Uninformed manager and directors: what can happen?

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  • sophiejo
    started a topic Uninformed manager and directors: what can happen?

    Uninformed manager and directors: what can happen?

    Thank you, leaseholder64, for your help yet again with starting a new topic.

    I hope I'm not going to sound hysterical, but I am really scared. We have a weird situation in our share-of-freehold set-up: A very intellectually limited real-estate agent, uncouth and ugly to boot, was put in place as manager when the outgoing director retired. We had never had a manager before. This new manager soon surrounded himself with four directors, all of whom eat out of his hand. They are totally uninformed about the structure of our governance.

    All of us, including yours truly, had much better things to do in the past ten years than keep an eye on what's happening in our company. I, however, woke up suddenly when I found that the manager had decided to institute cash calls, slush funds and reserve funds, and to insist that we are governed by the Landlord and Tenat Act 1987. I managed to head off the cash calls, etc.

    Then, just recently, it began to worry me that I had not seen a full company account in years, and that there has not been an audit in all that time, although our Lease specifies that there must be an annual one. Two other members and I immediately applied for a section 476 (Companies Act) audit, which makes it compulsory to hold one.

    Now this is where things turn very odd: The furious manager told everyone that I'm a fool, and that the audit will cost £3,000. Quite by accident, I came upon the chartered accountant who had told him that. I immediately challenged the latter, who said in a lengthy but primitive 'blind you with law' email text that section 476 audits cost much more than ordinary audits. I had some fun writing back to him, and sending him a little image of people rolling on the floor with laughter.

    Then I reflected: our membership includes four investors in property, some with a sizeable portfolio. Two of them are directors. The manager has reduced their annual maintenance charges. (He manages their other properties too.) The above-mention chartered accountant (who advertises his services wildly, has no working company, but lists a dormant and a non-trading one) is very much one of them. Of out 20 flats, only three of us are owner occupiers. So there is not much cohension in the company to speak of. Having at first thought contemptuously of them as creeps and fools, I am now very soberly contemplating the possibility that the manager and the chartered accountant have in place a scheme to acquire our company's freehold, and to set themselves up as landlords. Or they are employed to do that by one or more of the property investor members of a company.

    I might be mad, of course. But does any of you think the scenario I outlined can be brought off by a gang of small-time crooks like the ones I described? What would you do in my position? (I shall take on the chin whatever anyone thinks fit to say.



  • Macromia
    replied
    Originally posted by josepha333 View Post
    Sophiejo may not be fully aware of the position she finds herself in, however the advice given here is again from a Landlord's POV, not really surprising given consideration from whom it comes from. Presumably the nature of the income is Ground Rent from the OP, "share-of-freehold set-up", that would possibly remove the grey area of filing dormant accounts, that far too many continue to exploit.
    Unfortunately, there is no doubt at all that Sophiejo is not fully aware of the position she finds her self in - although several contributors have tried to correct most of her many misunderstandings.

    I srongly disagree with the assertion that the advice that has been given in this thread, including that in the portion quoted by josepha333, has been from a landlord's point of view. All advice that has been given is in the best interest of a leaseholder (although it is also worth remembering that Sophiejo is a shareholder of the company that owns the freehold - which is the landlord).

    Nothing that has been said in either this thread, or Sophiejo's previous threads, has suggested that the company gets any income at all from any sources other than service charges that are collected, as least substantially, according to the terms of the leases.
    There may, or may not, be ground rent and/or administration charges paid to the company in addition to the service charge contributions (with the later held in trust), but with the details we have at present I would stand by the suggestion that either a company account, or service charge account, audit would be of no benefit to any leaseholder.


    Originally posted by josepha333 View Post
    I see this as another case where whoever is running the show refers to either the lease or the articles for the company, but only the parts where they benefit and the leaseholders don't!
    That would be standard in any dispute between a leaseholder and freeholder/managing agent.

