Legal Obligation To Provide Maintenance Contract?

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    Legal Obligation To Provide Maintenance Contract?

    Hello All, I'm currently renting out my flat - it's one of a block of four in an old Victorian building. It's leasehold but I (along with the owners of the other three flats) am a 25% shareholder in the management company that owns the freehold. We have never had a maintenance contract in place. We all get along and it's never been a problem. When maintenance work needs doing we all just pay our fair share. Things have changed since I bought my flat over ten years ago and I'm told banks are not willing to lend against properties without such maintenance contracts in place. One of the flats has recently been sold to a cash buyer - he now wants to sell it on but is having difficulties due to the absence of a maintenance contract. Does the management company (ie. the freeholder) have a legal obligation to put a maintenance contract in place to enable the new buyer to sell his flat?

    #2
    The 'maintenance contract' is your lease isn't it?
    To save them chiming in, JPKeates, Theartfullodger, Boletus, Mindthegap, Macromia, Holy Cow & Ted.E.Bear think the opposite of me on almost every subject.

    Comment


      #3
      Hi JKO, I'm not sure. I have to confess I'm not well versed in all this stuff. I might be using the wrong terminology so let me just clarify. We don't pay a monthly fee in to a company bank account to cover maintenance of the building. This is what we are being asked to put in place by the guy trying to sell his flat. The lease says we'll keep the building in good shape, which we do, but it doesn't specifically stipulate a monthly fee/service charge/ground rent... So yes, we're obliged to keep the building in a good state of repair, but we're not currently obligated to pay out monthly.

      I think this is what the banks are asking for, but what you say is very interesting - perhaps our leases can provide the assurance that the banks require. Is this what you're suggesting? Apologies if I'm sounding rather naive...

      Comment


        #4
        It sounds to me like a silly requirement dreamed up by an inexperienced buyer's solicitor. However, I am only guessing.

        I suggest you wait for member Leaseholdanswers to come on line and see your question. Maybe moderator can move to 'Long Leasehold' section for you.
        To save them chiming in, JPKeates, Theartfullodger, Boletus, Mindthegap, Macromia, Holy Cow & Ted.E.Bear think the opposite of me on almost every subject.

        Comment


          #5
          You should ask a moderator to move this post to the Long Leasehold sub-forum, where you'll probably get a topic expert to comment on it.

          Seems to me you might be confusing a few issues though. You say you have a management company but no-one pays in, so what is the purpose of the management company?

          I haven't heard of a bank requiring a management contract, are you sure this isn't an issue that the bank has flagged up because of the freehold share and the seeming lack of solvency of the management company? If so you are under no obligation to the leaseholder other than for what is written into the lease, but it sounds like it might be all your interests to formalise the operation of the management co.

          I would ask for a detailed explanation from the bank about what their exact requirements are.
          caveat emptor
          If it sounds like I know what I am talking about........I don't.

          Comment


            #6
            What you have is a building that has no maintenence "Plan".

            Lenders want to see that the building is being managed, see that
            someone is responsible to inspect and to identify future
            maintenence required.
            They want to see that there is a block insurance poliicy in place,
            want to see there is money in the bank for unexpected but
            forseeable maintenence.

            At present you have nothing ( you have not told us otherwise )
            Suggest you ( if not already done ) issue a budget for the next 12
            months, listing everything. Gardener, insurance, cleaning, wall
            repairs,etc etc, so at least the lending bank / BS can see their
            investment will be looked after.

            you can open a bank account as xyz association, or whatever,
            but do you have a company name for the freehold, as ithink you
            must if you have shares, and you can open a bank account in
            that name, and at least put a few thousand in ( £ 500 each )

            Suggest you have a bank company bank account, otherwse flats
            may not be saleable, and some one is going to get very angy with
            someone, for not ensuring there are funds in a bank for future
            maintenence, stopping them selling their flat.

            R.a.M.

            Comment


              #7
              Thanks for your replies. Please can the moderator move this thread to the 'Long Leasehold' section as per the suggestions. Many thanks and sorry for the trouble.

              Wight Knight : You're absolutely right - I probably am confusing a few issues. As I understand it, the management company owns the freehold and it was probably set up for just that purpose. It was established before I moved in but when I bought the flat I was made a 25% shareholder of the company. Thanks for your other suggestions - I think perhaps it is time we all sat down and formalized the running of the company, and talking to the bank myself is probably the best idea.

