Company Law: The Basics

For any member or director of a residential management company, it is important to remember that you are part of a limited company and therefore you need to be aware of the legislation contained in the Companies Act 2006.  For this reason I have out together a very basic explanation of some of the terms and processes to ensure you are acting within the law.

The Memorandums of Association:

This is simply an agreement set out by the company’s initial members (subscribers) to form the company. Under earlier versions of the Companies Act you may have found the objects or aims of the company in the memorandums; however the 2006 Act places no requirement for this to be included.

The Articles of Association:

The articles are the rules (over and above the Companies Act 2006) by which the company is to be run. They will cover things such as the conditions for membership, the conditions for directorships, how to convene general meetings, how general meetings are to be run and more. Any decision made which goes against what is set out in the articles becomes invalid. Therefore it is very important to familiarise yourself with the articles before taking any action on behalf of the company.


Resolutions:

A resolution is a proposal, made by a director or member, which can be discussed and voted on at general meeting of the company. There are two types of resolution,

1. An ordinary resolution which requires a majority of those in attendance at the meeting (who have voting rights) to vote in favour to carry it.
2. A special resolution, which is required to change a company’s name or make amendments to the articles. This type of resolution requires at least 75% of those in attendance (who have voting rights) to vote in favour to carry it.

It is possible to have resolutions passed via a postal vote instead of calling a general meeting. However, in this case a majority of the whole membership (ordinary resolution) or over 75% of the whole membership (special resolution) is required to win the vote. In simpler terms any votes not returned are counted as “NO” votes.


Calling General Meetings:

You may have heard that following the Companies Act 2006, Annual General Meetings are not required. This is true for any companies incorporated following the act but, if your company’s articles require you to call an AGM then you will have to call one. You can, however, call a general meeting to pass a special resolution to dispense with AGMs (see above). General meetings of the company are the responsibility of the board of directors to call, although members can force a general meeting if at least 10% of the voting capacity demands it.

Notice of general meetings must be given to all members and any others specified in the articles. Under the 2006 Act, meetings will require at least 14 days clear notice, but the articles may specify a different notice period. If the articles specify a longer notice period then this must be given; if the articles specify a shorter notice period then the provisions of the Act must be followed. A meeting to discuss an ordinary resolution proposing the removal of either directors or auditors before their agreed term must be notified by special notice. This is now 28 days, or longer if the articles so demand

Every notice of a general meeting must be accompanied by a statement of member’s rights, which gives them the right to appoint a proxy. No specific format for proxies is stipulated by the 2006 Act but sometimes the articles will set out a format. Proxies must be received by the company no later than 48 hours before the meeting to which they refer. This time scale over-rides anything different contained in the articles.

Any and all resolutions proposed must be included with each notice. If a resolution is deemed a special resolution then the word “Special” must be used to describe it in the notice. Failure to include a resolution with the notice, not send the notice to all members, or use an incorrect notice format, will mean all or some resolutions will not be able to be voted on at the meeting.

Appointing directors:

Directors may be appointed at any general meeting, although an ordinary resolution is required. Normally only members of the company may be directors but some articles will allow otherwise. This is certainly the case for Right to Manage companies. 

In the case of joint memberships only the first named may vote at general meetings and only the first named may become a director. Under 16s, bankrupts, the insane and the undischarged are barred by law from holding office as a director.

Procedure at General Meetings:

For any general meeting to take place there must be a quorum of members present, either in person or by proxy. A quorum is normally two people eligible to attend and vote, however the articles may specify a larger number.

Each general meeting must have a chairman, the chairman should be a director selected by the board or, if no director is present, a member may be elected to the chair by the assembled membership. At most general meetings for residential management companies you may find the property manager acts as chair. For this to be acceptable the members attending the meeting should agree so before official business begins.

Each member has one vote unless the articles state differently, remembering that for joint memberships only the first named has voting rights. Voting will normally be by show of hands. When voting on a show of hands every member present or represented by proxy shall have one vote, regardless of how many properties they own (more properties usually means more votes, check the articles). To enable multiple votes to be used the chairman would need to declare that the voting will be by poll or at least 5 members or by members representing at least 10% of the total voting rights would need to demand a poll. A poll may be demanded either before any votes are cast or immediately upon the outcome of a show of hands.

