New flat purchasing advice needed please. RMC run by managing agent as director

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    New flat purchasing advice needed please. RMC run by managing agent as director

    Hello,
    I'm a First-time buyer.

    I'm about to purchase a flat as my main home and upon studying the lease and the various forums I have come to understand,
    • The lease is a tri-party lease between myself, the freeholder and the managing company
    • The managing company is setup as an RMC with the leaseholders as mandatory members (mandated by lease)
    Factual information:
    • 2006 purpose built flats. Smaller development of 17 flats
    • 135 years remain on lease
    • The ground rent is set at £200 pa and increases every 10 years in line with Retail Prices Index
    • Services charges are £1600 pa. There is a much larger development of flats 50+ on the opposite side managed by a different agent and they pay £1100 pa
    • The management company is a member of ARMA
    My observations:

    The flats are a mixture of mostly rented out and few leaseholders living there as their main home. Grounds generally maintained in good condition and I've spoken to the individuals living there and they seem to be mostly educated working people. Renters pay around £750 pm.
    Some complaints around parking reserved spaces being occupied and entry-gates being left unlocked and management company response is "slow"

    Questions:

    Looking at the companies house information of the RMC I have discovered that the directors and secretary of the company are all employees of the management company. None are the leaseholders.

    This is causing me to feel concerned about how the management company is being held to account. Also the RMC is currently shown as dormant so no accounts are being published online.

    I want to understand from the experienced forum members if I should be concerned and what questions to ask at this stage of the purchase.

    #2
    On the face of it this looks like the ideal scenario, RMCs are often listed as "dormant" as they don't trade but as a member you should be free to vote with the other members to appoint a new MA if they don't perform.

    Comment


      #3
      What makes you think that the directors are employees of the managing agent? It is not uncommon for the agent's address to be used as the correspondence address for directors. If members only are eligible to become directors and non members have been appointed, the board of directors would need to be changed.
      It is normal practice for the RMC to be regarded as dormant for statutory accounts purposes. Dormant accounts should still be filed at Companies House. Leaseholders should receive separate service charge accounts and you should ask to see a copy for the last 2 or 3 years to obtain an understanding of the expenditure, assets and liabilities.

      Comment


        #4
        Thanks for the responses so far. So overall reading your comments it seems like the setup here is quite good.

        I will ask for previous years charges breakdown as you've suggested.

        I also note that a reserve fund is being setup by the management company, with significant contribution £400 per member with each charge. How can the accounts for this be checked?

        Some complaints around parking reserved spaces being occupied and entry-gates being left unlocked and management company response is "slow"

        Again, is this business as usual for such setups where perhaps the leaseholders are not very active?


        What makes you think that the directors are employees of the managing agent?
        All info is available online they are listed as directors/secretaries of both firms, the RMC and the management company with the address same as that of the management company.


        Comment


          #5
          The lease will be tripartite between you, freeholder and management company (RMC).

          When you refer to the management company do you mean managing agent?

          If all information is available online look for the articles of association, usually the very first filing when the RMC was incorporated. In the articles it should set out who is eligible to become a director of the RMC.

          Check for restrictions like having to be a owner/member of the RMC to be eligible to be a director, also look to see if any minimum requirement.

          IMO you should be wary if the managing agent or an employee of the MA is listed as a director of the RMC.


          Comment


            #6
            All info is available online they are listed as directors/secretaries of both firms, the RMC and the management company with the address same as that of the management company.
            yes apologies I got the terminology mixed up in post #4. By management company I mean managing agent in that post. The managing agent is a company and their director is the secretary of the RMC for this block of flats. They appear to be director/secretary against many RMCs (around 20)


            In the articles it should set out who is eligible to become a director of the RMC.
            It says no person who is not a Member of the Company (RMC) shall in any circumstance be eligible to hold office as Director

            What makes you think that the directors are employees of the managing agent? It is not uncommon for the agent's address to be used as the correspondence address for directors.
            hmm, okay, so I need to look deeper here, it may be that the directors addresses are the agents address but they are really leaseholders. At least one has no other appointments apart from being the director of the RMC.

            I may have jumped to an incorrect conclusion about the RMC directors. I'll dig deeper.

            The RMC company secretary is definitely the managing agent

            Comment


              #7
              It's usual for the managing agent to act as the company secretary and as stated in post #3 also usual for directors service address to be that of the company secretary.

              You can also check the managing agent on review sites, TP and also google lease ftt decisions and see if they appear there.

              Lastly if the majority of flats are rented out, it could explain - "Some complaints around parking reserved spaces being occupied and entry-gates being left unlocked and management company response is "slow"" - Is the RMC director BTL leaseholder?

              Comment


                #8
                You can also check the managing agent on review sites
                Yes checked and reviews weren't very rosy and from 2017. No review data since. Hence why I got interested in digging out how this block management is setup.

                It's usual for the managing agent to act as the company secretary and as stated in post #3 also usual for directors service address to be that of the company secretary.
                👍 understood, thanks


                I am looking at their accounts of the RMC and no audits have been carried out. Though the articles of association require an audit every year.

                Why don't I see any assets or liabilities listed in the company accounts? What is happening to the reserve funds being collected in the service charges?


                Balance Sheet.png

                Comment


                  #9
                  Also covered in post #3 2nd paragaph. Have you seen any service charge accounts?

                  Have a look at the following;

                  https://arma.org.uk/downloader/ts8/B...ing_Flats_.pdf

                  It would appear your RMC is a company limited by guarantee.

                  Comment


                    #10
                    yes very useful, thanks. Will pass those questions to my solicitors


                    It would appear your RMC is a company limited by guarantee.
                    Okay, can you please elaborate what that means, in terms of accounts they are filing with companies house. Why are they not showing any amounts?

                    Comment


                      #11
                      The reason why no amounts are shown in the statutory accounts is that the RMC is not regarded as acting on its own behalf, it is acting as a trustee holding the service charge monies on behalf of the leaseholders and using those monies in accordance with the lease. There have been heated debates whether or not that treatment is correct and the picture becomes clouded when the RMC receives interest and pays company expenses. The meaningful information should be included within the service charge accounts.

                      Comment


                        #12
                        Originally posted by dimension7 View Post

                        I also note that a reserve fund is being setup by the management company, with significant contribution £400 per member with each charge. How can the accounts for this be checked?

                        Some complaints around parking reserved spaces being occupied and entry-gates being left unlocked and management company response is "slow"

                        Again, is this business as usual for such setups where perhaps the leaseholders are not very active?

                        All info is available online they are listed as directors/secretaries of both firms, the RMC and the management company with the address same as that of the management company.

                        The value of the reserve fund should be stated within the service charge accounts.
                        Car parking issues are a common problem faced by leaseholders. The usual response is that it is up to you to protect your space.
                        The directors of the RMC would not normally be directors of the agent as well, that should definitely be investigated further. A Company Secretary is not required but if one is appointed, it is not unusual for it to be the agent.

                        Comment


                          #13
                          A company limited by guarantee means that its purpose is not to make a profit

                          Comment


                            #14
                            The RMC is usually a non-profit company with legal right to demand service charge for maintenance of the building. So it files annual accounts at Companies House as a "dormant company" and the accounts at Companies House shows no information in the "profit and loss account".

                            The unspent service charge money belongs to the leaseholders and the service charge money is usually held in a separate "client account" operated by the Managing Agent.

                            Comment


                              #15
                              Thanks for those responses.

                              Given the current setup of this lease does it make sense to form a Residents Association or should the RMC membership suffice?

                              Comment

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