Service charge arrears - what happens when you're too kind

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    Service charge arrears - what happens when you're too kind

    I need some advice from the good people of LZ.

    We are an RTM company for a block of 12 flats. Since taking over the management, we have agreed that two leaseholders could pay their SC by monthly installments until their arrears are cleared.
    We took a kind approach as we had the cashflow to do this.

    Some major emergency work has however now come up that we need to carry out this summer. We're trying to do it within the budget we set for this year (and not ask for additional SC which is already very high) as well as using up all our reserve fund and it's going to be very tight with the current arrears.

    A flat has just been sold and the new owner has asked to pay the next SC monthly.

    As you can see, we have a dilemna. As we offered the payment facility to some leaseholders, it would be unfair to refuse it to the new owner. We need to be fair and the rule to be the same for all.

    As SC is to be paid in advance and these arrears are this year causing us a real problem (we cannot delay these works), shall we enforce the strict rule that everyone is to pay their SC on time?
    This may lead to some leaseholders still being unable to pay, possible claims in court and sale of properties. All of this would take time to get monies in.

    But I can't see any other solution.

    #2
    The following seems hard and blunt, but it's what you have to do.

    You obey the lease. Payment in advance.

    You can ONLY offer monthly payments if there is PLENTY of cash in the bank.
    You said "it's going to be very tight with the current arrears"
    Therefore if you are very tight, then you cannot offer monthly service payments - End of.

    You now have emergency repairs that cannot be paid for by monthy payments as the builders wont accept monthy payments.

    The work needs doing, the cash has to be available to do it.

    I have seen Managing agents websites, where they say if you can't afford the service charges, see their bank for a loan, and if more than enough funds are in the property, then they "MAY" consider monthly payments.

    I assume the new owner has not pleaded poverty, sent a begging letter, but has just asked to pay monthly ?

    It would NOT be unfair to refuse monthy payments to the new owner as you do not have enough funds in the bank.
    You are not a financial institution who lend money.
    You are not a housing association offering cheap homes.
    You are not their benefactor, parents, guardians etc etc etc.

    How much interest do you charge them for lending them the money, because they cant afford to pay all at once ?
    If the answer is "none", ( and I don't think you can ) , then tell them to borrow the money from the bank and pay "them" a monthy repayment.
    You are not a bank.

    If the service charges are fair, reasonable and the jobs need doing, then they have to pay according to the lease, otherwise you will get to the possition that by being kind and going against the lease and giving everyone monthly payments means you wont be able to start any work for 6 to 12 months as the money has not come in.

    Therefore no more monthy payments.

    1) As a matter of interest how much was the service charge each
    2) and how much is the the emergency works each

    Just to get an idea if the total charge is low, average or "it's a lot" for 12 flats.

    R.a.M.

    Comment


      #3
      SC is £1330
      MW is £660 (minimum)
      The works are external rendering and whilst the scaffold is up we could put external insulation which will benefit the block greatly. Economically it makes perfect sense as we wouldn't have to pay for a scaffold to put insulation at a later date.
      However this will come at nearly £1100 per flat

      The SC are fair and reasonable, it is high due to the block being in a dilapidated state so we need a large budget for repairs.

      The new owner has indeed just asked to pay monthly to ease with finance.

      Comment


        #4
        Originally posted by Carine View Post
        SC is £1330
        MW is £660 (minimum)
        The works are external rendering.
        we could put external insulation
        However this will come at nearly £1100 per flat
        As it stands, even in a dilapidated state, just the SC is not high, and if an older building ( 1890 / 1910 ) one would expect £ 800 to £ 1300 per year per flat SC, so on it's own, the SC is average.

        Major works.
        Yours you say is emergency work, so people just have to borrow the money.

        A ) But why external rendering ? is it already there and needs replacing ?
        if not, then don't waste money, just make sure the brickwork is re-pointed.

        B ) external insulation ? To me this is a waste of money unless ice is forming inside the flats.
        ( I DO remember thick ice on the inside of my windows when I was a child, no central heating, and we were all fine with that )

        Your question was, do we allow monthy payments or not.

