We live in (and own) a property that's part of a converted large house into a number of dwellings.
At the moment, the arrangement for maintenance/repairs is informal - when something needs doing we share the cost according to interest in the outcome (e.g. the roof keeps all of us dry, but some repairs only affect some of us).
We want to formalise this into an arrangement where we create a fund-holding entity to which we can each contribute a regular monthly amount so that a plan can be followed in maintaining the property. We do, though, want to preserve the self-managed nature of things rather than rely on a management company (there are only three parties to this, so we don't need the overhead).
Is there a straightforward way to approach this, and are there any "gotchas" we need to be wary of?
What is the nature of the tenancy? It sounds as though this ought to be commonhold, but I suspect that you actually have joint tenants or tenants in common. That might work, until you have a falling out, or one of the people decide to move on.
With a pure joint or in common tenancy, I think that everyone will have access to all parts of the building. If you have individual door locks, I think there will be a leasehold situation, with all the legal consequences. A leasehold situation without a very well drafted written lease is not a good situation to be in.
Generally, when you have a leasehold situation, you want to have a single legal persons as the owner. Commonhold absolutely requires that this be a limited by guarantee company, with specific terms in their articles of association.
I see tears downstream.
If you have a leasehold situation, the funds are held in a statutory trust, anyway, although they could be physically held by any suitable legal person, or group of them.
I think you are confusing a management company with a managing agent (which might not actually be a company). You really really need to create a company to own the freehold, and you must ensure that the lease allows it to spend money on its own administration costs. However, that company need have no employees and the residents can work together.
In the short term working without a managing agent may be OK, but over time, you will not have time to keep up with the relevant legislation and you will find that people are less and less interested in helping out.
If you do go without one, you must budget for tracking legislation.
There are lots and lots of gotchas. Even solicitor drawn leases can have gaping holes. You are going to have spend a lot of time and money on getting this right, or especially once the flats start to become buy to let, you will find you have an unmanageable situation. It is possibly worth looking through some of the Leasehold Valuation Tribunal rulings, to see what happens when things go wrong.
Creating proper long leases and commonholds are conveyancing operations and there will be cost.
You might want to note that communal parts of leasehold buildings are treated as businesses for health and safety legislation. I have never needed to check whether this applies to commonhold. That means that you have to have proper fire, asbestos and general health and safety assessments (these require a competent person, but not necessarily a professional contractor, although, unless you have specific technical knowledge, I would advise the latter). It also means that you are responsible for ensuring that contractors comply with health and safety laws (ordinary householders are allowed to trust the contractor, but businesses are not).
If you do have a lease situation (i.e. parts of the building are exclusive to certain residents), you may also be an HMO (house in multiple occupation). You will need to check your local council rules as to whether you are licensable. If there are three or more storeys, you may be subject to compulsory licensing.
I think you are in such a risky legal state that you need to talk to a solicitor to clear up your exact legal position. It is just possible that the Leasehold Advisory Service would be prepared to give a free opinion as to whether there is a de facto leasehold situation, but they normally work in terms of interpreting existing leases.
I would stress that you may have created a situation where landlord and tenant legislation applies to you even though you have no written leases.
The way I read it is that they have stumbled into a leasehold arrangement without any of the paperwork, or even realising that is what they have, and are now asking for guidance on how to draft the lease!
My holiday flat is in just such a property, a large house which was converted into 6 units - 5 flats and a maisonette - in the 1950's.
In our case, a private limited company was set up at the outset to own the freehold of the property. Each of the six owners of the units has an equitable share[1] in the company. Each unit provides one (unpaid) director of the company. The company is effectively the landlord, and the owners are leaseholders. The 6 leases are virtually identical, and differ only in places where they need to refer to the features of a specific unit. The leases spell out the landlord's and the tenants' responsibilities.
The landlord is responsible for maintaining the building, insuring the property (but not the contents of individual units) and for paying for water and electricity used in communal areas.
This is funded out of an annual levy which each leaseholder is required to pay. The level of the levy for the forthcoming year is determined by the Annual General Meeting, having taken account of the likely expenditure.
When a unit changes hands, the appropriate lease is assigned to the new owner, and the shares relating to that unit are transferred. This seems to work very well but, as others have said, the company's articles of association and the the leases need to be drawn up by someone who is legally qualified.
[1] The units are not all the same size. There are 100 shares, distributed in proportion to the original rateable values when the property was sub-divided. The annual levy is defined on a per-share basis, so the owners of the larger flats pay a larger share of the costs.
Be very careful. Landlord and Tenant legislation and the exact wording of the lease take precedence over any decision by the AGM. It is easy to get into a position where expenditure is not legally recoverable.
