directors not understanding and how can we help leasees

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    directors not understanding and how can we help leasees

    Hello all, Im new here and hoping someone may be able to help me . I am one of three directors of a RMC. With this years service charge we have had to ask for an additional amount due to building survey showing works required. Obviously leasees are not happy , though most who have contacted the MA now understand that this is not an increase to service charge which should revert to normal next year.
    So I need help , I have been a director since I moved here 3 years ago. When I arrived there was no real reserve fund , a couple of thousand , and the service charge had not increased in almost 20 years ! In order to start getting outside works done ,we increased the service charge by approximately £15 a month. The reserve has increased to £13,000 even after a new fence . Recently I had to take on 2 new directors as I would have been the only one. The last directors and myself had already agreed a budget knowing we now had some pretty big works to do and a section 20 will be needed. The problem is the two new directors are not happy with the budget , because they feel its too much to ask people for and they think we can get works done without a section 20. I too was concerned with people struggling due to covid , so those that want to have had payment plans set up , a quarter have paid in full . However we have to have the works done or we will in breach of the lease and perhaps tenant and landlord and company . How can I explain to my colleagues and get them to understand this ? They seem to be seeing it only as shareholders/owners.
    And apart from payment plans how else can we assist the owners/shareholders so we can ensure we have funds in , to proceed with this section 20 works. We will be using most of the reserve but do not want to use it all ,just in case.
    Thanks in advance

    #2
    You need to show the standard for service charge administration set by the RICS Residential Management Code which costs about £25 from RICS Online Bookshop . But you can view the copy online.

    https://www.legislation.gov.uk/uksi/...0160518_en.pdf

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      #3
      Hello , thank you for your reply...but do you mean I need to show the other directors ...or the leaseholders. Our lease does allow for additional costs if requires for replacement or repair .
      Our Managing agent listed the additional seperate to the service charge and explained why the extra is needed ...should they have first written to leaseholders

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        #4
        A reserve fund should be used to spread the cost of large items of expenditure evenly over the life of the lease. It needs to be calculated carefully and it would appear that it has been inadequate in the past, You should bring the service charges up to the required level and assist leaseholders by agreeing payment plans or borrowing monies if the lease permits the costs to be recovered.

        Comment


          #5
          Originally posted by Gordon999 View Post
          You need to show the standard for service charge administration set by the RICS Residential Management Code which costs about £25 from RICS Online Bookshop . But you can view the copy online.

          https://www.legislation.gov.uk/uksi/...0160518_en.pdf
          I have always found this fairly outrageous. RICS guidances are imported into UK law. What other examples are there of the law being copyrighted and only available to read on payment of a fee to a private organisation.

          Comment


            #6
            Originally posted by thenunn View Post
            Hello , thank you for your reply...but do you mean I need to show the other directors ...or the leaseholders. Our lease does allow for additional costs if requires for replacement or repair .
            Our Managing agent listed the additional seperate to the service charge and explained why the extra is needed ...should they have first written to leaseholders
            in post No. 1 , you said :

            " How can I explain to my colleagues and get them to understand this ? They seem to be seeing it only as shareholders/owners.

            The RICS Code is what you need to show other Directors and the leaseholders if they are resisting your proposals.

            Comment


              #7
              It is not easy to make changes when service charges have been artificially low for a long period of time. I suggest that you keep all leaseholders informed and try to assist them as much as possible by increasing charges gradually, setting priorities for works and services required, continue to offer payment plans and possibly defer charges by borrowing in order to arrange essential works. The reserve fund needs to be carefully calculated so that you do not penalise the leaseholders who happen to be in occupation now. It is not their fault that an inadequate fund was held in the past.

              Comment


                #8
                Nowhere in this thread does the OP say that they are allowed to collect a reserve fund according to the lease,. and if they are so allowed what the lease says (about the mechanism of such collection, or the purpose of such a fund).

                "Getting works done" and a reserve fund have little to do with each other necessarily, and reserve funds often oil the wheels of theft (by both the lessor and some lessees)

                Comment


                  #9
                  AndrewDod,

                  I agree that I am assuming that the lease permits a reserve fund to be held. In this case, it does appear to be being used to pay for large items of expenditure and thereby even out the costs. I agree that the temptation of theft proves to be too great for some unscrupulous holders of large sums of monies. It is a pity that those found to be stealing are not prevented from holding trust monies again.

