AGM passed special resolution to collect interest on arrears legally upholdable?

[PLeaseR]

Would the courts uphold the terms of a special resolution voted and passed at AGM to collect interest on service charge arrears, where the relevant Leases do not mention interest therefore no legal right to charge is granted, but neither is it explicitly prohibited by any covenant? Or is the only way to guarantee you secure that right to recover interest on arrears is to have the relevant Lease(s) varied to incorporate addition and collection of interest in the service charge clauses within the relevant Lease?

is it a measured risk that is largely dependant on any ' judge' (whether in court or FTT)?

[eagle2]

It is unusual but there is nothing to stop the Company from deciding to charge interest. There is an important difference though, it is a Company charge and not a charge under the terms of the lease. If there are any disputes, they would need to be resolved in court because the FTT does not have the jurisdiction to deal with them,

[Macromia]

Agreed - and any leaseholders who are not also members of the company will almost certainly not have to pay.
Interest can be added to debts, including service charge debts, if action to recover the debts is started in the county court, but that will be discretionary.

[eagle2]

Interest can be added to debts, including service charge debts, if action to recover the debts is started in the county court.

Absolutely right, the Company could claim 8% using MCOL, I wonder what rate of interest it is claiming under the resolution (an ordinary resolution would have sufficed)

[AndrewDod]

This sounds as if it is just faffing around. If service charges are not paid (and if they are legitimate service charges) the lessees should be in court pronto. That is the obligation of the FH (unless they cover the shortfall themselves). Interest can be added at County court if the court so deems.

[eagle2]

It does not make sense for a management company to take legal action. It cannot recover more than 100% and it cannot be sure of recovering its claim in full. Sooner or later, it will have its claim reduced, which causes a problem for all leaseholders.

It makes sense for the company to seek authorisation to charge interest whilst avoiding going to court.

[Gordon999]

If you use the "small claims court" to recover service charge arrears , you can include 8% interest.

[eagle2]

Yes, but it could have set a different rate of interest by passing the resolution.

There is a possible problem because service charge arrears would need to be defined and particularly what happens to disputes. It would be unreasonable for the company to charge interest on amounts which were found to be unreasonable,

[AndrewDod]

It does not make sense for a management company to take legal action. It cannot recover more than 100% and it cannot be sure of recovering its claim in full. Sooner or later, it will have its claim reduced, which causes a problem for all leaseholders.

It makes sense for the company to seek authorisation to charge interest whilst avoiding going to court.

Not dealing robustly with service charge arrears is exactly what causes the greatest problems. To put it bluntly, if the money is not collected, there are ONLY four alternatives
a) The Freeholder is bankrupt and if it is lessee owned company it is struck off
b) The freeholder pays the shortfall itself (not an option for a lessee owned company)
c) There is cross subsidy between lessees, or raiding of the sinking fund (both basically theft)
d) Essential work is not carried out

There is no such thing as " the company to seek authorisation to charge interest".

If it is the case that "Sooner or later, it will have its claim reduced, which causes a problem for all leaseholders" that means (by definition) that the FH is not obeying the lease or the law.

[eagle2]

Not dealing robustly with service charge arrears is exactly what causes the greatest problems.

If it is the case that "Sooner or later, it will have its claim reduced, which causes a problem for all leaseholders" that means (by definition) that the FH is not obeying the lease or the law.

I disagree, the greatest problem for a RMC is expenditure being disallowed after the payment has been made. It does not necessarily mean that it is not obeying with the lease or the law, it can be as simple as a particular panel on a particular day deciding that a certain charge is unreasonable.

If a RMC deals robustly with arrears, it would never be away from the FTT and the costs involved would be the largest item within the annual accounts. The leaseholders would then have plenty of objections to the way the RMC was being run.

[AndrewDod]

I disagree, the greatest problem for a RMC is expenditure being disallowed after the payment has been made. It does not necessarily mean that it is not obeying with the lease or the law, it can be as simple as a particular panel on a particular day deciding that a certain charge is unreasonable.

If a RMC deals robustly with arrears, it would never be away from the FTT and the costs involved would be the largest item within the annual accounts. The leaseholders would then have plenty of objections to the way the RMC was being run.

Good luck with allowing arrears to continue then and not doing works (which is likely to get the RMC sued) or stealing from other lessees.

[eagle2]

Good luck with allowing arrears to continue then and not doing works (which is likely to get the RMC sued) or stealing from other lessees.

I did not say that I would allow arrears to escalate or do nothing, I found that it was a question of getting to know your leaseholders, Most will pay on time, some need a gentle reminder, some need a payment plan and only exceptionally do you need to threaten legal action to collect monies.

You don't mention the fact that legal action usually allows an agent to charge additional sums.

[AndrewDod]

Usually (but it depends on the lease) the cost of action is payable by the individual lessee.

Yes it is worth getting to know leaseholders, and it mighty be worth waiting a week or two - but how long do you intend to wait for an outstanding payment - a month? 3 months?

I'm sorry but unless you are talking about that sort of timescale (a few weeks) you cannot rely on a repayment plan. If lessees cannot pay legitimate service charges then they have to sell their lease. The mortgage company should also have been notified and pressed for action within a few weeks of any default.

The simple fact is that if you can afford to bear a repayment plan there is something seriously wrong with the way you are collecting service charges. I suggest that any directors who propose a payment plan for other lessees should stump up the cash themselves and have the errant lessee owing them the money. If the errant lessee is a director, then they must resign.

And what happens when the same lessee does it again and again and again, and then other lessees think - what the hell - I'm going to do it too why should I have my cash stolen? The block of flats will be owned by her majesty faster than you can say Jack Robinson.

[eagle2]

You have to be realistic, service charges are usually payable in advance and legal action is not going to take a month or 3 months. By the time it comes to court or a Tribunal, the actual figures will be known and if there is a surplus for the year, part of the claim will not be payable. Costs are rarely recovered in full, the only beneficiaries are the legal teams and the agent.

The chances of forcing a leaseholder to sell an apartment is nil and mortgage companies will not get involved unless there is a court order or a Tribunal decision.

The RMC is much more likely to become insolvent by taking legal action than by reaching agreement with the leaseholders.

I am well aware of agents with their automatic credit control procedures and their standard letters and standard administration charges. All I can say is that they do not work, they benefit only the agent, not the RMC.

[AndrewDod]

Where a lease has service charges in advance, and the advance is not paid, then you can't actually carry out the budgeted works. Carrying out works where only some lessees have paid for those works is a big NO NO NO.

There is absolutely no reason the work has to be done via an agent, and it is doubtful whether an agent can keep administration charges unless their contract says they can (why would it?).

Of course mortgage companies will get involved if a service charge is unpaid.

I think the big problem I have with your line of argument is
a) You are not explaining how you square the circle. No money means an inability of FH to fulfil their obligations to paying lessees and to the lease.
b) There is a need to send a message as to what will be tolerated. It is a very slippery slope you are going down if the lease is not implemented with rigour, and if necessary with brutality.