Can a flats residents association get a bank loan for major repairs?

Ash_Pole

I live in a flat complex of 50 flats where the structure is that we all own a share of the freehold. We need some major repairs doing on the roofs, they might need replacing completely. This could cost up to £200k. We all pay about £100 a month service charge, and unfortunately there isn't anywhere near enough in the reserve fund to cover this expense.

We have no collateral, but I'm wondering if anyone knows if banks would provide a loan for this cost secured against future (higher) service charges? The other option is to ask leaseholders for a one-off payment of about £4k each but there are concerns owners may have trouble raising this individually.

user1977

I would doubt any banks would consider it really - the association doesn't have any sort of guaranteed income or can offer anything by way of security. Leaseholders should have their own "rainy day" funds, or if not can at least in theory borrow it. If anyone genuinely can't pay now, perhaps those who have funds can subsidise it and the debt be secured against the debtors' flats so it will at least be recovered eventually (not sure how you go about putting a charge on for this sort of thing but presume there's a method).

pjs493

I’m not aware of any banks that would offer the type of loan you need. I think the only way to raise the funds is to increase the contributions each resident makes to the service charge and increase the reserve fund. 

Who manages the leasehold? Something as big a a roof repair should have been on the cards for some time, so a contingency should have been planned to build cash in the reserve to ensure the funds were available when needed. Sounds like a case of mismanagement by the leasehold company. 

My husband saw this a few years ago with a rental property he owned. We had the money to pay for the sudden increase in the service charge due to the management company completely underestimating some repair and maintenance costs, but other residents on fixed incomes were worried about where they’d suddenly find an extra couple of grand in the middle of COVID. 

eddddy

(When you say 'Resident's Association' - I assume you actually mean 'The Company That Owns The Freehold'.)

As others say, it's unlikely that a bank would lend.

But sometimes this is addressed by some of the leaseholders lending money to the Freehold Company.

For example

• Leaseholder 1 pays the £4k they owe, and lends the freehold company an extra £3k
• Leaseholder 2 pays only £1k, and agrees that they have Service Charge arrears of £3k
  etc, etc

Obviously, this assumes that some leaseholders have spare cash to lend.

And if the debtor leaseholders don't stick to a payment plan, it could be a long time before the lenders get their money back. But the ultimate sanction is that the Freehold company could forfeit the debtor's lease (i.e. repossess their flat.)