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

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  • dimension7
    replied
    Thanks, the reserve funds as stipulated in the lease is,

    image_3412.png

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  • eagle2
    replied
    7.13 of the RICS code requires the annual accounts to be examined by an independent accountant. Tech 03/11 3.2.4 requires the accountant to be a member of one of the professional accountancy bodies and hold a practising certificate. It also states “independent” means that the accountant should not be an employee or director or associate of the landlord, managing agent or any associated company of the landlord or agent.
    The wording of the lease will determine whether or not a reserve fund may be held and the purpose of that fund. 7.16 of the RICS code states that “unless the lease states otherwise, you should not use any reserve fund as a float for the credit of surpluses and the debit of any deficits”.
    The RMC is allowed 6 months after the financial year end to complete the accounts and it is not unusual for an agent to prepare and sign the accounts on behalf of the directors, who remain responsible for the content.

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  • dimension7
    replied
    Hi All,
    I have now requested and reviewed the account from 2017, 18, 19 for the RMC. Accounts for 2020 were not provided. The accounts have been signed off by the Managing Agent on behalf of the directors of the RMC. I also note that the account have been audited by a company related (husband/wife) to an employee who works for the Managing Agent.

    My observations are as follows,
    • I'm not seeing any evidence of the RMC or its members being actively engaged in managing the accounts
    • The managing agent is well aware of the legalities (Landlord & Tenants Act) and are operating in a manner that it would be hard to catch them out unless you are willing to go into details, ask for receipts and so on. eg. Individual large cost maintenance items are close to but under £250 per member, so no special approvals are needed
    • All accounts are prepared by the managing agent with wording that responsibility lies with the RMC directors to approve
    • No major building works have been undertaken, mostly large costs are related to gate maintenance £3000, grounds maintenance £3000 and general maintenance £3000+, managing agents fee £3000+, buildings insurance £3000
    • The reserve funds are simply the retained earnings of the company and if the company overspends on the above items it makes up the shortfall from reserve funds
    • The budgets seems to keep missing out recurring charges from previous year and then at end of year report them as overspend and this is then taken from the reserve fund
    • For a relatively new building (2006 building) standing for 20 years the reserve funds were completed depleted by "redecoration" in 2017. Then the annual charges were then upped and the reserve funds restored by not carrying out some of the budgeted work (underspend)
    • Consequently, In the last 4 years the annual maintenance has gone up by £10,000 with no major works carried out

    Am I being paranoid or is this business as usual for leasehold blocks?

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  • dimension7
    replied
    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?

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  • Gordon999
    replied
    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.

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  • eagle2
    replied
    A company limited by guarantee means that its purpose is not to make a profit

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  • eagle2
    replied
    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.

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  • eagle2
    replied
    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.

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  • dimension7
    replied
    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?

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  • fos333
    replied
    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.

    Leave a comment:


  • dimension7
    replied
    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

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  • fos333
    replied
    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?

    Leave a comment:


  • dimension7
    replied
    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

    Leave a comment:


  • fos333
    replied
    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.


    Leave a comment:


  • dimension7
    replied
    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.


    Leave a comment:

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