Director of a Residential Management Company Issue

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    Director of a Residential Management Company Issue


    I have been googling most of the day to try get some answers/explanation for the issue we have and i ended up reading through some of your topics and the answers have been really helpful so i am going to try my luck! I am slightly paranoid writing this as this is a public forum and it is quite a specific thing i am bringing, so apologies for any vagueness.

    I am a director of a management company along with several other lessees of our block, but we employ a mgmt company to do the biddings which we oversee.

    One of the directors confessed to rallying other lessees to halt paying part of the service charge which is being collected for some major works which need to happen asap before becoming a higher risk. The reasoning they provided was because of the Covid pressures they have on their finances, and they thought if other people were in the same boat they could motion a pause on collecting the monies for a period of time (unknown). This director also has historic arrears before Covid.

    This raised a red flag for me as it was not discussed with the mgmt company or the other directors before they reached out to the other lessees.

    There have been other issues with this director but i can't find a straightforward way for the company and lessees to protect themselves from people like this, or how to manage them. Thankfully in this instance they were heavily out-voted. But they don't seem to think what they did was not in the interest of the company, and is now refusing to agree to any of the works we are trying to plan.

    It would be great if anybody had any advice on any part of this, thank-you in advance.

    Directors should act and make decisions as a board, It is not unusual, indeed it is healthy, to have disagreements but you should all move forward based on the majority view. Enquire if any leaseholder is having problems and try to assist if necessary, but services need to be provided. I would have a word with the director and ask him to discuss his views with the remainder of the board and ask him to accept the majority decision. If he cannot agree to that, you should question whether or not he is suitable to act as a director.


      You call a Directors meeting for discusion about urgent service charges.
      If some don't turn up, then not your problem.

      Give them 7 days notice, and preferably for a weekend, so post your letters tomorrow. ( through the letter boxes of those directors that live there.)

      Service charges must be paid, irrespective of covid.

      you say the errant director was outvoted, therefore am i correct that the urgent service charges will now be paid.

      I also assume the Company Secretary is the Managing agent, if so, then write to them stating that Mr. X is refusing to pay the required service charges and that a stiff letter should be sent to him stating that if anyone does not pay the service charges on time, then forfiture of the flat would be an option to persue, and ultimately to court if it has to go to court. ( suggest they sent to every leaseholder )

      Don't mess around, get the Agent to spell it out. Doing none of above will make matters worse.


        It pays to take the time to try to understand the leaseholders and build a good relationship with them, it is impossible to have one rule for all. You should be sympathetic and flexible in these unusual times and genuine leaseholders will appreciate and respond offers of assistance, Legal action should be avoided if possible, it results in the relationship deteriorating and forfeiture should not be considered, There is no point allowing legal teams to benefit and putting leaseholders further in to debt if they are having difficulty paying in the first place.


          They pay what the lease says they should pay for works the lease says needs doing. If they can't afford it they take a loan, take a lodger or get sued. Or they sell their flat immediately. You MUST take legal action against errant lessees -- this is not a game or a charity. And if they do not pay it means that someone else does (i.e. theft).

          Of course if the works do not need doing that is a different matter.


            Originally posted by ram View Post
            Service charges must be paid, irrespective of covid.
            We are experiencing the same problem at our development that Service Charge demands have not been issued for this year.

            We have also not received Service Charge accounts for 2019, where there was certainly a surplus.

            In the latest correspondence from the directors it was stated "Due to the ongoing COVID restrictions and Government guidelines things are taking longer to resolve and fulfill."

            Correspondence was sent directly to the directors due to the managing agent's unprofessional conduct, i.e., telephone calls not answered and emails not replied to.


              You can destroy a good relationship in an instant by even threatening legal action and it can take a long time to restore trust. It can also lead to charges being challenged when they may have been accepted otherwise. It pays to know your leaseholders and contact those who normally pay regularly and enquire if there is a problem. There are ways of assisting leaseholders. You may be able to offer monthly payments instead of half yearly payments or you may be able to offer loans and charge interest for the benefit of all leaseholders. Agents will not offer this service, they do not care if you have a good relationship, they prefer to push a button after 14 days and send automatic reminders followed by threats of legal action. Sometimes agents benefit by taking legal action because that gives them the right to charge additional sums. Unless the costs are recovered in full, which rarely happens, especially in these times, all leaseholders will suffer,.


