Can directors put taking legal advice through the service charge?

[Starlane]

Hello, I hope your week is going well! I firstly want to thank some of the contributors in this site as you have been very helpful with sharing your experiences and knowledge.

So the situation is..I have sent the landlord company and its directors a preliminary notice.I also tried to call a members meeting to try to resolve issues...the meeting was fruitless unfortunately..the directors are basically lacking the ability to understand the lease and in breach of the lease themselves and there are many other issues which I would say they have been negligent...so the directors have said that they are taking legal advice which they say may take weeks to respond to.

My question is who is going to pay for this legal advice as they are only in the position they are due to basically not bothering to find out in the first place what they should be doing including reading and understanding the lease etc..I will be upset if they try to put this through the service charge as it seems wrong to me that I am paying for the advice they should have got before creating all these issues.

My argument would be they have acted improperly possibly negligently and they are not fit to be directors.

[eagle2]

What kind of preliminary notice have you sent?

Whether or not legal fees are allowed to be charged to you as a service charge depends on the wording of your lease.

The more important issue which you should consider is that the service charge monies are likely to be depleted by the cost of the legal advice.

If you are not satisfied with the directors,your options are to educate them, volunteer to join them in order to assist them or try to remove them which will require support from other members.

[Starlane]

I have carefully drafted and pulled together a preliminary notice section 22 L&T acts raising all the issues with the property and breaches pointing out what needs to be done including calling a shareholder meeting to discuss how to resolve matters....in response the directors have said the company are taking legal advice which will take time and come back to me so I am now hoping their solicitor will tell them what they should and should not be doing and come back to me..my argument is they should have got their own professional advice themselves before we have come to this...and yes that is my concern a large legal bill to pay because they wont abide by the lease and dont seem to know what they are doing...as regards dormant accounts...the directors are trying to run the small site like a corporate " Coca Cola!" so how come the company expenses, directors loan, legal fees, bank charges and interest, appointing contractors, court fees be classed as a company that is dormant..not according to Company House...

[eagle2]

I suspect that they are fobbing you off, they are not seeking legal advice at all, they are simply trying to delay responding to you. If you chase them, they will probably respond by saying that they are still waiting for legal advice ad infinitum.

I don't think that it is in your best interests to take or invite legal action, it is only likely to result in costs,

Your best option is to seek support from fellow members and if you are unable to achieve that, sell,

You will never win an argument about a RMC not being dormant against a qualified accountant and it is not worth pursuing, just concentrate on the service charge accounts and the reasonableness of the actual expenditure,

[ram]

You will have put time limits for the items listed to be instigated by them.
From what yuo usay, they are not even doing that.
usually, each party pays their own costs.
It's Not a court. The object is to see if a manager should be appointed.
No way can the directors say, but yes we ignorned the lease, we should continue ignoring the lease, and keep mis managing.

Very unlikely for them to be able to pass the "Directors costs" on to the shareholders.

[eagle2]

The appointment of a manager is definitely not in your best interests, please read the horror stories elsewhere on this forum.

Of course the costs will be passed on to you in one way or another, they will be using the service charge funds and either you will be charged service charges, a contribution as a member or there will be a deficit carried forward resulting in a shortage of cash to pay expenditure.

[Starlane]

I think as RAM was saying Eagle2 , I don't think a member would be liable for the costs and I have put forward that It is important to bear in mind that the award of costs is always at the discretion of the court.

I stated " including but not limited to making an application for an order that the costs incurred by virtue of such proceedings are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable (pursuant to Section 20C of the Landlord and Tenant Act 1985)"

[eagle2]

You are failing to take into account that the directors have control of the service charge funds and they will be depleting those funds. You may well "win" with the Tribunal ordering that the costs may not be charged to you as service charges but it will be a pyrrhic victory. The Tribunal does not have the jurisdiction to order that funds should be replenished after they have been used and there will be nothing to stop the Company charging a shareholder's levy to make good the deficit. Alternatively, the deficit could be carried forward indefinitely and in your case you would find that the sinking fund would never be held as a bank balance even when everyone had contributed. That is what I meant by you are likely to pay one way or another at #6

[Starlane]

Eagle2, I appreciate where you are coming from however the lease and the MOA make no mention of recovering expenses from the tenant or member for company expenses so I am not sure how they can use the service charge monies other than for what they can use it for in the lease. As regards the sinking fund it specifically states what the monies are to be used for the repair and maintenance and decoration, it makes no mention that a sinking fund can be used for legal fees, the sinking fund is for the specific repair and maintenance to the building. Using the monies for other than what is states in the lease would be a breach of trust.

[Starlane]

I have been looking at the RICS Service charge guide and its states: Sinking funds, reserve funds and depreciation charges are all ways of making financial provision for future repairs or replacements.

[ram]

Your situation at the moment is this . . .

You have asked questions, in sort,
E.G. when are you going to enforce the lease.
When are you going to do the repairs.
and on and on. if they dont enforce the lase in 21 days you will post your application.. end of.

NO WAY can they come back to you to say, We will not answer you, we will only get a solicitor to answer every single question you ever want to ask, at any time and even at an A.G.M. we will tell you we wont answer your Normal Easy to answer quesions, and every Normal Easy to answer quesion, most of which in your prelim requires a yes we will enforce the lease or they will not, will require a solicitors letter to answer

NO,

so dont expect them to be able to charge the leaseholders

[eagle2]

Starlane,

You don't seem to be following this through. if you consider that there is a breach of the lease, you would take legal action against the Company, which is effectively against yourself and the other members, The Company has access to the service charge funds, there would be a further depletion of the service charge monies as it instructs a solicitor and possibly a barrister and you could face substantial costs. The same would apply for the breach of trust, which would be almost impossible for you to prove, the service charge accounts would not reveal any unusual movements on the sinking fund, Meanwhile you would be portrayed as the trouble maker causing unnecessary legal expenses with no other leaseholder supporting you,

Much better to save yourself all the hassle and expense by trying to drum up support from your fellow members in order to remove the directors.or If you fail, sell,

[Starlane]

Yes RAM I have tried to be reasonable and practical...time and time again...I have written many letters and asked many reasonable questions and now the meetings have ground to a no comment from any of them ... so this cant go on I have a right to know what the monies are spent on..I am being sent demands and the monies go in a black hole...I dont even get service charge accounts . Repairs need doing and the directors are in breach of their own leases.. I have been reluctantly forced into this situation. .reasoning does not work, explaining things does work so as you say my concern is higher management costs... yes I could sell and will eventually however I still need to know what the monies are spent on and the property needs to be repaired and maintained otherwise my property is being devalued by their poor management.

I dont think anyone would normslly do choose to go the appoint a manager route but when you are dealing with unreasonable incompetent directors who wont even abide by the lease, L&T acts and RICS code then the option is to go the FTT route...what is your experience Eagle2 of the appointment of a manager at your block? Sounds like you have had a bad experience?

[fos333]

You will never win an argument about a RMC not being dormant against a qualified accountant and it is not worth pursuing, just concentrate on the service charge accounts and the reasonableness of the actual expenditure,

I wasn't aware that a definitive answer was provided and believe it remains a grey area, acting as agent or principal?

It would also depend on whether the RMC was the freeholder or just party to the lease as regards the management and collection of SC only.

[eagle2]

fos333,

You are correct there are strong views held both for and against and there are many examples of different treatment, I am simply recommending that the leaseholder not to bring the matter before the FTT and attempt to argue against the accountant, I cannot see how the FTT can state that any accounting treatment is incorrect at the present time.