Can service charge/sink fund be used for this?

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    Can service charge/sink fund be used for this?

    On behalf of a friend..

    We are a Right to Manage Company (RTM). We have some leaseholders who are in significant arrears with their service charges. We have stuck to the ARMA recommended system of sending reminders and notice before action etc. Next step therefor is a County Court Application. Does anyone know where the RTM is supposed to get the funds to pay for the County Court application fees and if necessary any legal representation? Thanks

    What do your leases say?

    Does it explicitly allow service charge funds to be used for legal fee or court costs?
    Does it contain any more ambiguously worded clauses that would allow it (e.g. something that covers all costs of collecting service charges)?

    If the RTM company has no funds of its own, and the leases do not allow these costs to be taken from service charge funds, the directors may have to decide whether to pay any costs themselves (as a freeholder would) and home that the leases and/or court allows the costs to be recovered from the defaulting leaseholders (who should be the ones paying any costs anyway - if the leases are written well).


      The RTM has a legal right to demand annual service charge from leaseholder under the lease .

      So use the small claims court ( online service ) to collect the service charge arrears . No solicitor required .

      The court fee for online claims below £1000 is £60 or below £2000 is £105 etc .

      The claim should include "the arrears + court fee + interest if allowed in lease, calculated from due date ) .

      You can test the small claims court method by entering claim for first year service charge arrears..


        I would try to avoid legal action if at all possible, costs are rarely recovered in full and it usually results in some or all leaseholders unhappy with the outcome, if there are several leaseholders involved, it suggests that some of the charges are unreasonable. I would try engaging with those leaseholders and attempt to find a solution. If you cannot reach agreement, it says much about the parties involved but you could try mediation or arbitration etc. Alternatively, applying to the First Tier Tribunal would be a better option than applying to the court, which would often transfer the case anyway,


          As post #3, if you've tried usual polite reminders then just take out MCOL summons , after notifying any mortgagees.
          If RTM has no funds then best use a directors loan to fund it and recover costs from recalcitrant lessees.
          Absolutely no point in applying to FTT where there is no dispute, you will just be wasting time and money.

          Unfortunately RTMs often suffer from these issues with selfish leaseholders not meeting their obligations and often delaying essential maintenance and pitting neighbour against neighbour.
          It sounds like you have a number of flats so might be worth considering employing a professional management company that could routinely handle these arrears.


            It is the responsibility of the RTM to get to know its leaseholders and understand the reasons for none payment, you cannot assume that they have no grounds for withholding payment. It is all very well others saying that the directors should lend monies to the RTM but what happens when the costs are not fully recovered from the leaseholders, as in most cases? The benefit of going to the FTT, if private negotiations fail, is that it is simple, it costs very little and the FTT will determine what is payable. The leaseholders will then have no legal argument against paying.


              I believe in always having a competent property manager, most are. Seen too many volunteers working without thanks and even hassled.
              With a P.M everyone must contribute to the running of the place.
              I am not advertising but don't know why people put up with the demands.


                I must have been unlucky, I have yet to find a competent property manager, each one I have across has been more interested in making money for himself at the expense of the leaseholders. There is no reason why you cannot manage the building yourselves, but it does require a good relationship with all leaseholders and trust needs to be built, earned and maintained.


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