                It is always a huge mistake to do anything other than obey the lease and the law. If work needs doing then the money needs collecting NOW - not according to some special schedule that differs from that applied to others - or they SELL THEIR FLAT if they cannot pay. It is absolutely simple. Anything else is a slippery slope to a very bad situation.

                Arrears always have to be recovered (and the costs of collecting them). If they are not the Directors must be removed whether by others or imposed.


                  Originally posted by eagle2 View Post
                  it is impossible to have one rule for all
                  There is only one rule -- the lease (and the law). So no, there is only one rule for all.


                    I strongly disagree, there are many leaseholders who cannot sell their flats and you should consider the circumstances each time before taking legal action. I have known developments where legal action is taken as a matter of routine and it becomes a permanent feature taking up the time of the directors and results in enormous legal costs, which are not in the best interests of the leaseholders. It often has the opposite result to that desired, escalating debts and lack of funds to carry out even routine services.


                      They have no choice but to sell up - sorry (or to dispute the charges if they are not according to the lease and the law)

                      Good luck with trying to manage by making up your own new rules for some.

                      There are many problems with leaseholder managed freeholds - and this is one.

                      Many (most) leases operate on a strict in-out basis - there is absolutely no leeway for arrears of any duration. And using sinking funds to make up a shortfall in an uneven way is straightforward theft and will (and should) get those in charged summarily removed.


                        That is one of the problems, it does encourage leaseholders to dispute charges. It is not a question of making up rules, nowhere in the lease does it say that legal action must be taken against a leaseholder who is in arrears and there is a big difference between someone being 1 day in arrears for the first time and being say 2 years permanently in arrears. Nearly all RMCs would be unable to take any legal action without dipping into reserve funds, the only alternative is to include a large sum within the budget which would receive complaints from leaseholders who pay promptly. Most cases would be transferred to a Tribunal, which would often disallow expenditure and that leads to complaints from leaseholders if the charges are not adjusted for them as well. That in turn leads to a shortfall within the RMC.
                        A decision to take legal action needs to be properly thought out and in my experience, the only practical way of managing a building is to encourage cooperation and seek agreement with leaseholders.


                          Originally posted by eagle2 View Post
                          nowhere in the lease does it say that legal action must be taken against a leaseholder who is in arrears and there is a big difference between someone being 1 day in arrears for the first time and being say 2 years permanently in arrears.
                          The lease doesn't need to say that. Take a step back -- if there was an external freeholder, and they failed to collect an outstanding debt from a lessee, they would still be obliged to carry out any work and either accept a PERSONAL loss, or to sue for the debt. A RMC doesn't work any differently - the company has no assets at all (apart from the freehold) so if the Directors want to delay recovering a debt, they pay for that personally (there is no other legitimate source of cash apart from ground rents and fees they might receive for things like seller's information packs).

                          So no, they don't have to sue, but then they need to explain where the shortfall is going to come from (or accept that the company is going to be sued for not-obeying the lease).

                          Yes certainly if we are talking about a quiet chat about a 1 week delay, that is a different story. I don't disagree about that. But after a month the solicitor's letters should have gone out, and the costs of that added to the debt. There is no other way. The accumulating debt will inevitably be recovered when the property is sold, and any mortgage company should also have been informed at a very early stage.


                            In the past I believed in flexibility. Now, from experience, I agree with Andrew. Not happened very often. Trying to accommodate everyone is rarely possible. The lease, the lease and nothing but the lease.


                              Bear in mind eagle2 we are not talking here about renters without any assets, nor are we talking about babies. We are talking about people who own (sometimes via a partial loan) a £500K asset which has to be properly managed according to the law and the contract they have signed, not only in their interest but based on their joint obligation to others. They are not short of cash, albeit it will be highly inconvenient to have to sell in order to make their assets liquid.

                              Yes kindness and talking, but also extreme firmness by-the-book.


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