Leasehold Service Charges - management company have not collected money for sinking/contingency fund

lottagelady

My elderly mum lives on a very nice retirement estate, but in the 3 years she has been there the service charges have gone up by £2000. The coming year it is approx £6700 pa, BUT the management company are asking each resident to cough up a further £6500 because all the conservatories need replacing, apparently 5 years before the planned replacement.

The properties are 40 years old, but it seems that the management company have only been collecting for the reserve/sinking/contingency since 2014, and there's only £20,000 in the fund! 

It seems to me that the whole thing has been very badly mismanaged - in theory, if those conservatories were planned to be replaced in 15 years, but they only lasted 10 years, then surely there should be 10 years worth already saved, with 5 years to fund extra? They also need to replace the courtyard lighting, the lead flashing on all the roofs, and replace the pendant alarm system with a digital one - all this will total £171,600.

I've questioned their insurance which apparently will not pay out; for the conservatories (by the way, mum doesn't even have one) although we could take the original installer to court, but the legal costs for doing so will be passed on to the residents to pay a 1/26 share each. The management company will not admit any fault in all this - they are allegedly a not-for-profit company, but I suspect their management team is paid a fortune?

Also included in the £171+k shortfall is an Estate Condition Survey at a cost of £3.000. Have they not had one before?? When I worked in a similar field, when the properties were built, there'd be a cycle of works, kitchens would in theory last 20 years, bathrooms 30 years etc and the service charge would be calculated so that for 20/30 years they'd be growing the contingency fund to end up with enough money to replace those things when the time arrived.

The sale of 2 properties have fallen through because of this and the residents are very concerned about having to pay such sums now and if they should be asked again in the future. One person is having to sell up, but once this is known, she's no chance of selling.

Anyone know if something can be done?

eddddy

The law states that leasehold service charges must be 'reasonable'.

If you believe that a service charge bill isn't reasonable, you can challenge it at a tribunal.

lottagelady said:

if those conservatories were planned to be replaced in 15 years, but they only lasted 10 years...

So, for example, if you think the conservatories only lasting 10 years was a result of the management company's negligence (e.g. because they chose a shoddy contractor, or shoddy materials), you could try making a challenge on that basis.

But it might be a hard fight, and the management company might use expert surveyors and expert solicitors to argue their case, so you might need experts to argue your case.

lottagelady said:

Also included in the £171+k shortfall is an Estate Condition Survey at a cost of £3.000. Have they not had one before?? 

Again, if you believe that they already had a report, and so didn't need another one - you can challenge that £3k.

lottagelady said:

The sale of 2 properties have fallen through because of this and the residents are very concerned about having to pay such sums now and if they should be asked again in the future. One person is having to sell up, but once this is known, she's no chance of selling.

It should still be possible to sell - if the sellers are upfront about this, so it doesn't come as an unpleasant shock to the buyer during conveyancing.

For example,

• if a property would normally be worth £250k - explain that the asking price is only £243k, because there is likely to be a bill for £6.5k

• Or leave the selling price as £250k - but with a retention of, say, £10k. The £10k can be used to pay the service charge bill

A good estate agent should be able to present that to a buyer, without it sounding scary.

eddddy

Regarding the issue of the management company not building up a sinking fund - your mum hasn't suffered a loss as a result of that, so there's no real basis for a claim against the management company.

(But if the leaseholders are generally unhappy with the management company, they can apply to take over the management themselves.)

user1977

eddddy said:

Regarding the issue of the management company not building up a sinking fund - your mum hasn't suffered a loss as a result of that, so there's no real basis for a claim against the management company.

Indeed one could argue it's an excellent moneysaving policy as it means everyone can keep their money in their own pocket until something actually needs paid, rather than shelling out for hypothetical future work.

Hoenir

user1977 said:

eddddy said:

Regarding the issue of the management company not building up a sinking fund - your mum hasn't suffered a loss as a result of that, so there's no real basis for a claim against the management company.

Indeed one could argue it's an excellent moneysaving policy as it means everyone can keep their money in their own pocket until something actually needs paid, rather than shelling out for hypothetical future work.

Once in a while a new roof will be required, for example. No sinking fund will present every current owner with a massive financial headache. Short sighted not to plan long term. Nothing ever disappears by ignoring it and pretending all is rosy. 

user1977

Hoenir said:

user1977 said:

eddddy said:

Regarding the issue of the management company not building up a sinking fund - your mum hasn't suffered a loss as a result of that, so there's no real basis for a claim against the management company.

Indeed one could argue it's an excellent moneysaving policy as it means everyone can keep their money in their own pocket until something actually needs paid, rather than shelling out for hypothetical future work.

Once in a while a new roof will be required, for example. No sinking fund will present every current owner with a massive financial headache. Short sighted not to plan long term. Nothing ever disappears by ignoring it and pretending all is rosy. 

All they need to do is make their own long term plans.