Question about s20c LTA 1985

[Felix2]

Hello,

I am a leaseholder in a building with 10 properties. Every year we pay a service charge based on the number of shares we have in a residents' association. A leaseholder sued and obtained a s20c order, ie. he does not have to pay the legal costs of the residents' association.
So, what happens next? Who is paying his part in the legal costs?
Do we have to divide the costs in 9 instead of 10? If not, how does it work? (The association has no asset).

Thanks

[sgclacy]

Because the lessee obtained a Section 20C order you cannot pass your legal costs through the service charges. You will have to raise a contribution from the shareholders to keep the company solvent. If you don't raise enough then the company may have to fold.

You cannot use the reserve monies to pay the legal costs as they have not been deemed allowable.

[leaseholdanswers]

Are you sure that the % for SC should not be the figure set in the lease?

Unless the articles make provision for sevices and that is left to the lease*, most standard Articles limit liability to £1 a share. As sgclacy sais the company will have to pass a resolution to call on shareholders to make up the loss - £ loss /no of shares.

* If it is left to the lease then all SC inc reserves are held in trust seperate to theaffairs of the company and only for purpuses set out in the lease. Even if that includes payment of such fees, the section 20c order bars that.

(As I was explaining on another thread much to the others persons reluctance to accept it.)

[Felix2]

The lease just says the service charge is to be paid in accordance to the rules of the association. It is not a percentage, it is a variable amount per share held. The funds of the association are held on trust as they are service charges.

[sgclacy]

Are you sure that the % for SC should not be the figure set in the lease?

Unless the articles make provision for sevices and that is left to the lease*, most standard Articles limit liability to £1 a share. As sgclacy sais the company will have to pass a resolution to call on shareholders to make up the loss - £ loss /no of shares.

* If it is left to the lease then all SC inc reserves are held in trust seperate to theaffairs of the company and only for purpuses set out in the lease. Even if that includes payment of such fees, the section 20c order bars that.

(As I was explaining on another thread much to the others persons reluctance to accept it.)

Unfortunately it is not as simple as that. A company can only make a call for more monies from its shareholders if there is UNPAID share capital outstanding ie the shares have been issued partly paid

[leaseholdanswers]

actually it is but ill reply tomorrow not on this fiddly pda note that the artiicles provide , not the lease.

[siva]

If the leases allows legal costs to be passed on to leaseholders then you can pass on the costs to all leaseholders to which the s20C order does not apply. However the other leaseholders are free to make an application for a s20C order.

[leaseholdanswers]

Doesn't help they still have to make up the shortfall.

[leaseholdanswers]

Before looking at the resolution what do the articles say about a loss in the charges? Is there for example an indemnity clause to make up losses?

[Felix2]

No there is nothing about losses.
Thanks to all for the answers

[leaseholdanswers]

Ok then you will need to add the total legal bill to the service charge and add a proportional credit to their account eg the post which disappeared on the thread £1000, divided by 10, and post a £100 credit to their account from the company.

The directors will have to report to the members that as a result of this the loan that you or others have made in the meantime to credit the service charge is a liability that it cannot meet and the company faces insolvency and resolves that this can only be avoided if the shareholders make a cash contribution to make up the losses (the point sgclacy was making that it simply cannot say we need to pay this money, votes in favour etc, and then force everyone to pay under that resolution.). Unless there are means of repayment it cannot be a loan or reflected in new shares.

This is the sort of issue where I always advise companies to continue with notice fees and other income eg pre sales enquiries including ground rent as a cash buffer against such losses.

As your funds arise out of Articles if there is a provision for including the companies costs and expenses of management, then introduce a management fee or charge ground rents if the leases allow or require. This makes it self funding and the loan you make repayable if you are clever, you can pay it out of service charge and get the money in via other means before the person knows what has happened.

Good luck.