Leaseholders with no information on the residential association accounts.

[Andrew Folga]

Hi,

I am one of the 6 leaseholders/freeholders of the property and also a shareholder of a residents association holding one share out of six.

There is a director of a residents association that does not live here. He does not share any information on the company account balances with the shareholders for 2 years now.

I am paying service charges up to date but apparently there is constantly not enough funds in the company account.

Majority of voting shareholders (including myself) agreed they would be happy to do some work to the building. There is a management company/agent dealing with section 20 for the works and whilst they served 2 section 20 notices and are ready to book in the chosen contractor to carry out the works they say they cannot contact/communicate with the director to obtain information on how we are to fund the works (apparently there is not enough money in the accounts for the works to be paid by the current budget so new invoices have to be raised to all shareholders).

So we, the shareholders, are currently in limbo and do not know our legal rights. We also think we are not being given any information on the outgoing/expenditures and balances of the residents association company accounts to be able to understand what happens with the monies.

Are we correct to think we should be legally allowed to have periodical information from the Managing Agent (if no response from the Director) to share some of the financial details with us?

I tried contacting the MA but their reply was that it would be in breach of the GDPR if they shared the accounts with us:

...The information I can liaise with Directors about the finance, unfortunately I cannot at this point share with those who are not directors....

... due to GDPR/Data Protection I am unable to discuss the finer details of the situation with all parties....

We, however, are only interested to know what expenditures happened in the past 2 years so some cut down version of the accounts and also current balance.

Is this something we are not expected to know as shareholder of the residents association company?

Regards,
Andrew

[eagle2]

What does your lease say, that is your legal contract?

You are entitled to know where the service charge monies are being spent and it is not a breach of GDPR if you receive a summary of that expenditure and a summary of the balance sheet showing the total monies held, service charge arrears and amounts owing to creditors.

To whom are you paying the service charges? It would normally be the managing agent, who should hold the funds in a secure bank client account, The MA would not normally need to refer to a director of a residents association to obtain details of funds.

The obvious solution is to change the system of paying service charges and either pay the agent or replace the agent with another one which will account properly for the monies.

[Andrew Folga]

Thank you for you response.

I will be checking my lease shortly.

I am paying the service charges to a managing agent's account. I believe this is held in a secure bank client account. It is likely they would need to obtain this info from a Director therefore I am wrong expecting this info from the MA?

I would, however, expect some sort of summary update (at least once a year?) on the outgoings and balances especially as the contract with the MA contains this info:

HOA Appendix 1

Services provided by ***** in managing the building:

• Providing reasonable management information to the lessees
• Maintaining adequate/suitable files and records on the management of the property

Management Proposal

• 3. Management
  • (f) Updates
    • We will regularly send out updates regarding the development via email to ensure that everyone is kept fully aware of everything that is going on.

I think changing the agent will be difficult as it is difficult to communicate with the Director.

I hope I can receive the information one way or the other. I am just not sure what next steps I can do...

[scot22]

My first step would simply be to replace the director. It's a reasonably straightforward process. Make sure you have someone suitable to replace him.
Is the Company registered with Companies House then you can see the accounts needed to be filed. That would at least give an idea of amounts being spent. Can you identify items which would have cost ?

[eagle2]

I cannot see how removing a director of a residents association assists. An RA has limited powers, it is not a party to the lease, it simply represents residents of the building ie leaseholders and tenants.

The key question is who is receiving the service charges? Whoever it is, has a duty to account for those monies.

[eagle2]

Who actually owns the freehold, is it the 6 leaseholders jointly or a Company consisting of 6 members?

Who has entered into the contract with the managing agent?

It appears from #3 that the managing agent should be supplying the accounting information to the leaseholders.

[scot22]

Yes, you are right. I have been getting confused with shareholders. I assumed it is a properly formed company. He seems to have a lot of power !

[eagle2]

Yes, you are right. I have been getting confused with shareholders. I assumed it is a properly formed company. He seems to have a lot of power !

The structure is unclear but you may be correct, the "director" may be exceeding his authority, but he only appears to possess any financial information if it is being supplied to him by the managing agent.

[Andrew Folga]

Hi, Yes the company is registered with the Companies House and I am soon to hopefully obtain the year end accounts and other useful info if possible.

I am hoping to get some idea from there and match it with the spending that I know about.

I've been told previously that the MA keeps the money in a dedicated account.

The problem currently is the Director is not responding to any calls/emails as is claimed by the MA therefore they cannot progress with any works.

The freehold is being held by 6 leaseholders jointly as I understand.

The contract with the MA was entered by the director only.

#3 is also what I expect and I am exchanging emails with the MA to explain that but the only info I am getting back is that due to GDPR they cannot reveal the other accounts information. I keep explaining I am not after the other leaseholders' accounts but I want to know how the monies are being spent and the balance. One thing I get back is that we, leaseholders, are given the budget for following year which is true. This, however, does not give us the full picture and we would like to see expenditures/outgoings report to understand where the money is being spent.

Yes it looks like the director has a lot of power and there is only 2 live in leaseholders in the building with the remainder rented flats which is putting us in a very difficult position indeed...

[eagle2]

A residents association would not normally be a limited company. As stated in #5, it has limited powers, it can only make representations on behalf of the residents, it cannot appoint the managing agent and it cannot determine the service charges or control the funds.

The managing agent should be appointed by and report to the freeholders, who should inform the residents association. You have a duty to consider the comments by the RA but you do not need to accept them.