                  Comment


                    #10
                    Originally posted by eagle2 View Post
                    A reserve fund should be used to spread the cost of large items of expenditure evenly over the life of the lease. It needs to be calculated carefully and it would appear that it has been inadequate in the past, You should bring the service charges up to the required level and assist leaseholders by agreeing payment plans or borrowing monies if the lease permits the costs to be recovered.
                    Hello ,thank you for your reply. Yes sadly in the past directors have not put anywhere near enough in reserve , consequently we now have to pay a big share each . We have set payment plans in place .

                    Comment


                      #11
                      Originally posted by Gordon999 View Post

                      in post No. 1 , you said :

                      " How can I explain to my colleagues and get them to understand this ? They seem to be seeing it only as shareholders/owners.

                      The RICS Code is what you need to show other Directors and the leaseholders if they are resisting your proposals.
                      Thank you . I did think you meant that , but needed to be sure as I know what Im like lol.

                      Comment


                        #12
                        Originally posted by eagle2 View Post
                        It is not easy to make changes when service charges have been artificially low for a long period of time. I suggest that you keep all leaseholders informed and try to assist them as much as possible by increasing charges gradually, setting priorities for works and services required, continue to offer payment plans and possibly defer charges by borrowing in order to arrange essential works. The reserve fund needs to be carefully calculated so that you do not penalise the leaseholders who happen to be in occupation now. It is not their fault that an inadequate fund was held in the past.
                        Hello and thank you for your reply. I totally agree ,that to us newbies it does feel a bit rough . But sadly when I moved here 3 years ago the service charge was approximately £60 a month per flat, the reserve fund £250 per year ! and it had been like that pretty much since the property was built 27 years ago . It states quiet clearly in the lease that provison should be made to take into account wear and tear and should be approximated by a survey .
                        We have a duty now to get this work done , we are aiming to do the building works and then the other works should be doable out of general maintenance money , so that next year the service charge reverts to as near to what it was last year ( when I became a director we upped the service charge so we could build a reserve , in 3 years we have increased that quite a bit and will be usuing much of it to help pay for these works.
                        I thought this was all sorted , then a director left ,so i had to take on 2 new ones ,who I assumed would want the same , but they sadly just see the bill and not that we have to do the work as per lease.

                        Comment


                          #13
                          The usual problem is that a reserve fund is established in the early years at the expense of the leaseholders at the time and subsequent leaseholders benefit from it. In your case, what exactly does the lease say because providing for wear and tear is not the same as allowing a reserve fund to be included within the service charges. What exactly does it say about a survey? If the lease does not specifically allow a reserve fund, it is a voluntary contribution, the leaseholders should be advised, they should be charged separately to the service charges and the monies collected should be held in a separate bank client account, Perhaps you can also explain how you are calculating the amount which you are charging, keeping something "just in case" appears to be vague. There should be a specific calculation of individual items eg redecoration cost of £12,000 spread over 6 years = £2,000 per annum. A contingency can be added but it should be reasonable and now is not the right time to create a contingency fund, It is up to the board of directors to decide on the level of reserve fund required. If you are unable to agree with the other directors, you should accept the majority decision. Under the present climate, I would not be attempting to increase the reserve fund and I would not be too concerned at using the entire fund if large expenditure is unavoidable.

                          Comment


                            #14
                            Eagle 2 ,thank you for your reply. The lease does specifically say pay into a reserve fund,there are actually 2 ,for is road and it says the use of a surveyor to calculate estimated wear and tear costs for items with a life expectancy .

                            Comment


                              #15
                              You are on a downward slope.
                              Directors REFUSE to do their job.
                              Directors REFUSE to allow the M.A to run the place as per the lease, as per the law as per the RICS Residential Management Code.

                              I would be saying to those Directors, that they should resign, as they have no place being a director if the refuse to obey all above.
                              If people can't afford ( most likely - they refuse to afford ) to maintain the property as per the lease and laws, they can leave and live in a tent somewhere.

                              My comments Over the top ? -- NO.






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