Shared Property Maintenance


A

allegoricus

We live in (and own) a property that's part of a converted large house
into a number of dwellings.

At the moment, the arrangement for maintenance/repairs is informal -
when something needs doing we share the cost according to interest in
the outcome (e.g. the roof keeps all of us dry, but some repairs only
affect some of us).

We want to formalise this into an arrangement where we create a
fund-holding entity to which we can each contribute a regular monthly
amount so that a plan can be followed in maintaining the property. We
do, though, want to preserve the self-managed nature of things rather
than rely on a management company (there are only three parties to
this, so we don't need the overhead).

Is there a straightforward way to approach this, and are there any
"gotchas" we need to be wary of?
 
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O

Optimist

We live in (and own) a property that's part of a converted large house
into a number of dwellings.

At the moment, the arrangement for maintenance/repairs is informal -
when something needs doing we share the cost according to interest in
the outcome (e.g. the roof keeps all of us dry, but some repairs only
affect some of us).

We want to formalise this into an arrangement where we create a
fund-holding entity to which we can each contribute a regular monthly
amount so that a plan can be followed in maintaining the property. We
do, though, want to preserve the self-managed nature of things rather
than rely on a management company (there are only three parties to
this, so we don't need the overhead).

Is there a straightforward way to approach this, and are there any
"gotchas" we need to be wary of?
Presumably these properties are leasehold? What are the terms of the lease?
 
D

David Woolley

allegoricus said:
We live in (and own) a property that's part of a converted large house
into a number of dwellings.
What is the nature of the tenancy? It sounds as though this ought to be
commonhold, but I suspect that you actually have joint tenants or
tenants in common. That might work, until you have a falling out, or
one of the people decide to move on.

With a pure joint or in common tenancy, I think that everyone will have
access to all parts of the building. If you have individual door locks,
I think there will be a leasehold situation, with all the legal
consequences. A leasehold situation without a very well drafted written
lease is not a good situation to be in.

Generally, when you have a leasehold situation, you want to have a
single legal persons as the owner. Commonhold absolutely requires that
this be a limited by guarantee company, with specific terms in their
articles of association.
At the moment, the arrangement for maintenance/repairs is informal -
when something needs doing we share the cost according to interest in
the outcome (e.g. the roof keeps all of us dry, but some repairs only
affect some of us).
I see tears downstream.
We want to formalise this into an arrangement where we create a
fund-holding entity to which we can each contribute a regular monthly
If you have a leasehold situation, the funds are held in a statutory
trust, anyway, although they could be physically held by any suitable
legal person, or group of them.
amount so that a plan can be followed in maintaining the property. We
do, though, want to preserve the self-managed nature of things rather
than rely on a management company (there are only three parties to
this, so we don't need the overhead).
I think you are confusing a management company with a managing agent
(which might not actually be a company). You really really need to
create a company to own the freehold, and you must ensure that the lease
allows it to spend money on its own administration costs. However, that
company need have no employees and the residents can work together.

In the short term working without a managing agent may be OK, but over
time, you will not have time to keep up with the relevant legislation
and you will find that people are less and less interested in helping out.

If you do go without one, you must budget for tracking legislation.
Is there a straightforward way to approach this, and are there any
"gotchas" we need to be wary of?
There are lots and lots of gotchas. Even solicitor drawn leases can
have gaping holes. You are going to have spend a lot of time and money
on getting this right, or especially once the flats start to become buy
to let, you will find you have an unmanageable situation. It is
possibly worth looking through some of the Leasehold Valuation Tribunal
rulings, to see what happens when things go wrong.

Creating proper long leases and commonholds are conveyancing operations
and there will be cost.

You might want to note that communal parts of leasehold buildings are
treated as businesses for health and safety legislation. I have never
needed to check whether this applies to commonhold. That means that you
have to have proper fire, asbestos and general health and safety
assessments (these require a competent person, but not necessarily a
professional contractor, although, unless you have specific technical
knowledge, I would advise the latter). It also means that you are
responsible for ensuring that contractors comply with health and safety
laws (ordinary householders are allowed to trust the contractor, but
businesses are not).

If you do have a lease situation (i.e. parts of the building are
exclusive to certain residents), you may also be an HMO (house in
multiple occupation). You will need to check your local council rules
as to whether you are licensable. If there are three or more storeys,
you may be subject to compulsory licensing.

I think you are in such a risky legal state that you need to talk to a
solicitor to clear up your exact legal position. It is just possible
that the Leasehold Advisory Service would be prepared to give a free
opinion as to whether there is a de facto leasehold situation, but they
normally work in terms of interpreting existing leases.

