Flats Freehold

[Carryon Regardless]

As there are many here with greater understanding regarding freeholds I'm hoping for input to help develop my understanding.

I own flats with 'Freeholders' in a couple of locations.

Works are sometimes required and the cost divided between the flats for payment annually.

So far these costs are not significant, but as neither situation has a fund and I can see the possibility of expensive works in the future I am hoping to prepare myself for what's possible / likely in future.

The Freeholders have the responsibility to carry out works as would be required and then pass the cost on the the individual flats.

** I wonder what involvement the owners are reasonably permitted prior to work authorisation if any.

** Should the Freeholder pass a 'project' to a company this could then involve surveys, architects and a management fee, would all these be considered reasonable and therefore due ?

A high bill could be difficult for some owners to settle. I am aware of 1 or 2 owners, living hand to mouth, who would fail to settle and be unable to raise credit due to previous financial problems.

While their life is not my concern the effect on the block is. the social effect is, I think worth consideration.

I assume the Freeholder would follow normal route to attempt recovery of their expenses.

** Where an owner has clear inability to find funds is the Freeholder left with a charge on the property, possibly 3rd in line ?

** Can a Freeholder feasibly force the disposal of the property to settle the debt ?

My main thoughts around the last question is that if an owner has already failed to settle an outstanding annual invoice but there are still works to carry out it would seem unreasonable for a Freeholder to have to pay out (assuming they were able) with no possibility of recovery, or payment at £5 per week as may be awarded.

Owners fail to settle, Freeholders fails to carry out works, flats fall into disrepair losing tenancies and value.

[Richlist]

** I wonder what involvement the owners are reasonably permitted prior to work authorisation if any.

The answer lies in :

1) the wording of your lease.......all leases are different as they are drafted by and for the benefit of different people.

2) legislation. eg if the repairs are over a certain amount then there are lots of checks & balances required, notices that have to be served etc etc

** Should the Freeholder pass a 'project' to a company this could then involve surveys, architects and a management fee, would all these be considered reasonable and therefore due ?

Under normal cicumstance and depending on the project then yes.

I have flats where, for example, the freeholder employs a managing agent to handle the business on their behalf. The managing agents are a sizeable firm of chartered surveyors so, one would expect there to be suitable expertise within the company for some of the required skills.....they would of course expect to be paid for carrying out this work.

** Where an owner has clear inability to find funds is the Freeholder left with a charge on the property, possibly 3rd in line ?

** Can a Freeholder feasibly force the disposal of the property to settle the debt ?

The answer again hinges on the reqirements of the lease. Most freeholders have sinking funds for, say, roof replacement or outside decoration etc. They also usually have a legal requirement to balance the books, publish annual accounts, if they are limited then the accounts need to be audited etc etc. So, any shortfall if a single leaseholder refused to pay could possibly be temporarily covered from reserves. BUT, they have the right to carry out any of the actions you mention in order to balance the costs for the benefit of the company & the legal requirement it needs to meet.

My main thoughts around the last question is that if an owner has already failed to settle an outstanding annual invoice but there are still works to carry out it would seem unreasonable for a Freeholder to have to pay out (assuming they were able) with no possibility of recovery, or payment at £5 per week as may be awarded.

Owners fail to settle, Freeholders fails to carry out works, flats fall into disrepair losing tenancies and value.

That is unlikely.

[Chestnut]

Worth checking who owns freehold (e.g. through agent or land registry). This is not always known to owners.

It may be the owners jointly - in which case an owner can influence how maintenance is carried out and financed, and appointment of managing agents. Joint owners group should have constitutional AGM and elect directors.

[Grampa]

Normally (unless the lease states otherwise) if the flats owners own the freehold they have 2 separate entities a lease and a freehold. Even with this arrangement It is a good idea to have a yearly service charge with a provision for a sinking/reserve fund to cover for any unexpected works. But if the other owners have never had to pay a budgeted service charge before there will be some who will fight it

You dont need a management company you can do it yourself to save on fees which a agent will charge between 100-350 per unit in the block.

If you cant get everyone to agree to this, look into the Right to manage option where you only need 50% of the leaseholder to agree to manage to force the issue. Take a look at

http://www.lease-advice.org/default2.asp

http://www.direct.gov.uk/en/HomeAndCommunity/BuyingAndSellingYourHome/Leaseholdproperties/DG_193051

http://www.arma.org.uk/doc/public/ARMA-Right-To-Manage-booklet.pdf

[Chestnut]

Correct! The owner group that I'm involved with runs the management and sets the budget which includes cyclic funds accumulated for longer term maintenance periods (e.g external roofwork).

The group often finds that new purchasers have not been made aware (by their solicitors!) that ownership carries the obligation of group membership.

[Carryon Regardless]

All input greatly appreciated.

1 freehold is local council, this one isn't of serious consideration to me anyway.

The 2nd is a Ltd Company, owned by the builders of the block.

The RTM looks to be feasible, apart from this needing input from 1 owner who's communications are unreasonable.

The option for me to purchase the freehold is also a consideration. As said my understandings are limited so I'm hopeful to understand more before taking on what might be a greater, no advantage, responsibility.

I can see some serious works ahead. If I become freeholder and the one flat owner can't pay his share and has no possibility of raising the funds,

** do I end up funding his share effectively, with a possible trickle payment County Court award ?

** Is a disposal of his asset 'likely' with court action ?

There are what look to be 2nd and 3rd mortgages, in joint names with a former partner. There are 3 unsatisfied CCJ's against him. With my limited understanding I find his still having ownership surprising.

[Richlist]

If failure to pay is likely to affect the value of the mortgaged property or its marketabilty or desirability then the lenders will usually step in to protect their security. A letter detailing the situation will get the ball rolling.

[Grampa]

If you get the right to manage you dont need to do it yourself you can instruct a management company and if they know what they are doing they will serve all the correct notices, contact lenders etc.

It will cost more to use a management company but they only normally have a yearly contract so get them to sort all the problems and fund chasing out then take over management yourself at a later date.

[Chestnut]

Purchase of freehold by joint owner group (as Ltd company) could be quite cheap spread across individual owners. (How many?)

Builder just might want to get shot of obligations for nominal cash sum.

Isn't it worth asking if he would and what he'd like, and then making a joint offer to negotiate?

If successful, joint owner company gets full control of management and can start funding for longer term issues as it wishes. Check whether any maintenance cost arrangements are scheduled in owners original purchase deeds.

As Grampa suggests, it seems good idea to appoint an experienced management company to sort out details for first few years.