Adding provision to a sink fund to our lease.

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    Adding provision to a sink fund to our lease.



    There are 10 properties where I live, each property owner is a leaseholder and also a shareholder of the management company which also own the freehold. Our lease doesn't have any provision for a sinking fund, this presents a lot of problems for the smooth running of things. 9 out of the 10 leaseholders want to get the lease amended so that we have a sink fund. The 10th leaseholder is unwilling for reasons that he won't share. Can anyone give me some guidance as to how we would go about changing all the leases? And any idea on potential cost? It should be the same job x10, but I suspect that the pricing won't work out exactly like that.

    Thanks,
    Andrea

    #2
    a) You really can't do it without 100% agreement of every lessee to have their lease changed.

    b) In my humble opinion you do not want to do it. Reserve funds facilitate theft, and also facilitate situations where failure by some lessees to pay service charges are resolved by raiding of the reserve fund (instead of forcing the Company to do what they must do - and take legal action against non-payers). In a lessee owned company this problem is magnified greatly.

    The situation is simple. Lessees are BOUND to pay legitimate service charges. They need to maintain savings in anticipation. If they do not pay they get sued. That is a far better state of affairs.

    Comment


      #3
      Are you sure it can't be done with 1 person not agreeing? I thought from my brief research that we would be able to force it through but would have to go to the First Tier Chamber or similar if we couldn't get them to sign on the bottom line.

      Comment


        #4
        Yes sure. There are some fundamental problems with a lease (for example a lease that is uninterpretable) where FTT can help resolve. This is not such a thing -- it is a contract that you are trying to break unilaterally.

        And if I were that other lessee I would resist forcefully -- for all the reasons I have given.

        So yes, sure.

        Comment


          #5
          Originally posted by AndrewDod View Post
          b) In my humble opinion you do not want to do it. Reserve funds facilitate theft, and also facilitate situations where failure by some lessees to pay service charges are resolved by raiding of the reserve fund (instead of forcing the Company to do what they must do - and take legal action against non-payers). In a lessee owned company this problem is magnified greatly.

          The situation is simple. Lessees are BOUND to pay legitimate service charges. They need to maintain savings in anticipation. If they do not pay they get sued. That is a far better state of affairs.
          I have mixed feelings here. It is very clear to me that, especially self managers, will cross-subsidise between leaseholders, but treating the reserve as a single pool, even if the lease says otherwise. However, on the other side, on all but the smallest development, some leaseholders will not be able to budget adequately, and will have no rainy day money. As a result work will fail to get done because you have to spend a lot of time chasing defaulters.

          The defaulters are probably also more likely to try and claim unreasonable expenditure, to try and escape their cash flow problems.

          As I think I said a couple of days ago, the big difference between this and an owner occupier, is that the owner occupier will allow the property to dilapidate, if this happens.
          Last edited by leaseholder64; 27-03-2018, 17:02 PM. Reason: Remove paragraph not covered by response.

          Comment


            #6
            Originally posted by AndrewDod View Post
            Yes sure. There are some fundamental problems with a lease (for example a lease that is uninterpretable) where FTT can help resolve. This is not such a thing -- it is a contract that you are trying to break unilaterally.

            And if I were that other lessee I would resist forcefully -- for all the reasons I have given.

            So yes, sure.
            There is a provision to allow non-defects to be changed with an overwhelming majority, but one of the tests is that there is no other way of achieving the objective, and arguably telling the leaseholders how much to save is another way.

            When I tried to research lease changes, I found the number of successful applications miniscule. My impression is that even where there is a real defect, people breach the lease at risk, presumably hoping for a retrospective change, if challenged, if they think at all.

            Comment


              #7
              This is a useful interchange. I think the problem is that a reserve fund does not resolve "the objective".

              What would likely happen is:

              -Year 1: All lessees except 1 pay service charges and reserve fund
              -FH fails to take action against errant lessee and in year 2 and carries out works raiding the reserve
              -Year 2: All lessees issued with demands for service charges and reserve contribution
              FH carries out works further raiding reserves

              The problem now is that the reserve contribution is in itself subject to a reasonableness test.
              The (usually stated) purpose of such a fund is to do XYZ -- not to subsidise non-payees

              Paying lessees take company to FTT, making the argument that the new reserve fund request is not reasonable given that the existing reserves have been used for other purposes, and that (in the absence of FH seeking redress via the courts or forfeiture) the requirement for further reserves is mis-stated by an amount at least equivalent to the unrecovered shortfall.

              FTT deems reserves as non recoverable by way of SC, and company is in a pile of trouble.

              I think we need to bear in mind what the situation would be with a standalone freeholder. If a standalone FH faced a requirement to do urgent works according to the lease, and there was no provision in the lease to collect funds in advance, the FH would be contractually obliged to carry out the works REGARDLESS of receipt of funds. If necessary they would have to fund it themselves (at least temporarily) or they would have to get their skates on and sue the errant lessee, or they would have to get a loan.

              A lessee owned company is not in a different position. So (at least in principle) it is not the case that "work will fail to get done because you have to spend a lot of time chasing defaulters". The FH (or company) has an obligation to do the work, and an obligation to chase defaulters, but these are independent obligations. If the FH or Company fails to carry out works which are required under the lease, lessees can sue the FH -- non receipt of funds from some lessees is no excuse.

              Comment


                #8
                Originally posted by AndrewDod View Post
                If the FH or Company fails to carry out works which are required under the lease, lessees can sue the FH -- non receipt of funds from some lessees is no excuse.
                I couldn't agree more with the above. Somebody ought to tell this to the freeholder in this article - who stated at a First Tier Tribunal hearing that leaseholders had brought the dilapidation of the building upon themselves for having failed to pay their service charges!

                Aldermartin, Baines and Cuthbert (ABC) Estates and Floorweald Limited have demanded flat owners hand over £50K up front for "major works" to be carried out on the property

                Comment


                  #9
                  Remember also, that any reserve fund paid in, is not refundable when you sell the flat, even if the work for which the reserve fund was set up for has not yet been done.
                  You may be saving for a new roof, which leaks occasionally, but causes no damage ( Yet ). Or timbers starting to rot.
                  You sell then go to your next home, which then states "We have found that the roof need replacing, please deposit £X into the reserve fund.

                  Not a good financial position to find yourself in !

                  Comment

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