I would stress that you may have created a situation where landlord and
tenant legislation applies to you even though you have no written leases.
 
D

David Woolley

Presumably these properties are leasehold? What are the terms of the lease?
The way I read it is that they have stumbled into a leasehold
arrangement without any of the paperwork, or even realising that is what
they have, and are now asking for guidance on how to draft the lease!
 
R

Roger Mills

We live in (and own) a property that's part of a converted large house
into a number of dwellings.

At the moment, the arrangement for maintenance/repairs is informal -
when something needs doing we share the cost according to interest in
the outcome (e.g. the roof keeps all of us dry, but some repairs only
affect some of us).

We want to formalise this into an arrangement where we create a
fund-holding entity to which we can each contribute a regular monthly
amount so that a plan can be followed in maintaining the property. We
do, though, want to preserve the self-managed nature of things rather
than rely on a management company (there are only three parties to
this, so we don't need the overhead).

Is there a straightforward way to approach this, and are there any
"gotchas" we need to be wary of?
My holiday flat is in just such a property, a large house which was
converted into 6 units - 5 flats and a maisonette - in the 1950's.

In our case, a private limited company was set up at the outset to own
the freehold of the property. Each of the six owners of the units has an
equitable share[1] in the company. Each unit provides one (unpaid)
director of the company. The company is effectively the landlord, and
the owners are leaseholders. The 6 leases are virtually identical, and
differ only in places where they need to refer to the features of a
specific unit. The leases spell out the landlord's and the tenants'
responsibilities.

The landlord is responsible for maintaining the building, insuring the
property (but not the contents of individual units) and for paying for
water and electricity used in communal areas.

This is funded out of an annual levy which each leaseholder is required
to pay. The level of the levy for the forthcoming year is determined by
the Annual General Meeting, having taken account of the likely expenditure.

When a unit changes hands, the appropriate lease is assigned to the new
owner, and the shares relating to that unit are transferred. This seems
to work very well but, as others have said, the company's articles of
association and the the leases need to be drawn up by someone who is
legally qualified.

[1] The units are not all the same size. There are 100 shares,
distributed in proportion to the original rateable values when the
property was sub-divided. The annual levy is defined on a per-share
basis, so the owners of the larger flats pay a larger share of the costs.
--
Cheers,
Roger
____________
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checked.
 
D

David Woolley

Roger said:
to work very well but, as others have said, the company's articles of
association and the the leases need to be drawn up by someone who is
legally qualified.
The most important thing is it has to be someone who can anticipate the
future and, in particular, what can go wrong over time spans of decades.
 
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Y

Yellow

david@ex.djwhome.demon.invalid said:
The way I read it is that they have stumbled into a leasehold
arrangement without any of the paperwork, or even realising that is what
they have, and are now asking for guidance on how to draft the lease!
Often people have the paperwork but do not appreciate what it means.
 
D

David Woolley

Roger said:
to pay. The level of the levy for the forthcoming year is determined by
the Annual General Meeting, having taken account of the likely expenditure.
Be very careful. Landlord and Tenant legislation and the exact wording
of the lease take precedence over any decision by the AGM. It is easy
to get into a position where expenditure is not legally recoverable.
 
R

Roger Mills

Be very careful. Landlord and Tenant legislation and the exact wording
of the lease take precedence over any decision by the AGM. It is easy to
get into a position where expenditure is not legally recoverable.

Would you care to expand on that, with examples?
--
Cheers,
Roger
____________
Please reply to Newsgroup. Whilst email address is valid, it is seldom
checked.
 
D

David Woolley

Roger said:
Would you care to expand on that, with examples?
www.arma.org.uk/files/ARMAGN.pdf

Basically, if the lease makes no provision for an item of expenditure,
the minority objectors can refuse to pay and if you try to take them to
court, you are likely to find that you are required to refund everyone's
service charge.

Also, if you spend more than £250 per lease on works, and fail to follow
the consultation procedures, and give proper consideration to response,
you could have to refund all but the £250 per affected lease. The
correct process is a written one with two stages of about a month each,
before and after going to tender. This is actually a criminal offence
although normally enforced by the sanction of non-payment of service
charges.

In particular, it is very unusual for private leases to allow
expenditure on "improvements", so, if you want to install a 4 satellite
Integrated, to replace the terrestrial TV system, any decision to spend
the service charge on doing so is likely to be illegal and there is no
way that you can force objectors to contribute.
 
T

tim.....

