Is money paid in advance by Leaseholders for substantial Section 20 works "secure"?

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    Is money paid in advance by Leaseholders for substantial Section 20 works "secure"?

    We own a Leasehold in a small (20 units) block where the Freeholders agent now requires pre-payment for substantial Section 20 works that will take place over the next 12 to 18 months. The works will be split into two with our first payment due immediately for works over this summer and second payment about this time next year (both payments are several thousand pounds). Is there a legal requirement for the managing agent to hold those funds in Trust or Escrow until payment(s) are required by the works Contractor? We're not querying the cost of the works or that it needs doing and the Section 20 notice has followed correct procedure etc.. I'm just concerned about the security of the funds as they're substantially more than the normal Service Charges we pay to the managing agent.

    #2
    The monies should be held in a separate bank client account. You should be told the name and title of the bank account and you are entitled to ask for a copy of the bank's written confirmation that all monies in the account are client monies and that it is not entitled to combine the account with any other account or exercise any right of set off in respect of any sum owed to it. RICS code 6.2

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      #3
      Not every managing agents are RICS and therefore bound by their rules; however I would expect funds to be ring fenced in a segregated general clients account.

      Comment


        #4
        Not a lawyer so this may just be nonsense, my bad luck.

        The MA has to put the money in ring fenced account, but that is for the building, not each leaseholder. So if one LH pays and others don't the money in the account can be used up leaving the paying LH with basically an IOU.

        Comment


          #5
          I would say that money paid in advance for section 20 works is no more, or less, secure than any other service charge funds that are paid in advance.
          Personally though, I wouldn't be overly worried about the security of funds that are earmarked to be spent for specific work within a couple of years (unless I had good reason to believe that the freeholder was likely to go bankrupt) but it is better to have confirmation that funds are kept in a suitably protected client account.

          Comment


            #6
            Strictly service charges are only payable in accordance with the lease and the MA is not entitled to ask for additional monies due to s20 works alone. Practically, the MA will not arrange works unless it holds sufficient funds to pay for the cost. The security of funds applies equally to all monies held by the MA. The larger problem arises if some but not all the leaseholders pay their contributions in which case the works may be postponed and the monies collected could be used for other purposes.

            Comment


              #7
              What eagle2 said is what I meant, your money may be used for something else, you just get an iou.

              Even if the money is completely misappropriated the MA can argue the FH owes you.

              You never have your money stolen, just get bigger and bigger IOUs.

              Comment


                #8
                As all above.
                Nothing magical abour S20's, it's still a service charge, it's still maintenence that has to be done, And you cannot order maintenence to be done if you don't have the funds to pay for it. Thats called fraudulant.

                Come to my house, build ( or pay some one ) a garden shed for £ 2000, knowing that I don't yet have the money to pay for it.

                Want my address ?.

                I did not think so.


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                  #9
                  Thanks for all the responses. I've had confirmation that the funds will be held in a "Client Account" so feel a bit easier. I suspect a bigger issue, rather than the security of the funds, will be what happens if the MA is unable to secure timely payment from some Leaseholders (as mentioned by eagle2 above). He already has some arrears owing and has zero reserve fund to cover any shortfall. If he hasn't secured all the funds needed to legally instruct the contractor to commence I'm not sure what happens next. Some of the works are quite urgent. Does the Freeholder have no obligation to cover, temporarily, the shortfall? It's they who have entered into a Lease with any defaulting Leaseholders and it is they that can expedite recovery of those overdue amounts by commencing (or maybe just threatening) legal actions to recover the debt, or Lease?

                  Comment


                    #10
                    Halfbob, re- post number 9, the person with arreas gets sued for those arreas, AND gets sued for not paying the service charges ( S20 ) within 30 days.

                    Yes the freeholder has to get urgent work done even if there are no funds. This may mean borrowing money ( the directors are the named persons on the borrowing ) to complete, but that puts up the cost for everyone.

                    Tell the directors to pull their fingers out and sue or at least mention that if the funds are not coming ( owed and S20 ) they will instgate proceedings to recover the money, and all court and solicitors costs will be theirs to pay.

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