Uninformed manager and directors: what can happen?

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  • leaseholder64
    replied
    The Land Registration Rules 1987 is a very short piece of legislation basically dealing with operation of the Land Registry. It says nothing about the contents or interpretation of leases.

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  • leaseholder64
    replied
    What is the nature of the income? Service charge money is not income to the company as far as determining whether it is dormant. Most management companies for flats are dormant. The real point, though, was that leaseholders are generally interested in service charge money, which is not company money.

    The lease wouldn't say anything about company based slinking funds.

    If the company members are apathetic, there is very little you can do under company law. You can only really deal with it under landlord and tenant law. Apathetic flat management members is not at all unusual.

    17 doesn't divide 320, and is certainly not 1/20th of it. I would assume all the leases have different proportions, so you will need all the leases to see what the correct position is. If all the leases say 17, you have defective leases and the FTT can reduce the proportion so that it does add to (320/320). Reducing the proportion for the basement flat is not simple!

    I would beg to differ on service charges. Either someone has found a very big loophole in the law, or you do have service charges in the sense of variable amounts for insurance an upkeep.

    At the moment, it looks like there is no provision for reserve/sinking funds. However, for further clarification, what does the lease say happens if y is found to be too high or too low, at the end of the year?

    If there are no convictions, it is libel to call them crooks.

    1987 is still after 1985. (Whilst L&T 1987 wouldn't have applied at the start of the lease, it will apply now.)









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  • sophiejo
    replied
    Hello, eagle2!

    'An audit under s476 CA 2006 would only apply to the statutory accounts of a company and most management companies file dormant accounts. '

    Secton 476 provides for the right of members to require audit. It is a right even when the company is exempt from the audit requirement as a 'small company', 'subsidiary' or 'dormant'. Our company cannot be 'dormant' because it has an annual income. Our Lease, however, requires an annual audit: It seems to me that our Lease trumps the audit exemption: It does not amount to an imposed statutory requirement; it is a choice offered.

    'The account ... will be prepared and audited by a qualified accountant who shall certify the total amount of the said costs charges and expenses ... for the period to which the account relates and the proportionate amount due from the Lessee to the Company under the Lease.'

    'A company may also raise monies under the Companies Act by passing a resolution of members'

    There is no sign of this i our Articles or in our Lease. Does the above not refer only to trading companies?

    'If you wish to remove a managing agent or director(s) or accountant, your best option would be to seek an ordinary resolution at a general meeting of members.'

    Our peculiar situation is that are members are not AGM or GM attendees. I went for the first time last year since 2010. There were 4 members present and two directors. I was told that sometimes only 1 director turns up, and 0 members. Of our 20 members, 10 are investors/landlords, 3 resident owners, and the rest occasional residents. One could require that an extraordinary meeting be called, citing the proposal that the manager be turfed out, and inviting votes by mail/email. If the audit comes back with something that condemns the manager, that is what I shall do.

    'If the company is not complying with the lease or landlord & tenant legislation, you can apply to a Tribunal to determine the service charges which are payable.'

    No need at all. Our Lease binds everyone to the annual payment calcualted on the formula '17 x y/320', where 'y' is the amount estimated to be sufficient to meet the upcoming year's Company expenses. This includes all expense. This is a neat, house-keeping sort of formula. I like it. There has, however, been much misunderstanding and some skulduggery. The former manager/director had a set charge. It was low, the Company never had any money, and the property was rapidly on its way to tumbling down. We re Grade II listed, so English Heritage intervened (not with money), the director/manager resigned, and a hefty call for money to replace the roof was made. There is still a set charge. I am trying to make the manager cretin and the directors (also cretins, with the possible exception of one) understand that the 'y' in '17 x y/320' is an annually calculated amount, not a constant one.

    The skulduggery comes in with the formula '12 x y/320'. That does not appear in the Lease. Its first use was innocent enough: the annual contributions of the basement flat owners was reduced to that amount, to make their sale more attractive. The current manager is giving this privileged formula out willy nilly to people whom he wants to cultivate. Both times, it is illegal, because our Lease has everyone pay the same amount, on the '17 x y/320' formula, on the basis that we all own 200 shares in the Company's property. I.e., the flat's square footage, its location, etc., do not come into the calculation.

    leaseholder64:

    'Incidentally, although I haven't researched this, I'm not convinced that a full audit would not extend to monies held in trust, such as client monies and service charge funds'.

    We don't have such accounts. Our company account is very simple. It includes only the annual contributions of members to the maintenance of the Company's property. We do not have a service charge, nor any other charge, in the sense of the L&T Act.

    'Most leases allow for balancing payments and for immediate calls for money, if the service charge payment on account was too small. Is that what you mean by cash calls?'

    The way our manager uses /cash calls', also the way I see it used in discourses (not statutes), it means 'needed money for works'. 'Slush funds' are funds that can be used when and if need arises. Reserve funds (sinking funds) are never touched, but left in expectation of unforeseen major works. I see these terms used with regard to L&T Act leaseholders. They are not CA terms.

    'Please confirm that a criminal court has convicted the alleged "crooks".'

    Not yet.

    Mine: 'Our Lease was made under the Land Registration Rules 2003.' Sorry, silly error. Our Lease was made under the Land Registration Act 1987, before the Company incorporated in 1993.

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  • eagle2
    replied
    You would need to supply the exact wording of the lease regarding an audit but the directors of the management company would have the right to avoid a full audit on the grounds that it was disproportionate to the size of the property.

