Invoicing for Major Works - Request for payment before quotes

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  • Invoicing for Major Works - Request for payment before quotes

    Hi
    I own the Long Leasehold of flat within a block of four other flats in a Victorian conversion.
    We have been notified by the managing agents acting for the Freeholder that Major Works will be occurring and they have started the Section 20 process. I have recommended the names of two people who I would like provide quotes as part of the Section 20 process. As Leaseholders we have not been provided with quotations for the works and have not be notified of an appointed contractor. However I am now being asked by the Managing Agents for nearly £10,000 as a contribution to the works. Can the Agents request this from us, and do we have to pay this, even if there are no quotes provided to us and no contractor has been appointed?
    Thanks
    Gaz

  • #2
    You should really only propose one contractor. Only one leaseholder nominated contractor needs to be asked to quote.

    Any half good lease will allow service charge payments to be made on account, although possibly only at the beginning of the accounting year, so assuming a half good lease, or better, it is reasonable to expect to be invoiced in advance.

    Any good lease would have a sinking fund, and would manage it properly and this payment will have built up over five or more years, and there would be no surprises.

    Otherwise, it will depend on the exact wording of the lease as to whether and when they can request payment on account. Whilst having selected a contractor could make a difference, depending on the lease, trying to get the money together after the contractor is selected could easily add an extra couple of months to the start date, as it is against the RICS guidelines to enter the contract before the money has been obtained. As such, I would hope that the lease says something like "if it should become clear that there will not be enough money, a supplementary charge can be made".

    The managing agents are only agents, and the ultimate decision as to whether they can request lies with the management company, or freeholder.

    Comment


    • #3
      Originally posted by Gaz46 View Post
      Can the Agents request this from us, and do we have to pay this, even if there are no quotes provided to us and no contractor has been appointed?
      Answer to both underlined is, Yes.

      I say again ( said many times before )
      There is nothing magical about S20's. The work needs doing, has to be done and has to be paid for.
      S20's were only introduced by the Government to make large expenditure more transparent.

      Any good agent ( there are not many ) would have noticed just before issuing the yearly service charge demands, would have seen this expense coming, and included their own estimates ( note: Approx guesstimate as to what it may cost, before estimates arrive from contractors ) within the service charge demand, and usually you have to pay in advance the sum demanded.

      After the work is done, the service charge accounts are adjusted up or down at the end of the finalcial year.

      We assume that inspections of the premises took place after the issue of the yearly service charge demand, therefore there is an "expected" on cost for these new works ( S20 ).
      As before, with service charge yearly demands, a lot of the maintenance is an informed estimate by the agent, and the "estimate" has to be paid in advance, and before quotes are received.

      I do this all the time.
      I look at what has to be done, and come up with a figure of the costs we may be charged, and ask for "My" estimate of costs to be paid in advance.

      You now have works to be done and the M.A. has done what I have to do, and that is come up with a price they think it will cost, and unfortunately, you have to pay it.
      You will have to pay for the works in any event. but always in advance.

      If the final jobs cost less than the estimates, you will get a refund or credit at the next service charge demand.
      If it cost more, then you pay the difference.

      edited .................


      leaseholder64 stated : -
      The managing agents are only agents, and the ultimate decision as to whether they can request,, lies with the management company, or freeholder.

      But remember, the freeholder and or management company have handed over the running of the company to the agents, and the agent has to ask for money in advance to ensure the lease is adhered to,
      "To keep the property well maintained and in good order".

      No point in spending money on an agent if the freeholder / company start interfering with getting money in to do repairs "in a timely manner"

      Comment


      • #4
        If you believe that the amount asked far exceeds what will be the final cost, you can ask the FTT for a ruling, but this will cost you £100 and take up to three months. It is always best to pay first and then challenge.

        It is normal practice to bill more than the estimate in advance, as paying the excess back is easier than squeezing extra money out of leaseholders, at short notice, so only a large over-estimate is likely to result in an early correction.

        Comment


        • #5
          Thanks for all your replies. Is there any obligation for the Agents/Freeholder to carry out the S.20 works within a fixed timeframe? I have previously paid up for S.20 works and six years on, the works have still not been carried out. On a seperate issue, if the Freeholder changes Agents, are the old Agents obliged to retain the Accounts for a fixed timeframe?

          Comment


          • #6
            There are no specific time limits, however, they will have to tell all prospective buyers about the pending works, if they are going to rely on the original first consultation. I guess this is a difficult one. If the work is required, you would be better pursuing them for failing to do the work, than for the money. One would need to see the lease to understand exactly what they can do with these unused payments on account. I'd expect them either to get transferred into a general sinking fund, or to be refunded and then immediately recharged every year.

            You might want to check on statutes of limitation. I think service charges are on a twelve year limit, but it is possible they are on the normal six year one. If you let things go for longer than the limit, without chasing them, you may lose the ability to get them back.

