Share of freehold/management company issues

Daffodilly_2

Hi all

I wondered if anyone has any experience of dealing with an issue where the freehold has been acquired by a number of flat owners and there is a management company, but some of the flat owners are not paying the monthly service charge and haven’t for some time? 

The information I was given by my solicitor when I purchased my property suggested there’s a forfeiture clause that could result in removal from the property if there’s a breach of covenants within the lease such as non payment of service charge. Currently three of us own and live in our flats, the other three are owned by landlords who are renting their properties out and none of those three landlords are paying the monthly service charge. This has always been worrying for me as money in our management company account is limited due to poor management in the past (the service charge had previously not increased since 1960s when the property was built, this has now been rectified!). I perhaps naively thought that these issues could be resolved once I was more involved and I also thought I wouldn’t live here that long. That may still be the case but I’m interested to hear about experiences with this and whether it will involve an expensive legal process. The other owners have been asked multiple times to pay and have been sent formal letters to no avail. One of them is now selling his property and so this may come up during the process of their sale, I’m not sure. As you can probably tell, all of this is new to me!

gwynlas

If they are trying to sell their property now is the time to raise arrears of service charge. When you purchased your property was the management company being properly run? Usually there is a forfeiture of lease clause and you can approach the mortgage lender as their security is being put at risk. Any block being correctly run should have an adequate service charge a sinking fund and a schedule of routine works such as redecoration of communal areas.

propertyrental

This is written from the perspective of the leaseholder:

If you fail to pay service charges, ground rent or administration charges which are due, you could face action from your landlord. This could include your landlord applying for a county court judgment, asking your mortgage company to pay the arrears and add these to the amount outstanding on your mortgage and, finally, taking action to end the lease and repossess the house or flat. By law, your landlord has the right to take this action, but they cannot take back possession of your home without a court order. They must generally start the process of action to take back possession of your home by serving a valid notice of seeking possession under section 146 of the Law of Property Act 1925 (a section 146 notice).

https://www.lease-advice.org/advice-guide/service-charges-other-issues/

eddddy

Daffodilly_2 said:

Hi all

....the freehold has been acquired by a number of flat owners and there is a management company, but some of the flat owners are not paying the monthly service charge and haven’t for some time? 

Can you clarify...

Presumably the freehold is owned by a company - and there are 6 shareholders (the 6 flat owners)

Are you saying that the freehold owning company has hired a professional management company to manage the building?

If so, a professional management company should be able to advise you about enforcing service charge payments.  What do they say?


(Or are you mistakenly calling the the freehold owning company a management company, or maybe something else?)

NameUnavailable

If one party is trying to sell you can simply ignore their requests for management packs etc. which will hold the sale up! Until they pay the outstanding service charges.

Daffodilly_2

gwynlas said:

If they are trying to sell their property now is the time to raise arrears of service charge. When you purchased your property was the management company being properly run? Usually there is a forfeiture of lease clause and you can approach the mortgage lender as their security is being put at risk. Any block being correctly run should have an adequate service charge a sinking fund and a schedule of routine works such as redecoration of communal areas.

I think the answer to that is no because the situation was essentially similar to how it is now. Some owners weren’t paying and the others were doing what they could to try and manage things. I didn’t really understand the consequences of that at the time I bought the property. There would be more of a sinking fund if all the owners were paying! I’ve paid the £3 for the title deed of the property that’s for sale and can find no mention of a mortgage. I suspect none of them will have mortgages given they were all purchased a long time ago and are all being let out. The owners who aren’t paying were likely involved in the decision to buy the freehold given how long they’ve owned the properties.

Daffodilly_2

eddddy said:

Daffodilly_2 said:

Hi all

....the freehold has been acquired by a number of flat owners and there is a management company, but some of the flat owners are not paying the monthly service charge and haven’t for some time? 

Can you clarify...

Presumably the freehold is owned by a company - and there are 6 shareholders (the 6 flat owners)

Are you saying that the freehold owning company has hired a professional management company to manage the building?

If so, a professional management company should be able to advise you about enforcing service charge payments.  What do they say?


(Or are you mistakenly calling the the freehold owning company a management company, or maybe something else?)