              Comment


                #8
                Thanks ram, that makes it very clear. Yes we do have a company name. We already have block buildings insurance and we have recently set up a company bank account. No-one has started paying in to it yet on a regular basis but what you've said goes some way to clarifying what I've been told. Whilst there may not be a definitive legal requirement to set up maintanance plan (I'd still like to know if there is), if the banks require one, and they want to see 'money in the bank', then it's probably the best way to go. As you say, someone could end up getting very annoyed.

                Comment


                  #9
                  I own a flat in a similar block and we do not have a maintenance plan but we do have a company name and bank account where we each lodge £600 per year to pay for insurance and any works.

                  Sounds to me like you all need to get together and sort this out - you will need directors and a company secretary or you may be able to set up and a residents association.

                  In the last 5 years we have had new purchasers and no one has mentioned having to give details of the management company to their bank/building society.



                  Freedom at the point of zero............

                  Comment


                    #10
                    The only requirement is, if you hold money for leaseholders, you
                    cannot hide it under the bed.
                    It must be held "on trust" ( not "in a trust account" ) which means
                    in a bank account of the Management company.

                    to get out of your situation,you Must put at least £ 2000 in.
                    Why ? Because you need to insure the building for ,lets say,
                    £ 1000 per year, and have at LEAST £ 1000 for emergency repairs.
                    If one leaseholder cannot pay for a few months, as lost their job,
                    car engine expired, and bought a new car, then they will not be
                    able to contribute to the insurance for, say, 6 months,

                    If you don't have the money in the bank, you cannot pay for the
                    insurance, place burns down, and you all have to continue to pay
                    a mortgage for a home you no longer have.
                    If an interest only mortgage, you will have to find the money
                    to pay off the mortgage company at the end of the lease, and wont have a flat to sell to do that.
                    Therefore, the directors "could" be held accountable for not
                    making sure the above never happens !

                    Your lease is a legal document.
                    You have to observe the covenants, have to maintain the building,
                    Have to have a fire and safety report and an asbestos report
                    ( £ 1600 max for the 2 )

                    Some of you will be directors of the company, and at present are
                    falling foul of the Companies Act 2006 and probably your lease ,for not acting in the best interests of the Company,
                    by not ensuring funds are available to meet your obligations
                    ( some may disagree with me here ), but hope you see that just
                    waiting for things to happen then asking for money
                    is no longer acceptable in these times of; welcome, but excessive
                    regulations that make you, have to be seen to be doing the best
                    for the company, and the best for the leaseholders.

                    At leastwalk round the place and itemise things that need doing,
                    with estimated costs, then you can give the "anticipated service
                    charge for next 12months" to the solicitor acting for the sale, and
                    the seller to pass on to whoever wants it.

                    You cannot look at things and say, need repairing /renewing, but
                    we wont bother as it's too expensive, or it will beo.k for10 years,
                    and will repair when it falls off or down. You cannot do that.
                    Your lease will state that the place has to be maintained in a GOOD
                    state of repair.

                    Now your anticipated mantenence plan for next 12 months will
                    probably quadruple, but thats what you have to do to observe
                    the lease, hence a healthy bank balance and maintenance plan
                    to show the world that future buyers and lenders are comforted
                    that their investment is protected and being well maintained.

                    R.a.M.

                    Comment


                      #11
                      Thanks Interlaken, Yes I definitely need to get together with the other shareholders and talk this through. I just want to arm myself with a little knowledge before this happens. The company already has a director and a secretary. I like that you have a similar arrangement but don't actually have a maintenance plan as such. It means we can probably sort this out with very little paperwork. I'm sure the banks would be more than satisfied with a bank statement showing funds - I doubt they need to see a formal maintenance plan on paper.

                      But I guess my original question remains - is the freeholder legally obligated to provide a maintenance plan if the bank is asking for one as a condition of the mortgage?

                      Comment


                        #12
                        Originally posted by Mandody View Post
                        - is the freeholder legally obligated to provide a maintenance
                        plan if the bank is asking for one as a condition of the mortgage?
                        Read post 10.
                        http://www.landlordzone.co.uk/forums...942#post428942

                        Comment


                          #13
                          ram, thank you so much for taking the time to reply in such detail. That pretty much spells it all out for me. Looks like a maintenance plan is definitely the right way to go. We are legally obligated to keep the building in a good state of repair, and a maintenance plan is our means of proving that we are doing that :-)

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