RTM - What happens if money is owed by LHs to FH

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    RTM - What happens if money is owed by LHs to FH

    So as I understand upon completion of an RTM by Leaseholders the FH must transfer any sums in credit to the RTM company.

    But what happens if the FH claims that money is owed to him by the LHs ?

    In this scenario, the leases dont allow advanced sums to be collected from the LHs, so technically the FH doesnt owe any money to any third parties/contractors, he is simply 'out of pocket', I cant see how this 'debt' can be passed onto the RTM company, or is this fact a reason for them to oppose the RTM takeover ? (as far as I can see, it isnt).

    Or is this issue totally separate from the RTM application ? i.e its upto the FH to pursue the debt via standard means (court/FTT) and does this right still exist after the RTM takeover ?
    Advice given is based on my experience representing myself as a leaseholder both in the County Court and at Leasehold Valuation Tribunals.

    I do not accept any liability to you in relation to the advice given.

    It is always recommended you seek further advice from a solicitor or legal expert.

    Always read your lease first, it is the legally binding contract between leaseholder and freeholder.

    #2
    I don't know with regard to RTMs but in enfranchisement claims the freeholder is entitled to be paid money owed.

    Comment


      #3
      Freeholder can't spend money that's not in the service charge account, there can be no debt. Any arrears must go to RTM in usual way

      Comment


        #4
        Originally posted by Section20z View Post
        Freeholder can't spend money that's not in the service charge account, there can be no debt. Any arrears must go to RTM in usual way
        Well he has.

        Process is..as an example, lets use insurance.

        1. Building must be insured by FH, as per lease, let's say £1000, £500per LH
        2. FH arranges n pays for insurance
        3. FH demands payment of insurance via service charge
        4. LH doesn't pay
        5. LHs service charge account shows amount £-500

        FH will claim LH owes £500, its unclear what happens at completetion of rtm, there are no advance payments, no sinking charge or reserve fund, so there was/is never going to be any funds to hand to rtm, but there is sum that the FH claims is owed to him.
        Advice given is based on my experience representing myself as a leaseholder both in the County Court and at Leasehold Valuation Tribunals.

        I do not accept any liability to you in relation to the advice given.

        It is always recommended you seek further advice from a solicitor or legal expert.

        Always read your lease first, it is the legally binding contract between leaseholder and freeholder.

        Comment


          #5
          Just an update..i think the answer is here

          "in this context the Act provides that the landlord remains entitled to collect service charges in respect of costs incurred prior to the acquisition date"

          https://www.lease-advice.org/advice-guide/right-manage/

          So it seems the FH can't refuse the RTM, all he can do is chase previous arrears via the standard court/ftt route
          Advice given is based on my experience representing myself as a leaseholder both in the County Court and at Leasehold Valuation Tribunals.

          I do not accept any liability to you in relation to the advice given.

          It is always recommended you seek further advice from a solicitor or legal expert.

          Always read your lease first, it is the legally binding contract between leaseholder and freeholder.

          Comment


            #6
            Originally posted by Section20z View Post
            Freeholder can't spend money that's not in the service charge account, there can be no debt. Any arrears must go to RTM in usual way
            What?
            Unless a lease states that a freeholder's obligations are conditional on them first receiving sufficient funds, in advance, from leaseholders, they can not only spend money that is not in the service charge account, but they will very often be legally obligated to do so.

            Most of the time I think that your replies on this forum are very good, Section20x, but I think that it is potentially very worrying (as you have made it clear in posts elsewhere on Landlordzone that you are a freeholder, seemingly of several properties), that you apparently believe that freeholder obligations are always dependent on them having funds available in a service charge account.

            In some cases (including the lease to the flat where I currently live) the freeholder can only collect the bulk of the money required to cover the expenditure necessary to meet their obligations in arrears (unless leaseholders agree to make advance payments).
            In other cases the leases may require payment in advance, but the freeholder's obligations do not 'go away' if one or more leaseholders doesn't pay on time - they pay have to cover the amount that hasn't been paid themselves before collecting from the leaseholder(s) who are in default.





            Originally posted by andydd View Post
            But what happens if the FH claims that money is owed to him by the LHs ?

            In this scenario, the leases dont allow advanced sums to be collected from the LHs, so technically the FH doesnt owe any money to any third parties/contractors, he is simply 'out of pocket', I cant see how this 'debt' can be passed onto the RTM company, or is this fact a reason for them to oppose the RTM takeover ? (as far as I can see, it isnt).
            In this situation, I would think that the only reasonable answer is that the amount owed to the freeholder should be agreed during the RTM process (or determined by a court if it cannot be agreed).

            If the leases don't allow service charges to be collected in advance, and all sums after RTM has been 'won' / agreed are payable to the RTM company, leaseholders could (hypothetically at least) agree to enact a right to take over management of a property after major works had been completed and paid for, but before they had actually paid the later demands for the sums required.
            The freeholder is then potentially left considerably 'out of pocket' because, although the demands for payment for the major works may still be payable, they would go to the service charge account, not to the freeholder.
            Reasonably, there has to be a way in which the freeholder can require payment of any reasonable amounts that have been paid out (in accordance with the terms of the lease) before RTM is established - even if these amounts are not paid until after the RTM takes effect.

            Comment


              #7
              Originally posted by andydd View Post
              Just an update..i think the answer is here

              "in this context the Act provides that the landlord remains entitled to collect service charges in respect of costs incurred prior to the acquisition date"

              https://www.lease-advice.org/advice-guide/right-manage/

              So it seems the FH can't refuse the RTM, all he can do is chase previous arrears via the standard court/ftt route
              That seems reasonable to me.

              Comment


                #8
                If a lease provides that the freehold recoveries monies in arrears this inconvenient clauses passes to the RTM and the RTM has no powers to change the terms of the lease and the RTM will need to ensure that it has a cash float collected from its members when it takes over the management

                Comment

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