Residents' Management Company Fund

timboidal

We have set up a residents' management company at our block of flats, with each owner a director. Everyone paid an initial £1000 into the fund, with £50pcm going forwards. We are in the process of converting a weird freehold arrangement into a more manageable (and mortgagable) leasehold set-up, where the freehold is owned by the management company, but at the moment, the freehold to the land is owned by one of the flats, with each flat having its own freehold to its property. I mention this because there is no provision in the lease/deeds to deal with this question:
Question: Can we amend our articles of association to say that when a flat is sold, the buyer will (a) become a director of the company and (b) pay £1000 into the management company as well as (c) pay the £50 service charge going forwards?
Some residents think this will be fine; others argue that the 'flat' has already paid the £1000 when the company was set up so we can only ask for the service charge and not the lump sum as well.

Debbie9009

I can’t comment on legalities, but can tell you how I would view it if I were a potential buyer.

I would want to know what the £1000 is for, does the flat I buy get something extra because I have just put in £1000 or does it just go into a pot for the benefit of everyone.  If the latter this would be a concern for me, as you could end up with some flats that don’t change hands for many years only paying once, and other flats that change hands multiple times paying in a lot more.  This would seem unfair to me and would make me question if I would find the management company unfair on other things, which would make me question if this is a flat I want to buy.

That would then lead into another concern for me which would be if I felt that way, if in the future I wanted to sell, would potential buyers also think that way and limit the pool of buyers.

I do recognise many people would say £1000 is not much in the scheme of things when buying a house, so it may well not bother many people as much as it would me.

 

eddddy

timboidal said:

Question: Can we amend our articles of association to say that when a flat is sold, the buyer will (a) become a director of the company and (b) pay £1000 into the management company as well as (c) pay the £50 service charge going forwards?
Some residents think this will be fine; others argue that the 'flat' has already paid the £1000 when the company was set up so we can only ask for the service charge and not the lump sum as well.

You can do that - but it probably wouldn't be the articles of association, it would be in the new leases that you create.

But the terms seem a bit unfair...

• One flat might be owned by one person for 15 years, so they only pay on £1k lump sum in in 15 years

• Another flat might be owned by 5 different people over the space of 15 years - so that flat contributes £5k

Also, I guess the leases will be for 999 years - so it would be daft to quote numbers like £1000 and £50 in the lease - because inflation will erode them away.

• In 20 years time, £50 might be worth £20 in today's money. In 100 years time £50 might be worth 68p in today's money.

Most leases (and the law) simply allow the freeholders to demand a 'reasonable' amount from the leaseholders - and that amount is recalculated every year.

eddddy

... And...

I'm not a fan of a group of residents (i.e. a bunch of strangers, who I know very little about), looking after thousands of pounds of other people's money.

• Who would be signatories on the bank account?

• How many signatures would be required to spend the money?

• How would you decide what the money can be spent on?

• How would you stop the signatories from spending the money on their "pet projects"? e.g. a water feature for the garden

• How would you stop the signatories stealing the money?

• What if one or more of the signatories gets in a huff with everyone else, and refuses to sign the cheques? 

Also, how much do you know about your fellow residents - and potential signatories on the bank account?

• Do any of them have fraud convictions?
• Do any of them have gambling addictions?
• Are any of them under financial stress and desperately need money?
• Do any of them have different morals from you, and don't worry too much about freely spending other people's money?

Are you completely comfortable about them having control of £1000+ of your money?

user1977

What's the logic in a flat adding an extra £1000 to the pot just because it's changed hands?

DullGreyGuy

timboidal said:

We have set up a residents' management company at our block of flats, with each owner a director. Everyone paid an initial £1000 into the fund, with £50pcm going forwards. We are in the process of converting a weird freehold arrangement into a more manageable (and mortgagable) leasehold set-up, where the freehold is owned by the management company, but at the moment, the freehold to the land is owned by one of the flats, with each flat having its own freehold to its property. I mention this because there is no provision in the lease/deeds to deal with this question:
Question: Can we amend our articles of association to say that when a flat is sold, the buyer will (a) become a director of the company and (b) pay £1000 into the management company as well as (c) pay the £50 service charge going forwards?
Some residents think this will be fine; others argue that the 'flat' has already paid the £1000 when the company was set up so we can only ask for the service charge and not the lump sum as well.

