Sinking Fund

[wade]

I am a tenant in a small residential block.

The Landlord consists of a company owned by some of the flats in the block.

Recently there have been some sales meaning a change in the Landlord.

They lately went to the LVT for a decison on certain matters lift repairs, establishing sinking fund.

The Tribunal found that they could levy for lift repairs and sinking fund.

One of the tenants is resisting tooth and nail and will only pay out under court order so that tenants's contribution for the lift repairs and the sinking fund has not been recovered.

Another tenant sadly died so his contribution for the lift repairs and the sinking fund has not been recovered.

This leaves a large shortfall for the lift repairs and the company has no assets save for the funds received from the tenants by way of service charge.

The directors refuse to tell anyone what is going on and while they are clearly trying to recover the outstandings due under the LVT award they are incurring legal costs and continually asking for contributions.

However my real question is that the only way I can see that the lift repairs can be paid for is is the directors use the sinking fund contributions which worries me considerably since I dont see why the sinking fund collected for a specific purpose can be used for another purpose.

In fact this has happened already since the legal fees of going to the LVT were enormous and the directors seem to have paid them out of funds not raised for that purpose.

[jeffrey]

1. Explain re ownership. What does your third paragraph mean?
2. How is f/r company owned by some (but not all) of the lessees?
3. Do leases make explicit provision re sinking fund?
4. Recovery costs re unpaid service charge should be demanded from defaulting lessee, not from service charge funded by all lessees.

[wade]

The five large flats own as shareholders the Landlord who owns the freehold and have a right to be appoint a director.

Recently two of the large flats changed hands and one of the new owners has persuaded the other new owner and an exisiting owner that the whole block needs upgrading.

Nothing in lease about sinking fund.

However as said of the nine leases only five contribute to the lift.

As a matter of trust it would seem that the sinking funds cannot be used in the short term to fund the lift repairs. The sinking fund for other repairs should presumably be used solely for that purpose.

The Landlord collects funds on the basis of the service charge and holds the funds collected on trust see section 42 of the LTA 1987. How exactly do you think you define the trust obligations.

Wade

[jeffrey]

What does lease say re who pays towards lift? Is it all nine, or only the five (probably upstairs), on whom the covenant is placed?

[wade]

only the five of which i am one

[jeffrey]

For differential service charge schemes, as in your case, it's always clearer if L sets-up two separate service charges/ accounts. That for the lift would then be segregated from that for the rest, and I wonder why your leases don't contain this sort of segregation.

[wade]

As much as we may wonder that is the situation.

However for those tenants who dont have to contribute to the lift presumably since the Landlord holds their funds on trust as a basic principle this trust must mean they do not use their funds to pay for the lift repairs when they have been contributed only towards the sinking fund.

Also the director who now deals with the legal aspect and the finance and the lift repair is the tenant who agitated for the new lift and has the flat at the top and the lift into his flat is restricted to him.

So he obviously wants the lift asap

As a matter of common sense though the Landlord must not use funds received from some tenants for one purpose for another purpose.

This also relates back to paying the legal fees for the LVT.

The LVT said the Landlord had to pay the legal fees out of their own pocket and then recover from the tenants who could object because of bad management. Before the LVT they actually paid the lawyers out of funds of the company. Funds contributed by tenants who had no interests in the lift. Again common sense tells me that at the very least that was dangerous. The tenants who this really affects dont seem to be that concerned although unhappy about the continuing large service charge.

[jeffrey]

As a matter of common sense though the Landlord must not use funds received from some tenants for one purpose for another purpose.

Is that so, however? We have established that there is unfortunately only one service charge and only one 'pot', which makes me think that funds in hand can be used for ANY lawful purpose consistent with the lease and with the f/r's service obligations.

[zylo]

Though, perhaps there are grounds for an application to the LVT to vary the lease as the lease fails to make satisfactory provision with regard to the repair or maintenance of: the flat in question; or the building containing the flat; or any other land or building let to the tenant under the lease, or in respect of which rights are conferred on him or her under it (section 35 (2)(a)) of LTA 1987).

[tenant29]

Is that so, however? We have established that there is unfortunately only one service charge and only one 'pot', which makes me think that funds in hand can be used for ANY lawful purpose consistent with the lease and with the f/r's service obligations.

At many sites having a mix of houses and flats , the one service charge account is usually managed with separately identified "estate charge " for external cost such as garden and car parking lighting and "block charge " for maintenance work of the block.( internal cleaning , hallway lighting ,insurance etc,

So "houses" pay "estate charge" only and flats pay "estate charge + block charge". A similar arrangement of " Block charge " and "Lift charge " could be charged within the one service charge account . i.e 2 pots in one account.