    I disagree that the Landlord & Tenant legislation assumes that tenants are naïve, it goes some way towards protecting tenants from rogue landlords and their agents, sadly not far enough.

    A company may also raise monies under the Companies Act by passing a resolution of members but that is not recommended, it creates problems and members would not have the same rights as leaseholders.

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  • leaseholder64
    replied
    The company is a landlord and so is bound by all landlord and tenant legislation, not just that explicitly mentioned in the lease. Whilst it is possible to contract out of some legislation, that would have to be explicit. In any case, residential landlord and tenant law is generally for the protection of naive tenants, so it is not possible to contract out of it.

    The legal status of companies is that, for most purposes, they are treated the same as natural persons (flesh and blood humans), so a company acting as a landlord is covered by the same landlord and tenant and health and safety law as a real, human person).

    Incidentally, although I haven't researched this, I'm not convinced that a full audit would not extend to monies held in trust, such as client monies and service charge funds

    However, if the lease references the 2003 Act, it most post-date it, and the requirement for an audit is valid, and will be expensive, because there will be no doubt that the requirement in the lease applies to the service charge monies. The Companies Act route would not be appropriate. There is no need to request an audit, and a failure to hold the audit would be something that could be taken up by any leaseholder, whether or not a member of the company. The cost may be a good reason for not trying to enforce that clause in the lease, and using your rights to inspect the actual documents showing costs may be a better approach.

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  • eagle2
    replied
    The management company should comply with all legislation, including the Landlord & Tenant Acts and Companies Acts so far as it relates to the Company

    An audit under s476 CA 2006 will not consider whether or not the Company has observed the terms of the lease, it will only report on whether or not the statutory accounts have been drawn up correctly.

    Whether or not turnover and the bank balance appear within the statutory accounts will determine whether or not they fall within the scope of an audit under s476 CA 2006.

    The management company is likely to receive other income apart from service charge or maintenance contributions eg interest, administration fees etc.

    You should have received service charge accounts with an accountant’s report of factual findings attached. That report requires the accountant to check and report whether the bank balance agreed or reconciled with the bank statement(s) for the account(s) in which the funds are held. Please read carefully the last sentence and consider the limitations of the report.

    There is no legal requirement for service or maintenance charges to be paid into a bank account in the name of the management company and once again an audit under s476 CA 2006 will not assist you.

    If you suspect that the management company is not complying with the terms of the lease, it is up to you to gather evidence and exercise your various rights as a leaseholder or as a member of the company.


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  • sophiejo
    replied
    Thanks, leaseholder64 and eagle2. I will write in more detail later, but I'm rushing off to work now (7.10am), so just two points:

    1. Why do you both write as if my company is governed by the L&T Act? Our Lease was made under the Land Registration Rules 2003, and our Articles of Association under the Companies Act 1985. (That still applies to Articles written before 2007.)
    2. What I want our audit to achieve is the confirmation that (i) we remain observant of the terms of our Lease, (ii) the company accounts show that there is no disparity between the company's takings (from our one source of funding: our amnnual contribution to the maintenance of the company's freehold property) and the company's bank balance.

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  • eagle2
    replied
    I am unsure what you are hoping to achieve.

    In general terms, an audit and an accountant’s report of factual findings rarely assist a leaseholder.

    The meaning of “audit” has changed since 1980 so the meaning of your lease depends whether or not it was drawn up before or after that date. If the former, your management company is entitled to interpret the meaning as an accountant’s report of factual findings on the service charge accounts.

    An audit under s476 CA 2006 would only apply to the statutory accounts of a company and most management companies file dormant accounts. So confirmation that a company had no assets and no liabilities of its own is unhelpful and you are correct to say that such a statement should not cost anywhere near £3,000.

    Even if yours is one of the rare management companies which includes service charge monies within its statutory accounts, I am not sure that you will benefit by seeking confirmation that assets and liabilities existed on one particular day of the year in the past. To that extent the cost would not appear to justify the means.

    Why do you not ask to inspect the accounting records of the management company?

    If the company is not complying with the lease or landlord & tenant legislation, you can apply to a Tribunal to determine the service charges which are payable.

    If you wish to remove a managing agent or director(s) or accountant, your best option would be to seek an ordinary resolution at a general meeting of members. So seeking support from other members would be your best move initially.

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  • leaseholder64
    replied
    Section 42 almost certainly applies to you. Section 42 of L&T 1987 is for your protection. If the lease doesn't allow for reserve funds, there is really no way you can be forced to contribute. If you are referring to L&T 1987 in general, yes you are largely bound by that Act.

    "Slush funds" has no meaning in company or leasehold law, so I don't know what you mean, and, given the negative connotation in common usage, I cannot imagine the company used the term.

    Most leases allow for balancing payments and for immediate calls for money, if the service charge payment on account was too small. Is that what you mean by cash calls?

    It is not that section 476 audits are particularly expensive, but hat all audits to modern standards are very expensive. It is unusual for all but the largest companies to have audits these days, and flat management companies are unusual for their size in even having accounts checked by an accountant, at all.

    The ICAEW guidelines are that conditions in leases requiring audits should be downgraded, unless the the lease is recent enough to have come under the new audit regime, as the non-audit check by an accountant, that one would normally get, are of a similar standards to audits at the time the leases were written, when it comes to older leases.

    Note that, because of section 42, most of the money managed by the company does not belong to the company.

    Please confirm that a criminal court has convicted the alleged "crooks".

    It is difficult to tell whether the manager is abusing their power or simply doing their best to keep things running in the face of apathetic leaseholders, both absentee landlords and owner occupers.

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