Annual Accounts and Annual Returns:

Every company must file at Companies House its annual return and its company accounts. This is the responsibility of the directors. The Annual Return contains details of the registered office, the names and addresses of directors, a current shareholder list (if shares are issued) and certain other information. If the annual return is not filled it will result in the company being dissolved and it is also a criminal offence for which each director is liable for. If your company has a company secretary then it will be their responsibility to file the return however the directors are still legally responsible. 

The company accounts must be submitted within 9 months of the year end. Late submission results in automatic civil fines for the company and is also a criminal offence by each and every director. You may find that due to the need for service charge accounts, quite a lot of agents file the statutory company accounts dormant. Therefore there should never be a time where these accounts are filled late at Companies House. The accounts do need to be signed by a serving director, make sure your agent has a correct address so any delays can be avoided, therefore reducing the risk of fines.

I hope you found are introduction to Company Law useful and informative. Remember that each Company is different because each set of articles are different. If you have any specific queries then please get in touch.

Arrears after a Lease is Sold

Hopefully when a lease changes hands on your development the issue of service charge liability will be dealt with long before. In the majority of cases service charge arrears will be paid off in full by the departing lessee. Or in some cases the buying party is made aware of the arrears and agree to pay them. However you may find that a lease will change hands and the new lessee has no idea that a debt exists. Unfortunately in this circumstance the law is not 100% clear and also depending on the lease different rules could apply. I therefore suggest that if you encounter this problem legal advice is sought immediately. However I can offer some general guidance on ways in which the matter can be dealt with.

When a lease changes hands the solicitor acting on behalf of the buying party should carry out due diligence and find out if any arrears are owed on the property. The reason they should do this is because service charge arrears remain with the lease, not the departing lessee. Therefore if any arrears stay with the property and the new lessee is not aware, I would advise them to contact their solicitor. I have known cases where the solicitor will admit fault and cover the cost of the service charge arrears.

If the solicitor doesn’t play ball with the above then (depending on the legal advice you receive) there is a couple of options available.

1. The new lessee may be liable to pay the service charge. In this instance I suggest you explain this too them and hopefully they will pay. If not then follow our process, or  something similar, in our service charge recovery article.



2. You may be left in the position where neither the new lessee nor the old lessee is liable for the arrears, but you still have a debt on the property. In this case the only way to proceed is to apply for forfeiture of the lease. This means that although technically the new lessee doesn’t owe any money, action can still be taken to end their lease early to recover the arrears owed to the landlord or the management company. In most cases I believe that the lessee will be offered the chance to pay the arrears as relief from forfeiture. It makes sense they would rather pay the arrears than loose their home.

Unfortunately I can not give guidance on this matter that will relate to all circumstances, and therefore this article is purely a generalisation. I suggest that in any instance where arrears are left with a property after a lease has changed hands, you contact a solicitor to understand your legal position.

Forfeiture of a Lease

This is the process by which a landlord or management company apply to terminate the lease to a property early due to the breach of one or several covenants. This article will look at the way in which to apply for forfeiture due to service charge arrears.

Due to the severity of terminating a lease early, effectively taking away someone’s home, forfeiture is a last resort. In terms of service charge recovery I believe there to be a few steps necessary to carry out before forfeiture can even be considered. I suggest you look at our guidance on service charge recovery for more details.

Legislation brought in via The Commonhold and Leasehold Reform Act 2002 changed how a landlord should issue forfeiture proceedings for non payment of service charges. The Act has placed qualifying criteria on forfeiture proceedings.

The legislation states that arrears of a certain age can not be recovered; in the case of service charges there can be no recovery after a twelve year period from when the arrears first became due. The legislation also prohibits forfeiture being applied for on debts of a small amount or covering a small period. The legislation defines a small amount as £350 (this can not include any legal costs or interest) and a small period as 3 years.

Therefore for a debt to qualify for forfeiture it must be more than £350, owing for more than three years but not have been owed for more than 12 years.

If the debts do qualify for forfeiture then it is time to issue the forfeiture notice. However the notice can not be legally served unless either the leaseholder admits the breach or a determination is awarded by the LVT. In instances where the leaseholder disputes the action being taken then the LVT will have to be consulted before issuing any notice.