This will be my error, this is a new area to me! There isn’t a professional management company, there was a freehold owning company formed by the residents when the freehold was purchased known as ‘*block of maisonettes name* management company’ hence (mistakenly) calling it a management company. Two of the owners are directors (the other two who currently live in their properties) and they have been struggling to resolve this situation. I’m concerned about the consequences of this in terms of my own mortgage and property so have become more involved. I now understand that this situation is one of the downfalls of jointly owning the freehold as the owners who no longer live in their properties appear to have no interest in maintaining them. 

Daffodilly_2

NameUnavailable said:

If one party is trying to sell you can simply ignore their requests for management packs etc. which will hold the sale up! Until they pay the outstanding service charges.

Thank you, this had just dawned on me before I saw your comment! I can imagine that as the owner doesn’t have a tenant now he will be eager to sell. This doesn’t resolve the issue with the other two properties but may resolve things with this one. I have also read about taking the matter to a first tier tribunal so am wondering if that’s an appropriate first step in the other cases, though I don’t know what powers they have to enforce that the owners pay their arrears but also regularly pay their service charge going forwards. Ultimately my main concern is that it is clear that service charge or not, these three negligent owners are not going to contribute to works needed on the properties which increases costs for the rest of us or means works won’t get done. Additionally I’m concerned about how this situation will impact at such a time as I want to sell my own property.

HampshireH

Daffodilly_2 said:

NameUnavailable said:

If one party is trying to sell you can simply ignore their requests for management packs etc. which will hold the sale up! Until they pay the outstanding service charges.

Thank you, this had just dawned on me before I saw your comment! I can imagine that as the owner doesn’t have a tenant now he will be eager to sell. This doesn’t resolve the issue with the other two properties but may resolve things with this one. I have also read about taking the matter to a first tier tribunal so am wondering if that’s an appropriate first step in the other cases, though I don’t know what powers they have to enforce that the owners pay their arrears but also regularly pay their service charge going forwards. Ultimately my main concern is that it is clear that service charge or not, these three negligent owners are not going to contribute to works needed on the properties which increases costs for the rest of us or means works won’t get done. Additionally I’m concerned about how this situation will impact at such a time as I want to sell my own property.

Any costs for tribunal would reduce your collective pot.

Issue a demand for payment of service charge arrears to the person requesting the sales pack and advise it will be forthcoming on receipt of payment.

What sort of numbers are you talking about?

eddddy

Daffodilly_2 said:

This will be my error, this is a new area to me! There isn’t a professional management company, there was a freehold owning company formed by the residents when the freehold was purchased known as ‘*block of maisonettes name* management company’ hence (mistakenly) calling it a management company. Two of the owners are directors (the other two who currently live in their properties) and they have been struggling to resolve this situation. I’m concerned about the consequences of this in terms of my own mortgage and property so have become more involved. I now understand that this situation is one of the downfalls of jointly owning the freehold as the owners who no longer live in their properties appear to have no interest in maintaining them. 

So far you seem to have mentioned...

• 6 Flats

• A freehold owning company with 6 shareholders - 2 of whom are directors

• 3 Leaseholders who don't pay their service charge (none of whom are directors).

And what do the company's Articles of Association say about decision making?  Presumably, they say that any decision only requires agreement of the 2 directors.

It would be a problem if it said any decision requires agreement from a majority of shareholders - as the 3 'non-paying leaseholders' wouldn't agree to take any action for non payment.



The next question is "Are your service charge demands legally correct and enforceable?"

Or, for example, are the non-paying leaseholders out-smarting you?

i.e. As professional landlords, can they see that you are issuing unenforceable service charge demands, but they're not telling you - because they don't want you to correct your mistakes?

So they want you to continue issuing unenforceable service charge demands, so they never have to pay them.

HampshireH said:

Any costs for tribunal would reduce your collective pot.

Assuming the freeholder wins at tribunal, all costs of enforcement will be payable by the leaseholder. (i.e. The leaseholder who failed to pay their service charge has to pay all the costs.)

mancmum

We had a knowledgeable landlord refusing to pay the service charge on the grounds that we were improving the development rather than simply maintaining it.  He lost the case, had to pay all the legal costs, and we were awarded forfeiture ...so his flat would pass to us unless he paid up within the set time period.  Strangely he did decide to pay up.