    In this case though, before any issues between the leaseholder and block management can be discussed in any meaningful way, Sophiejo has to understand how, and why, Landlord & Tenant Act, and other laws, apply to the situation.


    Leave a comment:


  • leaseholder64
    replied
    Actually, my impression is that BtL landlords here tend to be against freehold landlords, e.g. over sub-letting restrictions and fees and alteration restrictions.

    I'm a leaseholder, who has also seen the workings of freeholding RMCs. By all accounts, the one here is a lot more clued up than average.

    L&T 1987 is mainly about tenants rights, so Sophie's position is actually on that would favour freeholding landlords. Having a full audit is going to cost the leaseholders in this case £150 a year, each, but is unlikely to give them any benefit.

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  • eagle2
    replied
    Originally posted by josepha333 View Post

    the advice given here is again from a Landlord's POV, not really surprising given consideration from whom it comes from.
    I think that there is a balanced view on here, certainly there are at least 2 of us trying to assist Sophiejo as a leaseholder and I can only think of one person who is stating a landlord's or manager's POV. For my part, I am trying to steer Sophiejo away from paths which are likely to end in a cul-de-sac.

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  • eagle2
    replied
    Originally posted by josepha333 View Post


    I was of the opinion that where the company acts as Principal and not as Agent then dormant accounts should not be filed. Links available if required?

    Counsel's opinion obtained by the ICAEW is that the service charge monies do not belong to the management company and the ICAEW has ruled that the service charge bank balance must not be included as an asset of the company. The consensus view of the accountancy profession is that you cannot include some items and exclude others so all service charge transactions are excluded from the statutory accounts, which very often leaves the company dormant.

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  • eagle2
    replied
    Do you know if the accountant used by the management company is a registered auditor? There is a difference between an accountant who only holds a practising certificate and one who is also a registered auditor. You may be able to insist on the company using a registered auditor.

    I did not follow your logic of the manager and the accountant somehow colluding to acquire the freehold. You state elsewhere that you own a share of the freehold so they could not acquire the freehold without your (and presumably the other leaseholders) consent. The accountant is required to be independent and he would not be permitted to own the freehold and to be the reporting accountant simultaneously.

    Leave a comment:


  • Macromia
    replied
    Originally posted by eagle2 View Post
    Macromia,

    I understand your frustration and I recall that you went to great lengths to try to assist Sophiejo in a previous thread but ultimately we can only offer the benefit of our experience and it is then for a reader to decide whether or not to take any notice. There are other readers who may be in a similar position and who may benefit from the exchange of comments and we should not deter them from raising topics.
    You are correct - and I have no intention of detering anyone from posting.

    I found this forum many years ago and, although I have only starting posting relatively recently, have found reading other peoples posts to be of great benefit both to confirm that my opinions on legal/other leasehold matters are correct - and to point me in the right direction when my opinion has been slightly (or even very) wrong.

    While it is true that contributors can only give their opinion and cannot make anyone else agree, I would say that it can also be important for them to make it clear when they think that action that has been suggested (whether suggested by the person who starts a thread, or in a response to that thread) is not the best course of action.
    If no one says that a proposed course of action, or an understanding of something, is ill-advised/incorrect, then other readers might be more inclined to also take the same action, or go away with the same misinterpretation.

    When more than one contributor expresses the opinion that a particular course of action is ill-advised, and no one except the person who originally suggested it disputes this, readers are more likely to get the impression that it is not the best idea.
    When something really is a bad idea, I would hope that quite a few contributors would say as much in terms that were as clear as possible (thst would certainly make me think to reconsider my position, if it was my suggestion that everyone else was disagreeing with).

    I'm not trying to be nastg to sophiejo, I genuinely think she is doing the wrong thing, and will only make matters worse in the long run if she doesn't change how she is spproaching this situation.