If you are a joint freeholder, you should be entitled to receive all the financial information and as a leaseholder you are entitled to receive a statement of the actual expenditure at the end of the year so that you may compare it with the budget.

[Gordon999]

Andrew Folga,

This matter is really between the 6 leaseholders and Managing agent which collects the annual service charge contributions The Managing agent has obligations to produce an annual summary of service charge income and spending, and make this summary available to leaseholders after 6 months from the service charge year end. The service charge annual spending should be be audited by an chartered accountant .

After issue of the service charge audited accounts to leaseholders , a leaseholder in the block may make an appointment to view the voucher and records , bank statements etc at the managing agents office . The sharing of service charge information to leaseholders is required under the Landlord & Tenant Act 1985. The service charge information is not covered by data protection rules..

The managing agent has to comply to the RICS Residential Management Code. v3 which you can buy a copy from RICS Bookshop Online for around £25 or you may view a copy online.

[Andrew Folga]

Hi all and thank you for your answers.

I have read the lease now and it has the following:

THE FIFTH SCHEDULE - SERVICE CHARGE

6. As soon as practicable after the expiration of each Accounting Period there shall be served upon the Tenant by the Lessors or their Agents a certificate signed by such Agents containing the following information:

(a) The amount of the Total Expenditure for that Accounting Period
(b) The amount of the Interim Charge paid by the Tenant in respect of that Accounting Period together with any surplus carried forward from the pervious Accounting Period
(c) The amount of the Service Charge in respect of that Accounting Period and of any excess or deficiency of the Service Charge over the Interim Charge

7. The said certificate shall be conclusive and binding on the parties hereto but the Tenant shall be entitled at his own expense and upon prior payment of any costs to be incurred by the Lessors or their Agents at any time within one month after service of such certificate to inspect the receipts and vouchers relating to payment of the Total Expenditure.

This lease was formed in the seventies. Later on, in the nineties, the residents association limited company was formed and the freehold bought by the then leaseholders. Does the Lease have any bearing today in this case?

The other document I have is the Memorandum and Articles of Association of the limited company (the residents association limited company) which has the following section:

ACCOUNTS

109 No member shall (as such) have any right of inspecting any accounting records or other book or document of the company except as conferred by statute or authorised by directors or by ordinary resolution of the company.

DISQUALIFICATION AND REMOVAL OF DIRECTORS

81 The office of a director shall be vacated if:
(a) he cases to be a director by virtue of any provision of the Act or he becomes prohibited by law from being a director or
(b) he becomes bankrupt or makes any arrangement or composition with his creditors generally or
(c) he is, or may be, suffering from mental disorder and either -
(i) he is admitted to hospital in pursuance of an application for admission for treatment under the Mental Health Act 1983 or, in Scotland, an application for admission under the Mental Health (Scotland) Act 1960 or
(ii) an order is made by court having jurisdiction (whether in the United Kingdom or elsewhere) in matters concerning mental disorder for his detention or for the appointment of a receiver, curator bonis or other person to exercise powers with respect to his property or affairs or
(d) he resigns his office by notice to the company or
(e) he shall for more than six consecutive months have been absent without permission of the directors from meetings of directors held during that period and the directors resolve that his office be vacated

I've managed to contact the director and he claims he has no time to deal with these issues but does not want to resign as a director (presumably he wants to have a control over spending and access to company accounts which he never shared with us before appointing the MA or after that). He has also said he never saw any balance sheet or expenditure statement from the Managing Agent from the time they were appointed in September 2019 and he would request that ASAP. The problem is the director has a bad record of keeping up his promises so I have low hopes of him getting anything out from the MA.

I have emailed the leaseholders to organise a meeting to discuss next steps which in my view are removing the managing agent after we get the expected 2 years expenditure reports (if we manage to get them) and replace the current director as he is not communicating with the MA as well as us, the leaseholders...

From the above Lease in particular I understand I can expect some level of information like total expenditure. I am not sure I can expect detailed reports unless I travel to the MA location which may be difficult for me. From the Memorandum and Articles of Association I am not sure I can have access as a non director to the accounts or remove the director.

[eagle2]

The lease remains the legal contract between the freeholders and the leaseholders.

The freeholders should be making decisions regarding the management of the building including the appointment of the managing agent. Your meeting should be a joint meeting of freeholders and members of the Residents Association to discuss the removal of power from the Residents Association and handing it back to the freeholders.

The members of the Residents Association may make decisions regarding that Company including the appointment of new directors and the removal of the existing director. The members should confirm that the decision to appoint the managing agent should be transferred to the freeholders.

You have the right to inspect the documents both as a freeholder and as a leaseholder.

[Gordon999]

Andrew Folga ,

You can find the name of the "freeholder" from Land Registry Online by paying £3 by credit card and downloading the copy of freehold title for your post code ( not leasehold title of your flat ).

The freehold title should give name of a company for which you can search the records at Companies House website for the name of the director and shareholders. This company may not have the same name as the Residents Association

I suggest you ask the current director to sign the form appointing you ( plus any other leaseholders ) as director and send the form to Companies House. As Director, you can demand to see the last 2 years service charge accounts, which are not covered by data protection.

The Managing Agent ( for service charge account ) has to comply to the RICS Residential Management Code v.3 which you can view online.or buy a copy from RICS Bookshop .

[eagle2]

I am assuming from #1 that the 6 leaseholders own the freehold jointly and there is not a limited company which owns the freehold.