        From post number 2, no you can't. It's unfortunate for those on a low income or pension, but people go into flats and think flat and house prices just increase, and everything lasts forever then come crying to you.

        No, I am not heartless, you are running a business that has to be solvent, and has to by law ( via the lease ) maintain the property in good order.

        Your answer to monthy requests is, No, we dont have the funds to enable us to go without payment in advance, and it's against the lease and will also stop jobs being done for 12 months till the money comes in.

        Of course if someone IS in financial hardship, consider quartery payments, or monthy payments, but a maximum of two people only, and only if there is more than enough money in the bank to get all the works done without their money.

        Being a Co sec / person in charge of running the place is a thankless task. I am one too, and it's HELL getting the money, same with telling them what must be done, and will be done, and they just dont comprehend. "Why do we need to do this and that, it looks fine to me"

        You will make your own decision on this, but once one gets monthy payments, they all want it, and that's when your troubles start ( Been there, so is not just a wild guess )

        Have fun . .

        Comment


          #5
          Nothing wrong with being kind but when you are, and worry that you might be harsh at some point, then you have to make that clear at the outset.

          I'd reply like this

          Dear New Buyer

          Under the terms of the lease the service charges are estimated annually and due half yearly in advance in full. Sadly this is the contract-the lease- that we are all saddled with and one that cannot be formally and properly varied without time and expense, the consent of our mortgage lenders, and that everyone agrees to do so. Informal variations are not always practical as from time to time the contract has to be enforced when people fail to pay. The cash flow consequences and legal costs of debt recovery fall on all flat owners service charges since we took control from the former freeholder. Wed have to pay for everything that we do "up front" and make up any shortfall from the funds from people that do pay.

          In cases of financial hardship or exceptional circumstances we will consider, without prejudice to the terms of the lease, an informal arrangements of monthly instalments at the companies discretion. As you will know urgent major works are planned as part of the legacy of poor management by the freeholder and their agent. It will put a huge strain on the cashflow and therefore in order to resolve that problem we cannot agree to monthly payments as, in simple terms, there is no one from whom to obtain the money to do works,or pay the electricity bill, except each other.

          Once we address this crisis and have no major works planned then it might be possible to look at informal arrangements for monthly payments, as I too would appreciate the flexibility.I am sorry that I cannot respond more positively and hope that the above explains why.
          Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

          Comment


            #6
            ram,

            The SC believe it or not is much higher than it used to be. Before we took over no maintenance works were being carried out, which has left the building in a poor state or repair.
            Our SC could be much higher as future major works will run into the thousands of £ however we decided to set it to a level that everyone can pay and do it within the SC budget and not ask for additional SC moneys to cover works. There is no point setting SC to something that no one can afford.

            The works are urgent as 3 no. flats are suffering from damp due to part of the render missing and cracks in the wall which we need to investigate. We also have an unvented chimney stack which is causing part of the problem. One of the inside wall is permanently soaked in places and the owner is unable to use his bedroom. He’s also unable to sell his flat as the damp readings are off the scale.
            We’re not doing it to make the building look good, we’re trying to remedy the damp before next winter.
            Had the previous Landlord raised the SC years ago and build a reserve fund, we wouldn’t have to do emergency works now.

            A building does need to be insulated and it is something that we are planning for the longer term, it coincide with the render needing replacing all around. The pebble dash is crumbling away, leaving the brickwork exposed. Insulation is essential, being unable to sleep at night because it is 35 degrees in your bedroom is not something I wish on anyone. Thank god, we don’t have nice weather all year round in this country.
            I wouldn’t live a building that has ice on the windows, we’re not in the middle age anymore and materials have come a long way to not have to put up with the discomfort.

            We’ve been right to allow monthly payments whilst we have been able to as it has allowed some leaseholders to clear their arrears. You’ve got to be generous when you can. Sadly, we cannot do so going forward. I’ve put it out to our RTM Directors and we all agree payment needs to be made on time from now on.



            Hi LA!