    Leave a comment:


  • Macromia
    replied
    This is what you need to do if you want to have any possibility of changing the way your property is managed and correcting any problems with this (if indeed there genuinely are any actual problems and it's not all just misunderstandings):

    1. Stop posting insults and insinuations about the managing agent and directors. When you are discussing the 'issues' you have with the management of the property, both in a forum such as this one and when contacting them directly, accusing them of being 'crooks' will not help at all (and could be libel, as has been said).

    2. Stop claiming that the managing agent/directors don't understand "your company's system of governance" (or however it was you described it). It is possible, even quite likely, that they have made some mistakes - but I'm afraid that it is you who seems to have the least understanding of how your blocks service charge accounts should be managed.

    3. Drop all arguments about your company, and the money you pay for the upkeep of your block, being under the Company's Act rather than the Landlord and Tenant Acts - you are wrong.

    4. Cancel your request for a company audit (and don't even think about requesting any other audits etc.) - these will just cost you, and all other leaseholders, money and won't help to solve anything.
    The most likely outcome is that leaseholders who might otherwise eventually come on to your side (if there are problems) will end up joining the MA and directors in siding against you.

    5. Identify specifically what you think the problems with your service charge accounts, and the management of the block, are, and treat each of these as individual problems that can be addressed amicable.
    If you can somehow start afresh (which may mean apologising to the managing agent/directors - even if you don't really mean it), and can discuss issues civily - after you make sure that you properly understand how laws, etc., apply, you can (perhaps) start to make some progress.

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  • eagle2
    replied
    Sophiejo

    I agree with Macromia to the extent that you appear to be making statements rather than seeking assistance and I note that you have not responded to my comment in #3 “I am unsure what you are hoping to achieve”.

    I have no doubt that you are aware that the management company is entitled to charge reasonable sums in accordance with the lease. If “y” is the amount which the management company requires as a budget, it must follow that to collect more than “y” is unreasonable and 20 x 17/320 results in it collecting 340/320 of the amount which it requires, therefore it follows that the demands are unreasonable.

    If the reserve fund is not permitted by the lease, you can either refuse or volunteer to pay your share. There are benefits of contributing towards a properly operated reserve fund but in the hands of “crooks, the uninformed, the intellectually limited, uncouth, creeps, fools, cretins,” I suspect that you may wish to decline making voluntary contributions.

    My apologies for my earlier post, I meant to state that your lease appears to have been drawn up on the old style which referred to an audit. Your lease appears to be ambiguous as it also refers to “certify” which is used to replace “audit” in the more modern leases. I still consider that the management company has acted reasonably if it has obtained an independent report of factual findings and that it has strong grounds for not incurring the cost of a full scale audit. Insisting on an audit under s476 may prove a point but it is unlikely to assist you further and your fellow leaseholders are unlikely to appreciate the additional cost.

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  • eagle2
    replied
    Macromia,

    I understand your frustration and I recall that you went to great lengths to try to assist Sophiejo in a previous thread but ultimately we can only offer the benefit of our experience and it is then for a reader to decide whether or not to take any notice. There are other readers who may be in a similar position and who may benefit from the exchange of comments and we should not deter them from raising topics.

    Leave a comment:


  • josepha333
    replied
    Originally posted by leaseholder64 View Post
    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.
    Sophiejo may not be fully aware of the position she finds herself in, however the advice given here is again from a Landlord's POV, not really surprising given consideration from whom it comes from. Presumably the nature of the income is Ground Rent from the OP, "share-of-freehold set-up", that would possibly remove the grey area of filing dormant accounts, that far too many continue to exploit.

    I was of the opinion that where the company acts as Principal and not as Agent then dormant accounts should not be filed. Links available if required?

    Sophiejo talks of S476 of CA2006 and replies talk of the requirements laid down in the lease and best practice under ICAEW, but it would appear that whoever is running the show did not adopt RICS and ARMA recommendations to split the elements required by Companies House from the Service Charge expenditure, as was carried out at our development in mid 2013 for yearend 2012.