It certainly wouldn't be normal practice for the buyer to have to pay a lump sum up front... they effectively buy into whatever money is in the kitty when they buy the property just as they take on any liabilities that will be coming in the future. 

Generally when buyers found out about such a clause they'd just reduce their offer price for buying the property by £1,000 to compensate but even that may not be sufficient for some cash strapped buyers so may cost sales. 

A few months after playing our place, leasehold and no sign up fee, the managing agent wrote to all the current leaseholders saying water company had refunded £20,000 which would be divided between us. 2 years later they wrote with a section 20 on flat roof repair of £25,000. 

It would be difficult to put a fixed service charge anywhere and its place would be in the lease agreements not the AoA. Much better to encode how running costs are split between the units (equal split, proportioned by square footage etc) and then the charges are what it costs to paint the building or replace the stairs or pay the gardener or whatever the running costs are for your building and doesn't become a problem when inflation pushes the price of everything up. 

What the AoA does need to cover off is how decisions need to be made, what happens if one person doesn't agree etc.

gm0

You don't need to have share capital for freehold interest. Or to bother with buying in/selling on the interest. 
Or have share certificates having to move from seller to buyer.  You *can* do all these things but you don't have to.  And to be honest I would avoid most of them.

A Ltd by guarantee (rather than share capital) company owning the freehold and maintaining a fixed register of members tied to the leasehold interests is a perfectly valid approach.  No shares.  No buying and selling of them.  Membership = 1/n interest in the company. N=number of leases. Company owns the freehold.

Articles of association define that acquiring the sub-lease for No1 triggers "replacement" of the previous member for that lease for No1.  No share certificates.   But there is a register of names and contact info to maintain which MUST by definition - always match who currently owns the leases as of date x. This register is a role for a director or for managing agents if used and regularly shared across some/all directors for legitimate uses (of the company) and as a backup.

This add+delete at lease assignment process deletes the prior holder member on the register for that particular unit lease.   And after a suitable retention period for matters arising (legitimate use).  Obsolete personal information must then be discarded. But there is no conveyancing or leavers process.  Or shares to muck about with.  Or Companies House returns related to that. Joiners at lease acquisition.  Auto-delete at lease assignment to new assignee as of date.  And only one name from the lease to be nominated.   No non-resident half shares belonging to divorcees.  No split votes.  One name. Which must be one of the names on the sub-lease.  Can be selected by the lessee(s) from the names signing that lease.  And then that nominated person can in turn nominate a proxy to act (and vote) on their behalf for a meeting or permanently (because of capability, being overseas etc.).  Again this is "instead" not as well.  One lease = one vote.  Multiple lessees can attend your resident owner meetings in the cafe or the garden.  But one lease.  One vote. Which cannot be split or partitoned off from owning the lease.  Or lost and become detached at conveyancing.  That covers most day to day situations that come up.  It's not perfect.  And I have no doubt a lawyer (I am not) could point out benefits of the other method. But it is an approach I have seen that sidesteps some pointless activity and avoids a load of mess.

Articles for companies have templates.  Simple majority is common as an approach.  Often as is a requirement for formal votes of all members being easy to trigger for one or two dissenters - if they don't like a proposal being rushed through a meeting with not enough people present to be sure it is the genuine majority view.  This is a bigger issue with 50-100 than with 5.  You could make a rule that you all have to be there (or represented by a valid proxy) with 5.   And then for 5 that the minimum is 3:2 or 4:1 or 5:0.  Pick your poison on how easy or difficult it is to get things to happen.

It is inevitable that the people who act as unpaid volunteer directors accrue some power in terms of what they chose to focus on and not focus on as projects or improvements or repairs. If other residents / landlord leaseholders disagree - they can of course volunteer and be elected to act as directors also and take part of steering the freehold agenda.

NameUnavailable

I think you would make each leaseholder a member or shareholder of the company with those who are willing to be, stepping up as directors.

The lease will set out obligations to the service charge. It would be a % rather than stating an amount as that will vary going forwards.

I can't see how you can demand £1000 for a new leaseholder however. What is the thinking behind that?