After the above has been satisfied the forfeiture notice can be served and the lease prematurely ended.

Service Charge Recovery

The service charge is an estimated advanced payment for service that will be carried out. Therefore the speed in which payments are made becomes vital to the obligations of the landlord or management company. If there is not a working process in place for service charge arrears then developments can become unmaintained and landlords or management companies could face legal action from any creditors.

As with most of the advice I give your starting place will be the lease/transfer. This document will set the framework for your service charge recovery process including what you can and can’t do. The lease/transfer will confirm the following;

1. When payment is due & in how many instalments
2. After what time period any owed money becomes a debt
3. If interest can be charged on arrears and at what rate
4. If costs associated with enforcing payment can be recovered
5. If the service charge still has to be paid in the event of a dispute

Once you have obtained all of the above information you can look to plan a reasonable and lawful recovery process. Processes will vary from development to development, however I consider the following to be a good working example.


Stage 1 – Invoicing. Make sure the service charge invoice is sent out in advance of the payment due date. This allows disputes and queries to be dealt with before any of the money becomes payable. Include as much information about the service charge as possible with the invoice, the more information provided the less chance of dispute and therefore the greater the chance of payment. Depending on your needs you may want to offer payment via more instalments then the lease prescribes. Smaller instalments increase the chances of payment; however they will hurt the cash flow, so run some forecasts to determine the maximum number of instalments you can offer.

Stage 2 – Reminder. There is no obligation on the landlord or management company to remind a service charge payer that they are in arrears. In fact they should be aware, due to the covenants they agreed to abide by in the lease/transfer. However I believe that it is only fair and reasonable to send at least 1 reminder to any debtors. This reminder should be sent after the time period you found from point 2 in the above list. Reminders should cover why debts have been incurred, the importance of paying on time and the further action that may be taken if payment is not made and most importantly in what timescales.

Stage 3 – Make contact. You should have mentioned a deadline for payment on your reminder; once this date has arrived I suggest calling any debtors you still have. This may not be possible for all debtors (if you don’t have their number) in which case proceed to stage 4. However for those that you do have numbers you may find that discussing their non-payment helps to resolve issues and remove any reason for non-payment.

Stage 4 – Enforcement. Hopefully not many debtors will make it this far, however for those that do the time for forceful action has arrived. The first thing to do is to begin adding interest at the rate specified in the lease. I also suggest that a debt collection agency or solicitor is contacted (you should arrange terms of business before any debts are passed over and state costs on the reminder) and asked to pursue the debt on behalf of the landlord of management company. If possible I would recommend finding a company that will not require payment in advance, as any advance debt costs will have an impact on the service charge. Where as payment after successful action will not impact the service charge and give incentive to the debt agency or solicitor to recover the arrears. If the lease/transfer allows for costs to be recovered (most do) add the costs to the account of the debtor straight away.

Stage 5 – Mortgage Lender. In some instances, on leasehold properties, you may find that the mortgage lender will pay the debt on behalf of the property. Ensure that the debt collection agency or solicitor do check with lenders as this can be a very successful, quick and cost effective way of recovering arrears.




Stage 6 – Court. In a few instances you may find the case makes it all the way to court. In the event that a case becomes defended a witness from the landlord, management company or managing agent may need to attend. As long as the terms of the lease/transfer have been followed and the debt has been reasonably managed (following the above steps will ensure this) then I see no reason why a judgment will not be awarded against the debtor. In some cases you may find the judge awards judgment in your favour however agrees to the debtor paying off the arrears in very small amounts. If you are not happy with any payment plans made then it is possible to appeal, discuss this with your solicitor.

Stage 7 – Enforcing a Judgement. Just because a judgement is won doesn’t guarantee the money will be recovered. Initially there are three way to enforce a judgement;

Charging Orders – places a restriction on the property stopping it being sold, re-mortgaged or assigned in any way without the debt being paid first. The problem is that there is no guarantee when the money will be recovered.
Mortgage Lenders – If possible go back to the lender, they may be more inclined to pay when a judgement has been awarded.
Bailiffs – Will guarantee at least a small amount of money being recovered each visit, however it is highly unlikely the full amount will be recovered quickly (especially for large debts).

