good deal of experience in these matters, access to surveyors etc. For this value of spend we would have staged payments etc.  

Regarding your second post about words to use to solicitors, we have collectively made a decision to start a sinking fund.  The only decision now is where the safest place is for the monies to be held.

Lulu58

daveyjp said:

There is nothing here which requires reinventing the wheel.

Thousands of,properties have sinking funds, you just need an agent that understands them and operates clients accounts or you set up a company with directors to manage it.

Thank you for your post daveyjp.

Our managing agent understands sinking funds, and operates many client accounts. 

As per my OP, we are concerned by the lack of regulation in place for managing agents and clients money so we are looking for alternatives. 

However, it seems that our only options are to leave the fund with the managing agents or open a multi signatory account.

eddddy

I think I'm starting to understand what you mean.

In your first post you said....

• "The leaseholders would like to start a sinking fund to cover some/all of the costs which could be in the region of £100k."

I assumed you meant...

• "The leaseholders would like to set-up and operate a sinking fund to cover some/all of the costs which could be in the region of £100k."

But perhaps you mean...

• "The leaseholders would like the management company to set-up and operate a sinking fund to cover some/all of the costs which could be in the region of £100k. - but they are worried about some specific risks. But the leaseholders don't want to take over any of the the management company's activities or responsibilities."

Those specific risks include things like:

• The management company going bust - making it difficult to access your money
• The management company being incompetent - which results in you losing money
• The management company committing fraud - which results in you losing money

In that case, you could look at setting up a trust account with a bank, perhaps with a solicitor as a trustee. So money cannot be withdrawn without the solicitor's approval.

But I guess you'd need to write-up a very precise list of criteria that states when money can be withdrawn. So the solicitor would look at each request (from the management company) for a withdrawal, and check it against the list of valid criteria to decide whether to authorise it.

And perhaps you'd want a solicitor with "landlord and tenant law" and leasehold expertise - to advise on the repercussions of making a payment or not making a payment.

But obviously, there would be legal fees you'd have to pay.

Lulu58

eddddy said:

Thanks again for your feedback, eddddy.  It is helpful