            The agents act for either the freeholder or management company depending on the lease, so any time limits will be in the contract with them.

            The service charge accounts are kept by the freeholder or management company, even if the agents do the donkey work. Any records that the agent keeps would normally only be kept for six years. The right to see a summary of accounts is only for the immediately preceding year.

            In fact, the old agent may be in breach of the Data Protection Act if they maintain records down to the individual leaseholder level.

            See section 6.6 of the RICS Service Charge Management Guide, for information on what documents belong to the freeholder/management company, rather than the agent. Note the introduction of this document says:

            "The existence of this document, and where it can be seen
            and/or purchased, should be brought to the attention of all
            leaseholders of relevant private sector dwellings."

            so the agent should have provided you with information about it. It can be found online, but I'd need to search for it.

            Note the agent never owns the service charge money. Nor, in fact, does the freeholder or management company. They simply hold it in trust. Any use of that money for purposes other than those in the relevant leases would be a breach of trust.

            Comment


            • #7
              I guess you could argue that work that could be put off for six years was not necessary, and the charge was unreasonable, at the time, as a result. However, it might be ruled that it had become necessary since.

              If the lease allows a sinking fund, some payment for work six years in the future might be reasonable, but one wouldn't issue the section 20 when first requesting it, only when one was ready to spend it. One would also only expect to pay one sixth each year.

              With a sinking fund, the money can be used for any purpose allowed for that fund.

              If there is no provision for a sinking fund, it would have to be charged again each year, and should get returned to you if the work ceases to be necessary, definitely won't happen that year, or the estimate for it drops.

              Did you receive a summary of the service charge account within six months of the end of the last financial year. The RICS guidelines say you must, although I think they mean should, and you must receive it if you request it, as detailed in the summary of rights that accompanies every valid demand, including the one for £10,000. If it wasn't volunteered, you should request it. Although there is no prescribed format, the guidelines followed, in practice, will include a balance sheet, which will show the amount in any sinking fund, or otherwise unspent.

              As you seem to live in a block containing more than four flats, the summary must be certified by a qualified, and independent, accountant.

              Comment


              • #8
                You can send details of your MA's demand for payment of £10K without being given the necessary information( copy of quotations from contractors etc ) to the "Public Consultation and Evidence on Managing Agents" called by the DLGC Minister .

                Comment


                • #9
                  Thanks leaseholder64.
                  We are a block of four flats and to my knowledge there is no sinking fund. Certainly with the previous Managing Agents we were hardly ever provided with a yearly Statement of actual Expenditure. Every year i requested this in writing and 9 times out of ten had to approach the ARMA who contacted the Agents to release the paperwork. Only once AMRA got involved would they release the Accounts.
                  Six years ago I did request a refund of my s.20 contribution. They maiantained that they could not do the works because I was the only one who had paid and there were insufficient funds. They refused to issue a direct refund on account that the 'funds were not available' (my money on my account?). However, in lieu of a straight refund, they reluctantly agree to refund my Service Charge for that year which almost covered S.20 cost I incurred.. This 'refund' was never recorded correctly on my Account and resulted in me being invoiced for hundreds of pounds a year incorrectly. A new Agent has now inherited the managing of the property (in the past year) and continues to invoice me for the sum I do not owe. I am now in the position of rewinding 6 years and explaining the whole situation again. They are claiming that the old Agent may not have retained the records of my Account and therefore they would not be able to make any amendments.
                  Long story I know.
                  Incidentally the S.20 works have not been carried out to date.

                  Comment


                  • #10
                    If there are only four flats, they don't need to use an accountant.

                    The statement of actual expenditure is not the same as the summary of accounts. It is a should item in the RICS guidelines, but only a must if the lease requires it. Although my lease has never been complied with, it does require the balance in the sinking fund to be recorded.

                    If there is no sinking fund, in the lease, the remaining options are return of the excess, or a credit against the next service charge. The lease should indicate which. The statement should show how it is being handled, as well.

                    Unfortunately, they were probably correct that you being the only one paying stopped the work. However, one of the main jobs of managing agents is to chase bad debts. If they repaid your service charge, they should have cancelled the debt for the non-payers. Unless a tribunal intervenes, they can't be selective in who they charge.

                    As I said, the agent only retains the accounts for their principal; their principal should ensure the records are kept The RICS guidelines require records to be kept for 12 years.

                    Comment


                    • #11
                      You need to read the lease as to whether there is a sinking fund.

                      Comment


                      • #12
                        If I was asked to put money into my account, for work that had not been done for 6 years, and that money was still there and had not been taken to pay towards your service charges during 6 years, I would demand that money back, with interest.

                        Are you SURE that money is still in you account ?
                        If it was transferred to any sinking fund without your consent, demand it back.

                        Get to grips as to what is in your account, and what it has been used for / against.
                        We can't see your account from here.

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