Stage 8 – Forfeiture. In very extreme cases you may need to apply to end the lease of a particular debtor. This option is not available for freehold properties. Due to the complexity of this section I have added a separate guidance article on Forfeiture.

Insurance Valuations

If you’re being charged for an Insurance Valuation or Building Reinstatement Valuation (they are the same thing), you may wonder why and in some cases you may be disputing the cost. However these valuations are incredibly important, you should be more worried if you are not being charged for such a service.

The valuation is an assessment of the full reinstatement costs of the building for insurance purposes. It should take into account the full rebuild cost for the building including demolition costs. The valuation may also have  to include costs for loss of ground rent and alternative accommodation; however this will depend on the type of policy in place. The purpose of the valuation is to ensure that the declared value of the property is correct on the insurance policy, as there are issues in over or under insuring.

A building surveyor should be contacted to carry out the assesment. The surveyor will look at various aspects on the building including age, construction, number of storeys, location, floor area, demolition costs, site clearance, planning etc. Assessments should be carried out when the building is first complete and then every 3-5 years, or when structural changes have taken place to the block, or in the event of a large economic change. Best practice would involve having the surveyor carrying out a desktop valuation each year; these cost significantly less. You may also find that if you use the same surveyor when the next assessment is due they are willing to provide a desktop valuation without the need to re-visit site.



The more regularly that valuations are carried out, the more sure you can be that the insurance policy is correct. If your policy is over-insured then you will be paying a much higher premium than you need to. Much more worrying is if your block is under-insured. In this scenario the insurer has no obligation to pay the full claim value to re-instate the building. This could lead to leaseholders losing their homes, and the landlord or agent having to pay the shortfall or face the courts.

My advice would be to have a full assessment carried out straight away and a desktop valuation provided each and every year just before the insurance policy requires renewing. If you change surveyors then we would always recommend they visit the development for the first valuation they carry out. This makes 100% sure that the building is insured correctly in each service charge year, confirms that the policy leaseholders pay is correct and minimises the risk to the landlord, agent and management company. You may find that this advice leads to increases in the service charge, however these yearly costs will be a lot less than any potential problems caused in the event of a block being under-insured.

For landlords or directors of RMC’s who would rather only have a valuation carried out every 3-5 years, I suggest that you budget a small amount of the cost each year to build a fund. That way the service charge remains constant rather than spiking when a valuation is required. You will find that a sharp increase in service charges gives people cause for concern and a reason to investigate and dispute the costs.

Hopefully this guidance will clear up exactly what an insurance valuation (building reinstatement valuation) is, why they are important and the best way in which to have them carried out. If you require further advice, then please get in touch.

Residents Associations

You may have heard the term Residents Associations but do really know what there all about? If you should be setting one up or joining one? And if you or your development would benefit from the formation of an association?

Residents associations offer leaseholders a chance to maximise their rights under the terms of their lease. A strong, well-represented association will also give leaseholders a much better position in the event of conflicts with the landlord or agent. Once a recognised (recognition is covered below) residents association is in place, the landlord is entitled to consult the association on service charge and management issues. Further to this, the association can require the landlord to consult with them on the appointment of a managing agent. In addition, an association can gain various other benefits for leaseholders, some of which are.

• Create a sense of community for the development
• Use the collective strength of the association to pressure the landlord or agent for the benefit of leaseholders
• Create a channel for regular correspondence with the landlord or agent
• Assist in resolving disputes for the collective or individual leaseholders with the landlord of agent
• Obtain financial information on service charge such as a summary of costs

In order for an association to be successful it must become recognised, if it is not then the landlord has no obligation to enter into consultation on any matter with the unrecognised association. There are two ways two gain recognition,

1. A written notice received from the landlord stating recognition of the association
2. A certificate issued by the local rent assessment committee



The landlords notice will generally not have a time period for renewal; however the landlord can withdraw recognition at any time by giving six months written notice. Certificates from rent assessment panels generally last up to four years at which point the association can apply for renewal. If a landlord refuses to give or withdraws recognition then an application can and should be made to the rent assessment panel for consideration.

Recognition will be granted based on the setup of the association. You should take time to prepare a constitution which demonstrates how the association will operate, recognition will not be granted without this. Your association should be completely separate from the landlord or any of the landlord’s employees. Membership must be open to and limited to all leaseholders and sub-tenants. There should be clear rules on how the association will be run, we suggest an elected board of directors and a chair. Regular meetings should be held and voting rights clearly documented. If a subscription will be levied on members then this should also be clearly documented.

