Joint f/r owner uses f/r money to redecorate own flat!

[treetop]

Hello, I hope someone can help me please:

- I am one of four shareholders in a mangement company for a block of flats
- One of the other shareholders has withdrawn £1500 of company funds to pay for redecorating her living room
- Her justification for this is that there was damage to the decor on the external wall due to poor maintenance of the building's exterior
- However this was discovered AFTER the work had started and not the original reason for redecorating, and the entire room not just the damaged wall has been decorated
- The work was undertaken without consulting the other shareholders and so (I believe) is in direct breach of the terms of the lease agreement and Section 20 of the Landlord & Tenants Act

Please can someone confirm that I am right in this matter, and what steps I should take to recover the company funds

Thanks in advance !

[jeffrey]

Well, for a start, it's possibly theft AND misappropriation of Mgt. Co.'s assets.
What- if anything- did the four members/Directors of Mgt. Co. actually agree/authorise?

[treetop]

Re- company funds

re your comments - 3 members agreed for the cheque to be drawn, I was not consulted on this issue, I did not agreed to this, as I felt that the company funds should only have to pay for work carried out on the external wall, as per lease agreement.The only consultation that took place was on the 20th April 2009, when the member asked how everyone felt about contributing payment to her as she was in debt, due to having this work carried out, member did mention that the surveyor did find small amount damp whilst carrying out her survey; but nothing to worry about. We asked for work to be itemised. but instead I was presented with an invoice for £2000 for the whole room. I strongly agree with you that this appears to be a misappropriation of company funds, due to this the Company is now overdrawn by £200 with no funding available for the building insurance on Monday 14th September. I was acting company secretary receiving demanding letters for payment, the said member procured the cheque book from me using false pretences ie saying her solicitor wanted to see the company file and cheque book, she took the items last Saturday 5th, the cheque was cashed on Monday 7th. without my knowledge. Thanking you

[thevaliant]

Regrettably, it sounds like it may well be theft. You'd have to get the police involved.

[animal]

If 3 of 4 members agreed, then it cannot be theft, but majority agreement.

[thevaliant]

If 3 of 4 members agreed, then it cannot be theft, but majority agreement.

I would see where you are coming from but would have trouble believing this. Would the position be different if the money was spent on a holiday to Spain?

Even if the three (who were directors) agreed, and even if the fourth leaseholder was only a member, not a director, still 25% of their money has been spent on something not defined within the lease and clearly not something that might be reasonably construed to fall as communal expenditure. What does the member/leaseholder do?

I would certainly argue there is criminal intent here, because as you have put in another excellent thread, any civil liability would take months and cost thousands for the leaseholder to remedy. It may not be the 'police' per say, but a more specialist fraud department to investigate.

Of course, I am not a lawyer.

[animal]

Companies work by majority rule, full stop. The courts will not intervene, unless blatant fraud can be proven. Even if the majority didn't agree, the company would have to take action against the directors, difficult when the directors have control.

There is s459 companies act which does allow an individual shareholder to take action as if they were the company, but it is expensive (companies court) and the usual result is the company is wound up - not what you want when the company owns your home! I am currently working on a s459 claim, but whether I actually take the action will depend on how other, cheaper options work out... :-)

I think there is an argument that if the expense is not in the lease, then it is invalid and perhaps unlawful, but the issue is the cost of enforcement is well out of proportion. I am doubtful that the police or fraud squad would take any interest. Maybe the local council housing office might take an interest, but again they tend to be reluctant to act.

That is why I suggest looking at the L&T act and making life difficult for the management. For example, if the service charge invoices are not compliant, then you can refuse to pay making it difficult for them to operate the company. If the charge is not in the lease, you can dispute it at the LVT, relatively inexpensively, again making it difficult for the management. Actions like this may well end up with the company becoming insolvent, thus devaluing your flat.

Unfortunately if the majority disagree with your actions, you may end up very unpopular and the overall value of your flat may well decrease. In any case, you are required to disclose any disputes, and would you want to buy a flat where the management are accused of misusing funds?

I strongly believe that a company is an inappropriate vehicle to own a leasehold property, but I also believe there is no easy solution.

[surreygirl]

I have spoken to the LVT on this very same problem and they say that it is not legal to use money from the service charge account for "improvements" other than what is stipulated in the lease. In my case monies were used to build a construction for the dust bins at the expense of the drains which were in a dire state leaving no monies for the repair of the drains except by having to come up with an extra 500 pounds over the top of the money paid into the service charge account!

[thevaliant]

Animal - Very enlightening.

I would agree about the situation. Presumably, this would arise where commonhold were used instead.

Any vehicle used can be abused at present.

Arguably, a solution would be a special 'company', not falling within the Companies Act defintion but following its own rules.

Seems to me that, in the case of RTE companies, a majority of shareholders could get together and abuse the funds of the minority and there is little practical they can do about it.

Personally, if that were the case, I'd probably take the 'nuclear' option and get the company wound up. Whilst worse in the shorter term, being abused for funds year in year out might actually end up cheaper.

[sgclacy]

My understanding would be that it is theft if they knew what they were doing was against the terms of the lease and went ahead with it. Another important point here is that the other the lessees do not stand to gain from this deed

I suspect that theft is not the case here but a generous interpretation has been taken of the lease to deal with a potential claim of negligence from the lessee whose flat has been effected by the works on the outside.

The process you need to consider is when the service charge accounts are presented to you you could challenge the expenditure and ask you fellow directors to show under the terms of the lease where this expenditure is permissible. Needs to be tempered with pragmatism, the danger here could be that you may win your argument against your neighbours but the company which self managed and run by its residents could implode and you could end up in quite a serious mess. Possible solution would be for the element of betterment to be recovered from her over a period of time through her service charges.

The lessee should have put the company on notice of her claim and the freeholders (ie your self managed group) should have refered the claim of possible negligence to their insurers. It may be too late.