            We’ve always made it clear that we were doing struggling flats a favour and it was possible because only a few numbers of flats were in this situation.
            We’ve declined monthly payment to the new buyer who was absolutely fine with it as she understands the situation and will be requesting next SC and arrears to be paid in full in the next few months from all leaseholders. It will be putting some of them in hardship but we must have cash to pay for these works

            Comment


              #7
              You have explained your problems in greater detail now, so I / we all know the property problems.

              Glad to hear you are refusing monthy payments.

              I make no apologies for being brutal in my replies, but some people can be too kind for their own good, and / or for the good of the company.

              At least you have confirmation as to what you should do, and you seem to have taken on it on board, but I think you had already decided not to allow monthly payments, and hoped your decision would be confirmed on here.

              Comment


                #8
                No problem, sometime one needs to be blunt.

                And you are right, people may take monthly payments as a given when actually it is to the discretion of the landlord.
                Unfortunately that doesn't mean SC will be paid on time. I'm expecting delay and possible court action to recover the monies. It's not a great situation but one where we must be firm.
                Thanks for your input.

                Comment


                  #9
                  If you want external insulation I wonder if the ECO grants would apply, for a house they pay up to 6K, no need to be on benefits etc.

                  Comment


                    #10
                    Hi

                    Found this thread particularly interesting, as it is something that has recently started happening where we live - but from a slightly different angle, as we're luckily not in arrears.!

                    In short, our lease says you have to pay estimated annual service charges in full in advance of Jan 1st each year and if money hasn't been received after 30 days then you are to be charged interest at 4% above the basic bank rate on any outstanding balance until it is received. So we've always paid promptly.!

                    Now, after eight years here, a new managing agent now tells us we can all pay monthly after the due date as long as we add about £1.00 on to our monthly payment to cover there additional bank fees. Very nice, but doesn't that mean we break the lease if we pay that way.?

                    Be interested to hear any views, because another owner thinks it is really unfait that some of the money is supposed to go in to a sinking fund for future works so anyone paying in instalments is getting the advantage of interest from his money even if rates are ridiculously low at the moment.

                    Thanks.

                    Comment


                      #11
                      it sounds like it it contradicting the lease. How would bills be paid if everyone was to pay monthly?
                      It's fine if you are dealing with day to day electricity, cleaner etc but what if you have to do maintenance or pay the building insurance. Surely the MA would need cash to do so.
                      In essence you are getting an interest free loan which is nice. It would however be good to question how they would manage it.

                      Comment


                        #12
                        Originally posted by Carine View Post
                        No problem, sometime one needs to be blunt.

                        And you are right, people may take monthly payments as a given when actually it is to the discretion of the landlord.
                        Unfortunately that doesn't mean SC will be paid on time. I'm expecting delay and possible court action to recover the monies. It's not a great situation but one where we must be firm.
                        Thanks for your input.
                        I was being blunt but doing it with the written equivalent of a "No but with a smile"
                        Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                        Comment


                          #13
                          frosty,

                          it follows on from my earlier reply, that this can be done without prejudice to the terms of the lease so that if you miss a month the who amount is then due/ or it can be cancelled on notice.

                          if you don't do that with those conditions then there is the risk over time that the landlord cannot recover the service charge (as the lease sets out in one lump) through estoppal and has to accept that monthly payments are the norm.
                          Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                          Comment


                            #14
                            Carine,

                            As you have enough problems I would write to everyone on the basis that from 1-1 2015 SC will be due in full on 1-1 and 1-7 but without prejudice to the terms of the lease the RTM will accept individual agreements to pay by SO starting on the 1-1 and ending on 1-12 ( not the 31-1 or 1-2 and then always a month late" ) and that if payment is missed or the RTM gives two months notice the full amount will be due.

                            When you get ready to chase the arrears start a thread and we can work on that.
                            Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                            Comment


                              #15
                              The lease indicates SC is due on 24th June and 25th December. The invoices have in the past been issued on the first of that month.
                              For the June SC, we've given leaseholders up to end of June to pay SC and all arrears.

                              Good idea on asking LH to pay from the first, I just doubt they would pay it early. Still, it's good to give them a month.

                              Comment

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