Following reading the above you may think that setting up a residents association sounds like a great idea, especially if you are having trouble with your service charge or management. But, if you have a Management Company for your development then you have absolutely no need for an association.

If rights over the service charge and management are placed with a management company under your lease (and you are a member) then you actually have more rights then you would by setting up a residents association. By becoming a director of the management company you will be able to directly control the service charge and management of the development and have access to all of the financial information. In this case setting up a residents association is not only a waste of time, but may confuse other leaseholders. To find out about your rights over membership, directorship and voting for the management company ask your agent for a copy of the memorandums and articles of association (also obtainable from Companies House).



If however rights over the service charge and management are placed with the landlord then setting up a residents association will be the way to go. However in order to get the best results from the association a high number of members will be required. An association’s power lies in its collective strength.

If you are looking to form an association due to poor performance by a freeholder or an agent, or if standards have not increased following the formation of an association, then there are other options available to you. You could follow the right to manage process, however not all developments qualify for such and this may overcomplicate your service charge payments. You could also apply to the LVT for a change of manager. We suggest you take some legal advice to discover the best course of action for your particular development.

Managing Agents

If you don’t have the expertise or time to manage your development then you will need to hire the services of a managing agent. There are hundreds of managing agents throughout the country, all will offer different types of services and all will offer them for differing prices. Finding the right agent for your development can be a minefield, how do you know you will be receiving what you pay for? And how do you know if an agent can be trusted?

Unfortunately managing agents are not regulated and although they have to adhere to the current legislation, unless you or your residents pick up on any wrong doing no one else is in place to check. Therefore it is really important that before you enter into an agreement with an agent you do your homework. This guide will help you to take the necessary steps to choose the correct agent and also help you to be mindful of what extra costs agents may levy against you.

In an unregulated sector you need to try and protect your development, therefore it is my advice that any agent you hire should be a member of ARMA. This ensures that your agent will be subject to annual compliance checks by ARMA and also all ARMA members must adhere to the RICS Service Charge Residential Management Code as well as belong to an independent ombudsman scheme. For a full list requirements ARMA sets their members I suggest you visit their website.

Other ways to obtain decent managing agents are via recommendations, talk to people you know that live on private developments, go and visit a well maintained development you live near. It’s really important that you do your research so you can be sure that the agent you hire will do a good job. Finding suitable agents could be classed as the easy part! Once you have your shortlist it’s time to begin the negotiations for the management agreement.  Always remember that managing agents will want to make money out of you (they are running a business) so they may offer you services that you don’t need or you could possibly do yourself. It is really important that you know exactly what you require of your agent, put together a specification so you can be sure like for like quotations are received and only what you require is included. It is also necessary to understand that a management fee will in most cases only cover the day to day management and therefore additional costs can be incurred for certain services.



There are various way agents put together their agreements, the most common is a cost per unit based on the number of meetings and site visits an agent will conduct. This is actually quite strange as meetings and site visits are actually a very small part of what an agent will carry out for you. In any case work out how many meetings and visits you need. If you live at the development then you may only need 1 or 2 visits as you could carry out more regular checks. As for meetings, you may be tempted to have one a month etc but in reality you can handle most management issues over the phone, email, skype etc. I would suggest that even for large developments a meeting every two months, at most, will suffice. It is also important to understand how much (if at all) agents will charge for extra meetings and visits and ensure this included in the agreement.

Any good agreement will list exactly what is included and exactly what will cost you extra. This can be as simple as a bullet point list (in fact this is encouraged). Make sure you look at this list in great detail; you need to ensure that all aspects of day to day management will be included in the agreement. You don’t want to be incurring costs for items you believe your agent should cover in the fee. There will be certain items that are going to be additional to the management fee, if they are additional then you don’t have to use the agent to carry them out. However my advice is to use the same agent for as much as possible. This keep communication easy and also will help you to negotiate the best possible price.

