How can joint freeholders finance major building repairs?

Fruitpigeon

I'm a resident in a converted building (we think built around 1850) which now has 10 flats (8 freehold and 2 leasehold).  The 8 freeholders (of which I'm one) share maintenance/repair responsibilities and we all pay in around £1200 per year - same with leasehold flats via their service charge - though 60+% of this goes on buildings insurance.

Our external walls have a major problem with cracked rendering, trapping rain and causing damp.  It needs to be removed and the brickwork restored (re-rendering has been advised against as, while cheaper, same problem may arise in the future).  Quotes for whole building reach around £120K, and we have only around £7K available in our kitty at the mo.  Aarrgh.

Please can anyone advise on how on earth we get our hands on £120K?  I'm imagining a loan's going to be difficult, if not impossible, as there's no surety for a lender?  We could ask all 10 owners to cough up £12K each but that might be difficult or impossible for some, especially in current climate ... but is that our only recourse?  Or, if we stop being self-managing and sign up with a freehold management company for whom this is 'big business', can/do they finance such things and, like a bank loan, have us repay with interest over time?

The work urgently needs doing and is at least several years overdue, with damp problems only getting worse.  We're pretty desperate and I'd be so grateful for any input or suggestions.  Thank you.

user1977

You ask the owners to cough up. That's by far the simplest solution, and there's no point in worrying about whether they can all pay if you haven't even asked them yet.

daveyjp

The lease will outline repair responsibilities.  You go through the due process for undertaking major repairs and then charge each occupier 10% of the cost.

 How they get the money is down to them, thats the gamble of buying a leasehold flat in a 175 year old property with no sinking fund account. 

DullGreyGuy

Just remember you have a due process (section 20) to follow for works that will cost more than £250 per leaseholder

Grumpy_chap

Fruitpigeon said:

I'm a resident in a converted building (we think built around 1850) which now has 10 flats (8 freehold and 2 leasehold).  The 8 freeholders (of which I'm one) share maintenance/repair responsibilities and we all pay in around £1200 per year - same with leasehold flats via their service charge - though 60+% of this goes on buildings insurance.

Our external walls have a major problem with cracked rendering, trapping rain and causing damp.  It needs to be removed and the brickwork restored (re-rendering has been advised against as, while cheaper, same problem may arise in the future).  Quotes for whole building reach around £120K, and we have only around £7K available in our kitty at the mo.  Aarrgh.

Please can anyone advise on how on earth we get our hands on £120K?  I'm imagining a loan's going to be difficult, if not impossible, as there's no surety for a lender?  We could ask all 10 owners to cough up £12K each but that might be difficult or impossible for some, especially in current climate ... but is that our only recourse?  Or, if we stop being self-managing and sign up with a freehold management company for whom this is 'big business', can/do they finance such things and, like a bank loan, have us repay with interest over time?

The work urgently needs doing and is at least several years overdue, with damp problems only getting worse.  We're pretty desperate and I'd be so grateful for any input or suggestions.  Thank you.

Ultimately, each flat will need to contribute 10% of the cost.  There is a process to follow (as referenced above) and obtaining the money may be easier said than done.

£120k sounds like a large quote - have you obtained competitive quotes?
Are you specifying the work to the tenderers, or detailing the problem and asking the tenderers to provide a solution?

If you stop being a self-managing property and sign up with a freehold management company, the costs will likely be higher.  In theory, the managing company can use their clout to secure a better deal but, by the time they add management fees, inspections and such like, the outcome will more than likely be higher.

markin

Double the SC and do the work in sections, cladding on top could be cheaper.

eddddy

Fruitpigeon said:

I'm a resident in a converted building (we think built around 1850) which now has 10 flats (8 freehold and 2 leasehold).  The 8 freeholders (of which I'm one) share maintenance/repair responsibilities and we all pay in around £1200 per year - same with leasehold flats via their service charge - though 60+% of this goes on buildings insurance.

I suspect that your set-up would be like this:

• There are 10 leaseholders who each own a leasehold flat within a building
• 8 of those people also jointly own the freehold building

Estate Agents would call that 8 Share of Freehold flats and 2 Leasehold flats - but that's a bit of a misleading description.


The freehold building will have very little value - so I doubt you'd find anyone who would lend you a chunk of money using the freehold building as security.

And for the same reason, a Management Company wouldn't see the freehold building as good security for a credit arrangement.


The conventional (and most sensible) approach would be to ask for £12k from each leaseholder, and leave each leaseholder to arrange whatever borrowings they require. Maybe using their leasehold flats as security.

DullGreyGuy said:

Just remember you have a due process (section 20) to follow for works that will cost more than £250 per leaseholder

You only need to do a section 20 consultation if one or more leaseholders are unwilling to pay, and you want to 'force' them to.

If all the leaseholders agree to pay their £12k at the outset (best to get them to confirm that in writing), then no section 20 consultation is required.



Given the amount of money involved, I'd also suggest that you get a report from a Chartered Building Surveyor first - rather than relying on builders to give you their opinion on what needs to be done.

NameUnavailable

Management companies don't fund, they will just collect the money and then arrange the works and charge a fee on top.

You need to ask (demand) each flat to pay their share of the work, as defined in the lease.

If the building has been rendered and if renewing the render is cheaper then maybe that is the best option? Lots of buildings have render - yes it can crack and deterorate in time but it sounds like your building hasn't had regular checkcs/maintenance to deal with specific areas of damage and it's just got a lot worse.

GDB2222

If you serve the proper notice, will lenders step in and pay the service charge if the leaseholder is unable to pay? Obviously, it will be added to the mortgage. 

silvercar

GDB2222 said:

If you serve the proper notice, will lenders step in and pay the service charge if the leaseholder is unable to pay? Obviously, it will be added to the mortgage. 

They do, eventually. Generally getting grumpy with the borrower first and using this hold as a last resort. The T&c’s will allow them to do so in order to protect their interest ie there would be a risk that the freeholder could cancel the lease if the borrower didn’t pay there obligations regarding the service charge. All this would take a few months at least.

The real problem would be if any of the leaseholders didn’t have a mortgage and were unwilling or unable to pay up.

eddddy

GDB2222 said:

If you serve the proper notice, will lenders step in and pay the service charge if the leaseholder is unable to pay? Obviously, it will be added to the mortgage. 

Typically, yes - once the debt has been confirmed as owing by a court or tribunal.

By that time, there will usually be a thousand or two in legal/enforcement fees added on top.

And the borrower will be in breach of their mortgage t&cs (and might be edging towards negative equity) - so the lender might think about recalling the loan, which might result in repossession.



And perhaps more significantly, to make that happen, those 8 joint freeholders would have to subject one of their neighbours to a horrible experience - threatening letters, court hearings, CCJ etc.

Maybe that's easy if the leaseholder is just a faceless name on a lease. But a bit more difficult if it's the struggling single parent, or the recently redundant breadwinner, who you meet on the stairs each day.

Plus, if the defaulter is actually one of the 8 freeholders, there's the question of whether they can just veto any legal being action taken against themselves.