Basically, if the lease makes no provision for an item of expenditure, the minority objectors can refuse to pay and if you try to take them to court, you are likely to find that you are required to refund everyone's
service charge.
Also, if you spend more than £250 per lease on works, and fail to follo w the consultation procedures, and give proper consideration to response, you could have to refund all but the £250 per affected lease. The correct process is a written one with two stages of about a month each, before and after going to tender. This is actually a criminal offence although normally enforced by the sanction of non-payment of service charges.
In particular, it is very unusual for private leases to allow expenditure on "improvements", so, if you want to install a 4 satellite Integrated, to replace the terrestrial TV system, any decision to spend the service charge on doing so is likely to be illegal and there is no way that you can force objectors to contribute.
Hence the reason why it is always best to construct the management as a company limited by shares with each flat holder having an equitable number of shares.
That way if any of the leaseholders challenge the legality of any expenditure (and win) whilst wearing their hat as tenant, they will still have to pick up the bill when wearing their hat of company shareholder (and there are cases where this has happened)
What a can of worms this is turning out to be. (!)
Each of the parties "owns" their own property on leasehold terms (900 years+), with one party, by an accident of history, being the freeholder. The present informal arrangement has worked for the time we have all been in occupation (min 10yrs), but it has emerged as a problem when one of us wants to sell.
Note that this applies to leasehold. If you have a commonhold arrangement, things are a little easier, you still have to have formal consultations. With commonhold there will be no leases and the there is a standard set of articles of association for the company.
Some very quick research suggests that amongst the disadvantages:
mortgage lenders may not look kindly on them;
there is no ultimate sanction of forfeiture if someone refuses to pay;
one source suggests that sub-letting is not allowed, and as most flats end up buy to let, that could be a major problem in the long term - it would also be a problem for anyone who ended up away on business for a long time. However, the legislation I can find suggests that non-renewable sub-lets of less than 7 years are permitted, with some restrictions.
There is a document that takes the place of the lease, and that still, presumably, overrides any decision by the AGM.
It would appear that, if you really do have commonhold, you are very rare in deed: .
Also, if you really have a commonhold, there are standard forms, at least some of which you should be receiving regularly (and some of which you are required to complete in certain cases. There are at least 24, although you may never see some of them. (NB the schedules are scanned and have been messed up.)
Personally, I would worry that commonhold could go badly wrong as the development ages and the original sense of community is lost.
As with all not-for profits, it is usual to use a company limited by guarantee with no share capital. In the case of commonhold, that is a legal requirement. Normally every current leaseholder has an equal voting right, although it looks like that is not a requirement for commonhold.
As the article quoted, suggests, the company could simply go bankrupt, with dire consequences.
If it were actually limited by shares, they would only be liable for the part of the share capital not already paid up, normally nothing at all. With a limited by guarantee company, they are limited to a fixed amount. In practice, limited by guarantee companies are regularly created with guaranteed contributions that are less than the cost of collecting them, so the guarantee has no real value.
If the company trades illegally, for an extended period, the directors (or I guess everyone, if all decisions are made by the AGM) could be personally liable. However, otherwise, the reason for company members to bail the company out would seem to be the consequences of letting it go bankrupt, which means they are not under a legal liability (its limited liability) to do so, so, for example, the people who brought the original action could argue that it was not their fault, and refuse to help out, and some of the remainder would argue that their finances simply didn't allow them to cover the short fall from those people. Basically, it is a recipe for acrimony.
Looking through LVT case reports, it is fairly clear that people will go to court, even when they are members of an RMC, and RMCs are particularly liable to take short cuts that get them in this sort of situation.
Simply, being part of a "shared managed" property achieves that, all on its own.
We're seeking the organisation that makes it the smallest.
Yep. There's always someone who doesn't want to pay for the roof to be fixed because it doesn't cause them any issue.
I don't know about numbers but there's a certain percentage of LVT cases by RMCs that are "protective" claims by "management" to confirm to the naysayers that they *must* contribute.
At least some of these are redirected there by the county courts. Basically, if you take someone to court to recover the debt and their defence is that the charge was unreasonable, you may/will get redirected to the LVT, and you had better have been going by the letter of the law and of the lease.
The LVT will not help you recover illegally spent service charge monies, and seem to take a hard line on self managers, holding them to the same standards as professional landlords. If "how it has always been done" is not the same as the legal position, ignorance is no excuse.
Many thanks. I don't think there's too much risk in our case. The leases spell out the landlord's obligations in some detail - and nothing has been spent in the three years since I bought my flat which is not covered by that. For example, insurance, minor repairs, periodic painting of the windows, rear wall and internal communal parts, plus work needed to comply with fire regulations. There are no plans for any major enhancements - indeed, as a Grade II listed building, such enhancements would not be straightforward!
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