You will usually find that additional costs will include company secretarial fees, accountancy costs and health & safety inspections. However in some cases there may be a few items that are additional that will surprise you. Some agents may class postage as an additional cost; this is entirely acceptable as the postage they send is on behalf of your development. However you may think this should be part of their service, negotiate this. You will also find that agents will look to charge a fee for managing your cyclical maintenance and major works. Again this is entirely acceptable as it is not day to day management, however it is important to establish exactly what they will charge (a percentage or set fee) and get this in the agreement.

Make the agreement as full proof as possible, if you think something needs to be explained get it in there. Your agent should be happy with this, as the agreement protects them just as much as it does you. Negotiate to get as many additional costs included within the fee for a set price (this can help reduce overspends and will also help set a budget) and also look to take additional services such as accountancy (which you will need) to help reduce the management fee.

It is also vital that you check the minimum term of the agreement. Any agreement you enter into which last more than a year and costs any one leaseholder more than £100 qualifies for consultation. Therefore if you enter into an agreement for £101 per unit which last for a minimum of 12 months with a 1 month termination period you need to consult with all leaseholders beforehand. This can naturally cause complications as leaseholders can nominate other agents and it will prolong getting an agreement finalised. Therefore my advice is to ensure that the minimum term plus the termination period is less than 1 year, so you can avoid consultation.

It is impossible for me to detail all the possibilities with management agreements, the above guidance looks at the subject in general terms. If you do have any specifics about an agreement you have seen then please do get in touch.

Parking Enforcement

Notoriously a very problematic subject on private residential land and it isn’t getting any easier with the proposed law changes by government. Here is my guide on the steps to take before implementing parking enforcement and if you have to, the options available to you.

Let’s be honest, parking is 9 times out of 10 an absolute nightmare on private residential land. If you do live on a development without parking problems, then be thankful, you are in a very small minority. For those of you that aren’t so fortunate there is a very real need to be pragmatic in the approach to combatting parking issues.

It is very important to understand two facts when it comes to parking problems.

1. You will not have sufficient parking for all the residents on your development.
2. Even if residents only have 1 parking space, some will still own 2 or more cars.

Nothing you can do will change these facts, but what you can do is educate residents and landlords and try to effectively manage the parking on the development.

Your first step should be to highlight exactly what is causing the parking issues. Is it residents or visitors? Is your development close to a town centre or train station? Or perhaps it is purely insufficient parking spaces? Without identifying what the problem is you will not be able to effectively and efficiently resolve the problem. Our advice would always be to hire an enforcement company as a last resort. Therefore we need to look at what other options you have available.

If you identify residents as the problem, then I suggest you call meetings, send letters, educate your audience. It is likely that they are not aware of the problems they are causing and with any luck will quickly step in line. If you find one or two particular properties causing an issue then, if possible (if they are tenants), involve their landlord. The landlord is ultimately responsible for the tenant and should take action to resolve the problem.



In the event that non-residents are causing the issue then I would recommend erecting signage that may deter them. You can also issue residents with permits to give the illusion of a parking scheme. Some developments look at the options of securing the parking areas with gates or barriers, this would be a great solution however it may prove costly; It certainly won’t hurt to get some quotes in to see how much it might cost.

Hopefully the above steps in either scenario bring some or complete success to your parking issues. If not then your only worthwhile option is looking at parking enforcement. The most important thing to remember, when dealing with enforcement companies, is that it is an unregulated sector. Only speak to companies with a registered office, not a PO Box and if possible go on the recommendations from people you know. Look for approved operators of the British Parking Association (BPA) this would be ideal as they will have to follow set guidelines and processes to be approved.

When you find some reputable companies discuss possible options with them. At this point in time I would recommend that for maximum effect you stick with clamping. Although it has a bad reputation it is the biggest deterrent and at present ticketing can not be legally enforced on private land. What this means is that enforcement companies can not legally collect the money owed to them when they issue tickets.

Depending on the layout of your car park (designated bays or a free for all) enforcement companies will be able to tailor their permit systems to your needs. You will find that most enforcement companies will not charge for their services and will be happy to just make their income from the clamps or tickets. However depending on your needs they may ask for a fee in return for their services, this will usually be where you have asked them to carry out more administration tasks. I would always recommend that you allow the enforcement company to manage the issuing and management of the permits.  This takes up a lot of time and the last thing you want when a resident gets clamped is to be responsible for the enforcement system in anyway, this could make things very awkward.

