Freeholder has no limited company - what are my options

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    Freeholder has no limited company - what are my options

    Dear Fellow Property Hub Forum Member,



    I am in a bit of a pickle as I am in the process of selling my flat and during this, it has transpired that the landlord, who lives in the same house, has not set up a company to manage any service charges, repairs, etc. He always emailed me when the annual service charge was due and provided the relevant paperwork such as house insurance policy and electricity bill so I could pay my share to his bank account.



    The landlord and myself are friends so it never bothered me to handle this more informal but now the buyer's solicitor is asking for an accounts overview over the last 3 years of service charge but the freeholder cannot provide it. All he can do at the moment is list all the relevant charges and provide the proof for insurance and electricity usage for the common areas of the building.



    I am concerned that this could derail the process and that the buyer pulls out.



    Question: What are the available options here?
    1. Can the freeholder create the relevant invoice and proof that payments have been received while he is setting up a limited company?
    2. Any other recommendations on how to solve this?



    Many Thanks

    #2
    There is no legal requirement to have a limited company, unless the lease requires one.

    The accounts you are talking about are the service charge accounts and they relate to money that any limited company would not own.

    A freeholder of residential property needs to be able to put together accountant certified accounts, for the last year, in a period of between one and six months, depending on when requested, otherwise they will commit a criminal offence if a leaseholder requests them.

    The contractors create the invoices, not the freeholder (although it is possible to self bill, with the written agreement of the contractors). If there are no invoices, the accounts will need to be reconstructed from bank statements.

    Although not actually currently illegal (the legislation that would have made it illegal was never commenced), keeping service charge trust money in the freeholder's bank account is very bad practice. Best current practice requires a separate account and that you notify the bank that the account contains monies held it trust.

    Generally it is up to the buyer as to whether to ignore unsatisfactory responses to solicitors' enquiries, although their lender will probably insist on the accounts.

    Comment


      #3
      leaseholder64 many thanks for this. I will sit down with the freeholder since there is quite a lot to sort out.

      Comment


        #4
        I second LH64...whether an individual or a Ltd Company shouldn't make any difference. .it just appears your FH has been shoddy with the paperwork.
        Advice given is based on my experience representing myself as a leaseholder both in the County Court and at Leasehold Valuation Tribunals.

        I do not accept any liability to you in relation to the advice given.

        It is always recommended you seek further advice from a solicitor or legal expert.

        Always read your lease first, it is the legally binding contract between leaseholder and freeholder.

        Comment


          #5
          Why are you unable to summarise the charges for the last 3 years and ask the freeholder to sign the summary?

          An accountant is not required unless there are more than 4 leaseholders.

          Strictly, the freeholder should be complying with the lease but if it is permitted, he can simply supply a list of expenditure at the end of the year and allocate it to the leaseholders, which is more or less what he appears to have done on an informal basis.

          Comment


            #6
            I think the real question is what lenders will accept.

            Comment


              #7
              Its not the lender, it is the purchaser who is making the enquiry to ensure that the charges are reasonable. He should be pleased that the costs are kept to a minimum and the cost of an accountant is not involved.

              Comment


                #8
                Lenders also ask for the last three years' accounts. I've heard of this happening for remortgages, not just for initial purchases.

                Comment


                  #9
                  Originally posted by leaseholder64 View Post
                  Lenders also ask for the last three years' accounts. I've heard of this happening for remortgages, not just for initial purchases.
                  Please read the initial post "the buyer's solicitor is asking for an accounts overview over the last 3 years of service charge"

                  All that is required is a summary of the service charges for the last 3 years. It does not need to be in the form of a full set of accounts and no accountant is required.

                  Comment


                    #10
                    What has probably actually happened is that the solicitor has issued form LPE1, which asks for "The last 3 years published Service Charge accounts". There is a "N/A" option on the check list, but I would suggest that failing to provide them would put off any lender. A cash buyer is likely to be much more flexible in what they accept, or whether they care about their omission.

                    Even if LPE1 wasn't used, I imagine that they would want the same sort of information.

                    Comment


                      #11
                      It is standard procedure for a purchaser to enquire about the level of service charges. There is no required format and a simple summary which can be confirmed by the freeholder will usually suffice.

                      Comment


                        #12
                        Please see lpe1-specimen.pdf .These are the standard questions that sellers get asked. As well as 4.1.1, which asks the current charge, there are also requests for three years of accounts (8.1), budgets (8.4), and budgets in default of accounts (8.5).

                        Comment


                          #13
                          I have seen many replies to these questionnaires and the questions should not be taken too literally, the buyer will usually be grateful for any information received.

                          Instead of considering hypothetical questions, lets deal with the OP which I have answered at posts 5 and 9 above.

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