David Woolley said:
Be very careful. Landlord and Tenant legislation and the exact wording of
the lease take precedence over any decision by the AGM. It is easy to get
into a position where expenditure is not legally recoverable.
Hence the reason why it is always best to construct the management as a
company limited by shares with each flat holder having an equitable number
of shares.

That way if any of the leaseholders challenge the legality of any
expenditure (and win) whilst wearing their hat as tenant, they will still
have to pick up the bill when wearing their hat of company shareholder (and
there are cases where this has happened)

tim
 
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A

allegoricus

www.arma.org.uk/files/ARMAGN.pdf

Basically, if the lease makes no provision for an item of expenditure,
the minority objectors can refuse to pay and if you try to take them to
court, you are likely to find that you are required to refund everyone's
service charge.

Also, if you spend more than £250 per lease on works, and fail to follow
the consultation procedures, and give proper consideration to response,
you could have to refund all but the £250 per affected lease. The
correct process is a written one with two stages of about a month each,
before and after going to tender. This is actually a criminal offence
although normally enforced by the sanction of non-payment of service
charges.

In particular, it is very unusual for private leases to allow
expenditure on "improvements", so, if you want to install a 4 satellite
Integrated, to replace the terrestrial TV system, any decision to spend
the service charge on doing so is likely to be illegal and there is no
way that you can force objectors to contribute.
What a can of worms this is turning out to be. (!)

Each of the parties "owns" their own property on leasehold terms (900
years+), with one party, by an accident of history, being the
freeholder.
The present informal arrangement has worked for the time we have all
been in occupation (min 10yrs), but it has emerged as a problem when
one of us wants to sell.
 
D

David Woolley

David said:
Note that this applies to leasehold. If you have a commonhold
arrangement, things are a little easier, you still have to have formal
consultations. With commonhold there will be no leases and the there is
a standard set of articles of association for the company.

Some very quick research suggests that amongst the disadvantages:

* mortgage lenders may not look kindly on them;
* there is no ultimate sanction of forfeiture if someone refuses to pay;
* one source suggests that sub-letting is not allowed, and as most flats
end up buy to let, that could be a major problem in the long term - it
would also be a problem for anyone who ended up away on business for a
long time. However, the legislation I can find suggests that
non-renewable sub-lets of less than 7 years are permitted, with some
restrictions.

There is a document that takes the place of the lease, and that still,
presumably, overrides any decision by the AGM.

It would appear that, if you really do have commonhold, you are very
rare in deed: <http://nearlylegal.co.uk/blog/2010/08/alas-poor-commonhold/>.

Also, if you really have a commonhold, there are standard forms, at
least some of which you should be receiving regularly (and some of which
you are required to complete in certain cases. There are at least 24,
although you may never see some of them.
<http://www.legislation.gov.uk/uksi/2004/1829/contents/made> (NB the
schedules are scanned and have been messed up.)

Personally, I would worry that commonhold could go badly wrong as the
development ages and the original sense of community is lost.
 
D

David Woolley

tim..... said:
Hence the reason why it is always best to construct the management as a
company limited by shares with each flat holder having an equitable
number of shares.
As with all not-for profits, it is usual to use a company limited by
guarantee with no share capital. In the case of commonhold, that is a
legal requirement. Normally every current leaseholder has an equal
voting right, although it looks like that is not a requirement for
commonhold.
 
D

David Woolley

allegoricus said:
The present informal arrangement has worked for the time we have all
been in occupation (min 10yrs), but it has emerged as a problem when
one of us wants to sell.
Unfortunately, it probably also means the freeholder has almost
certainly broken quite a few laws.
 
D

David Woolley

tim..... said:
Hence the reason why it is always best to construct the management as a
company limited by shares with each flat holder having an equitable
number of shares.

That way if any of the leaseholders challenge the legality of any
expenditure (and win) whilst wearing their hat as tenant, they will
still have to pick up the bill when wearing their hat of company
shareholder (and there are cases where this has happened)
As the article quoted, suggests, the company could simply go bankrupt,
with dire consequences.

If it were actually limited by shares, they would only be liable for the
part of the share capital not already paid up, normally nothing at all.
With a limited by guarantee company, they are limited to a fixed
amount. In practice, limited by guarantee companies are regularly
created with guaranteed contributions that are less than the cost of
collecting them, so the guarantee has no real value.

