Funding Major Repairs

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  • simon pinner
    started a topic Funding Major Repairs

    Funding Major Repairs

    As a Board member of a freehold apartment building of over 130 leasehold flats we are considering ways to raise long term financing to carry out long overdue and now essential structural repairs.
    All of the leasehoders have a share in the freehold with perpetual leasese of >900yrs and no ground rent.
    They are all however contractualy bound to pay any service charge the Board sets each year for operationg and maintaing the building.
    Past Boards have failed to anticipate the maintenance costs and raise the necessary funds to meet the needs of the building long term and now we have inhereted a crisis situation.
    A one off charge or a series of service charge increases in a short period would be hard to impose as many leaseholders are either retired or unable to pay.
    The best way forward would be to raise long term finance say over 20yrs and set thr service charge to service the loan while including a sum to raise a sink fund for the future.
    With no ground rent, the reversion value is 0, so how might a lender obtain security on say a £2-3 million pound loan over 20yrs
    The apartment values are on average £500k+
    Any thoughts or experience in a similar scenario?

  • AndrewDod
    To summarise - unless there is provision for a sinking fund you can't create one.

    a) You calculate what lessees owe according to the lease.
    b) You invoice that amount (say £20,000)
    c) If they can't pay, then they need to sell their flat in order to do so, or take a loan, or whatever. It is not your problem. They should have planned for this.

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  • leaseholder64
    Most leases won't allow you to borrow against future service charges. Trust funds generally cannot borrow.

    Try to forget that the company that owns the freehold is owned by the leaseholders.

    Does the lease provide for a sinking fund? If not this is academic, as the leaseholders could be expected to get hit for big ticket items occasionally, in any case.

    Without a sinking fund, an external freeholder is unlikely to buffer big ticket items themselves, Your company should think of itself as being distinct from its members (legally it is) and so should act as a freeholder.

    I tend to agree that the cheapest option is going to be for the leaseholders to, individually, raise the finances, against the value of their leases. If they can't do that it probably means their lender doesn't think they can afford your proposed catching up payments.

    Leave a comment:

  • JK0
    Anyone that can't raise the cash themselves has to take out a reverse mortgage? (Equity release)

    Leave a comment:

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