    So questions arise are separate Service Charge accounts issued to all leaseholders and statutory company accounts issued to all members? What does the lease state as to an audit of expenditure? What do the articles state as to the appointment of auditors and reports from at the AGM?

    I see this as another case where whoever is running the show refers to either the lease or the articles for the company, but only the parts where they benefit and the leaseholders don't!

    Leave a comment:


  • Macromia
    replied
    Sophiejo:
    Why are you bothering to ask questions when you have clearly already decided what the answers are, and won't listen to anything that is said if it disagrees with you?
    Most of the matters raised in this thread have already been discussed, in detail, in your other threads and dispite pretty much all those who replied pointing out that you were completely misinterpreting most things and still acting as if there is no doubt that your understanding is correct (I think it might actually have been unanimous agreement that your interpretations and understanding were wrong).

    You REALLY need to have a solicitor explain to you why your ideas about how things work in are wrong - cancel the audit you are after, pay for some time with a good solicitor who understands leasehold property law - and actually listen to what he/she says.
    Unfortunately, when you are told that you are misinterpreting everything, you will probably just think that the solicitor is another 'crook' who is in on the conspiracy.

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  • sophiejo
    replied
    leaseholder64: '17 doesn't divide 320, and is certainly not 1/20th of it.' It seems you have misread our formula. This is how it is read: 17 multiplies the sum you get when you have worked out how how much money the company need for a year ('y') and divided it by 320.


    '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.' No. But you are in the wrong Act. The lease-regarding matter is in the Land Registration Act Act 1925:

    '48 Registration of notice of lease

    (1) Any lessee or other person entitled to or interested in a lease of registered land, where the term granted is not an overriding interest, may apply to the registrar to register notice of such lease in the prescribed manner, and when so registered, every proprietor and the persons deriving title under him shall be deemed to be affected with notice of such lease, as being an incumbrance on the registered land in respect of which the notice is entered.'

    The final comment (following the comma) makes perfectly clear that people who derive title under the proprietor who registers a lease hold the same lease, just as we do in our company.

    And please note: not all crooks have been convicted. A crook is just a person whose dealings are not striaght.

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

    I shall read that section. But if the above is true, then section 42 does not apply to my company, because it is soecifically to the company that we pay our yearly contribution towards the maintenance of its property.

    -------------------------------------------

    eagle2, I think this jumps the gun: 'The management company is required to keep service charges to a reasonable level and as a leaseholder you can ask it to justify the reserve fund (including what you describe as a slush fund) contributions. ' First, you need an infrastructure that accommodates a reserve fund. But neither our Lease nor our Articles provides it.

    'Your lease appears to have been drafted prior to 1980...'

    No. The Lease cites '1987'.

    'I recall your annual payments from a previous thread. The contributions do not add up to 100%'

    Oh dear! Like leaseholder, you are misreading our payment formula. It is not in quest of 100% of anything. Rather, it is working out the amount that we shall each pay the company as its annual contribution. I should have explained this. And incidentally, I have no idea what 320 means, nor does anyone I've asked. Must find a mathematician!




    Anyway, thank you both for your comments. I shall now find a comfy seat and watch how the cookie crumbles.


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  • eagle2
    replied
    The management company is required to keep service charges to a reasonable level and as a leaseholder you can ask it to justify the reserve fund (including what you describe as a slush fund) contributions.

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  • eagle2
    replied
    s476 CA 2006 specifically states that a member may require the company “to obtain an audit of its accounts for a financial year”. I have agreed already that you can obtain an audit of a dormant company but that would be pointless.
    Your lease appears to have been drafted prior to 1980 and the report of factual findings appears to be sufficient.


    I agree that if a Company raises monies by ordinary resolution, then it should be regarded as trading.

    There is nothing unusual about members failing to attend general meetings, however they do have the right to attend or to appoint a proxy to attend on their behalf.
    The purpose of an audit is not to condemn a manager, or indeed any person.



    I recall your annual payments from a previous thread. The contributions do not add up to 100%.


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