I wish you the best of luck if you do have parking issues. If you have any specific parking queries then please do get in touch. I have a wealth of experience with parking problems and may be able to provide some good advice to help you out.

Contract Maintenance

Depending on your development you may have the need for a cleaning company or gardening contractor or maybe both. In most cases they may well be the company that was appointed by the developer and their costs or services have never been looked at. So what can you do to ensure the best value for money? And how do you know that they are performing?

It is really important that you have a suitable company carrying out the cleaning or gardening on a development. You will often find that the initial companies hired by developers, freeholders or managing agents are “property maintenance” companies. They have no specified area of expertise and they offer a convenient one stop shop for all maintenance needs. My advice would be to hire an expert cleaning company and an expert gardening company, basically an expert contractor for each contract you require.
I also recommend you look for local companies, you often get a better price, better service and they usually take more pride in their work.

However don’t just go out into the market and pick any company. In order to get the best service for your money you need to be smart in your approach. Take the time to put together a specification of exactly what you expect the contractor to carry out. Be as specific as possible in terms of jobs and frequency. Not only will this ensure they are aware of what you expect, it also ensures that all the quotes you receive will be like for like and you will know exactly what to measure the chosen contractors performance against.
Once you have your specification it’s time to get some quotes in. If you can get any recommendations or references now is the time. Otherwise look for some local companies who have decent reputations. It is not necessary but it will always help if you can meet the contractors on the development to show them the areas you need maintenance on. At the very least I suggest you provide a site plan.



Once you have your tenders in, pick the best one, remembering that lowest cost will not always get you the best service. It’s really important that when entering into any contract you ensure that the limits of section 20 (qualifying long term agreements) are not broken. This would be where you were entering a contract that is longer than 1 year and will cost any leaseholder more than £100. In any circumstance my advice would be to enter a monthly rolling contract and ensure that the specification is clearly detailed in the contract.
Once you have appointed the contractor it is really important to monitor their service. With any luck you’ll find a good contractor who will manage themselves. I would however always suggest that you have quality checks in place. The more of the following you can implement the better,

• Get your managing agent to carry out regular site visits
• Have a signing in sheet at the development
• Ensure all residents have a copy of the specification
• Ask the contractor to provide weekly updates to yourself or your agent
• Walk the development regularly with the contractor

If you follow the above steps you should have a well maintained development and a well-managed contractor.

When assessing a maintenance contractor’s performance it is important to note that even if they do a fantastic job the development will gradually start to look worse. It is important that you have a backup of cyclical works to compliment the maintenance. These would be works such as decorating and planting.

In the event that a contractor starts to underperform I suggest you give them a time period within which to improve, negotiate a reduction in payment in line with the specification items missed (this is why it is important to detail the spec in the contract) and if necessary terminate them from the contract and then start the tender process again.

Freehold Rentcharge

If you own the Freehold of your property but still find yourself paying a service charge you may have several questions such as, why? What for? Can I get out of it? What are my rights? In several cases I have come across property owners that did not even realize they were liable for such a charge. Therefore I have put together a short article for the benefit of freeholders.

Leaseholders have a huge amount of rights when it comes to their service charge. To name a few, it is the law that monies are held in trust, they have the right to see a summary of costs, the charges by law have to be reasonable and they must be consulted on qualifying major works and long term agreements. Freeholders who pay into a service charge do not have these same rights even though in many cases they may be paying into the same estate fund as leaseholders!

It is perfectly normal for freehold properties to have to contribute into a service charge fund which for  freeholders is usually defined as a “rent charge”. This will normally be where areas of a development are private and are therefore subject to a management company or landlord maintaining certain areas or equipment. You may find yourself paying towards the upkeep of roads, courtyards, play areas, gates, pumps etc. It is really important to understand exactly what you are liable to pay for. Read through your transfer document, this will outline exactly what you can be charged. If you are being charged for something that is not covered in this document then challenge it, legally you are only liable for what you agreed to pay for in the transfer.



You will most likely find that agents today do offer the same rights to owners of freehold properties that they do to leaseholders. They will send service charge accounts, they will hold funds in trust etc. however there is one huge problem that freeholders do face. What do you do if you believe the rent charge is not reasonable?