If the company trades illegally, for an extended period, the directors
(or I guess everyone, if all decisions are made by the AGM) could be
personally liable. However, otherwise, the reason for company members
to bail the company out would seem to be the consequences of letting it
go bankrupt, which means they are not under a legal liability (its
limited liability) to do so, so, for example, the people who brought the
original action could argue that it was not their fault, and refuse to
help out, and some of the remainder would argue that their finances
simply didn't allow them to cover the short fall from those people.
Basically, it is a recipe for acrimony.

Looking through LVT case reports, it is fairly clear that people will go
to court, even when they are members of an RMC, and RMCs are
particularly liable to take short cuts that get them in this sort of
situation.
 
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T

tim.....

David Woolley said:
As the article quoted, suggests, the company could simply go bankrupt,
with dire consequences.

If it were actually limited by shares, they would only be liable for the
part of the share capital not already paid up, normally nothing at all.
With a limited by guarantee company, they are limited to a fixed amount.
In practice, limited by guarantee companies are regularly created with
guaranteed contributions that are less than the cost of collecting them,
so the guarantee has no real value.

If the company trades illegally, for an extended period, the directors (or
I guess everyone, if all decisions are made by the AGM) could be
personally liable. However, otherwise, the reason for company members to
bail the company out would seem to be the consequences of letting it go
bankrupt, which means they are not under a legal liability (its limited
liability) to do so, so, for example, the people who brought the original
action could argue that it was not their fault, and refuse to help out,
and some of the remainder would argue that their finances simply didn't
allow them to cover the short fall from those people. Basically, it is a
recipe for acrimony.
Simply, being part of a "shared managed" property achieves that, all on its
own.

We're seeking the organisation that makes it the smallest.
Looking through LVT case reports, it is fairly clear that people will go
to court, even when they are members of an RMC, and RMCs are particularly
liable to take short cuts that get them in this sort of situation.
Yep. There's always someone who doesn't want to pay for the roof to be
fixed because it doesn't cause them any issue.

I don't know about numbers but there's a certain percentage of LVT cases by
RMCs that are "protective" claims by "management" to confirm to the
naysayers that they *must* contribute.

tim
 
D

David Woolley

tim..... said:
I don't know about numbers but there's a certain percentage of LVT cases
by RMCs that are "protective" claims by "management" to confirm to the
naysayers that they *must* contribute.
At least some of these are redirected there by the county courts.
Basically, if you take someone to court to recover the debt and their
defence is that the charge was unreasonable, you may/will get redirected
to the LVT, and you had better have been going by the letter of the law
and of the lease.

The LVT will not help you recover illegally spent service charge monies,
and seem to take a hard line on self managers, holding them to the same
standards as professional landlords. If "how it has always been done"
is not the same as the legal position, ignorance is no excuse.
 
T

tim.....

David Woolley said:
At least some of these are redirected there by the county courts.
Basically, if you take someone to court to recover the debt and their
defence is that the charge was unreasonable, you may/will get redirected
to the LVT, and you had better have been going by the letter of the law
and of the lease.

The LVT will not help you recover illegally spent service charge monies,
and seem to take a hard line on self managers, holding them to the same
standards as professional landlords. If "how it has always been done" is
not the same as the legal position, ignorance is no excuse.
I think we have agreed that

The issue where I came in is that of making them liable for the shortfall as
shareholder/directors.

tim
 
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R

Roger Mills

www.arma.org.uk/files/ARMAGN.pdf

Basically, if the lease makes no provision for an item of expenditure,
the minority objectors can refuse to pay and if you try to take them to
court, you are likely to find that you are required to refund everyone's
service charge.

Also, if you spend more than £250 per lease on works, and fail to follow
the consultation procedures, and give proper consideration to response,
you could have to refund all but the £250 per affected lease. The
correct process is a written one with two stages of about a month each,
before and after going to tender. This is actually a criminal offence
although normally enforced by the sanction of non-payment of service
charges.

In particular, it is very unusual for private leases to allow
expenditure on "improvements", so, if you want to install a 4 satellite
Integrated, to replace the terrestrial TV system, any decision to spend
the service charge on doing so is likely to be illegal and there is no
way that you can force objectors to contribute.
Many thanks. I don't think there's too much risk in our case. The leases
spell out the landlord's obligations in some detail - and nothing has
been spent in the three years since I bought my flat which is not
covered by that. For example, insurance, minor repairs, periodic
painting of the windows, rear wall and internal communal parts, plus
work needed to comply with fire regulations. There are no plans for any
major enhancements - indeed, as a Grade II listed building, such
enhancements would not be straightforward!
--
Cheers,
Roger
____________
Please reply to Newsgroup. Whilst email address is valid, it is seldom
checked.
 

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