In this case a leaseholder would apply to the LVT; however this tribunal is exclusively for leaseholders, so where can freeholders go? Unfortunately there is no such tribunal set up for freeholders. However there are certain ways that you can go about ensuring that you are paying a fair and reasonable rent charge.

If you use a managing agent ensure that they are a member of ARMA. This will ensure that the agent follows guidelines to prepare a reasonable budget for you. It also ensures that as part of the agent’s complaints process an independent ombudsman will be used. Although the ombudsman cannot comment on reasonableness, they can make a ruling on the way in which the agent has performed.

If you are part of a management company then look to become a director. This will give you the chance to be involved in the preparation of the rent charge. Therefore giving you the necessary information and power to ensure a reasonable rent charge is set (see my article on preparing a budget).

I have been asked the question about dissolving estate management companies so that freeholders don’t have to pay the charge. My advice would be not to do this, without a vehicle in place to maintain these areas, even if another agreement is made, it may become problematic to sell your property. If you are unhappy with paying agent’s fees then take some advice on self-managing the development. This will however take a significant amount of time and dedication.

I hope you found this article informative, remember to read your transfer thoroughly and I would recommend using an agent registered with ARMA for the best results. If you would like further advice or have any specific questions then please get in touch.

Preparing a Budget

If you are putting together a service charge budget for the first time then follow these handy steps to ensure you forecast adequately for your service charge year.

1. Check the lease or transfer before you begin. These documents will tell you exactly what items you can charge for, when you should be charging and what proportion to each property. If you see anything that will make budgeting difficult, such as the proportions not adding to 100%, then you need to vary the lease via the LVT.

2. Make sure you are familiar with the development; gaining an understanding of what properties contribute to what areas is must have knowledge. Just being able to visualise a development in your head when putting together a budget can make the process so much easier.

3. Obtain your set costs. These will be services such as cleaning, gardening etc. You should already have appointed contractors so gaining the costs for these should be relatively simple. You should have a Fire Risk Assessment conducted every year; make sure this is budgeted for. You will also have admin costs such as agent’s fees, company secretarial costs and accountancy fees. Again these costs should be easy enough to obtain and you should therefore be able to budget the exact amount that will be spent.

4. Known but variable costs. These are the costs that you know will happen but you don’t necessarily know how much they will cost; such as insurance, electricity and water. Our advice is to look at previous year’s costs and do some research into current price increases. You may also get some good info by ringing your suppliers and asking them for a prediction. We would always suggest that if you are unsure (which is OK it’s an estimate) then always budget more rather than less.

5. Contracts. You will already have your obvious contracts in place such as cleaning and gardening. But now is your chance to ensure you have all the necessary contracts in place such as emergency lights, automatic gates, water pumps etc. Unless you negotiate a fully inclusive (parts & labour) contract then always remember to budget a decent amount for replacement and repair of items. If you have it available past expenditure can be a good indicator of costs for repairing equipment.

6. Possible costs. Depending on the size of your development you may well find that a large amount of repairs are carried out every year. Budgeting for minor repairs, electrical faults, drainage problems etc. is always going to be trial and error. It will most likely take you a few years to get the figure right. We would advise that you budget based on previous years expenditure in these instances. If you don’t have that luxury, then budget sensible amounts it’s no good placing £100 in for repairs on a development of 100 apartments.

7. Future Costs. Your lease/transfer will tell you if a reserve of sinking fund can be used. If you can use these funds, then we would suggest that you get buildings surveyor to put together a CAPEX report which will highlight how much you need to place in these funds each year. If you are unsure on what these funds are then take a look at my article on the subject. You will also have future costs like insurance valuations and statutory electrical tests. You could just place the cost of these in the budget on the year they are due, however we advise that you budget a small amount each year to build a fund for them.

8. Once you have all of the costs you can apply the proportions to them as stated in the lease/transfer. If no specific proportion is stated and you can use a “fair and reasonable proportion” then we suggest you use your knowledge of the development (a site plan can be useful here) to split the costs appropriately.

Once you have followed these steps you should have a very reasonable and adequate budget. Remember to always budget more rather than less. You would much rather be giving a balancing credit back each year, as too much service charge was collected. Rather than run out of money before the end of the year, and have to suspend some of the services. Most importantly, however, ensure you read the lease or transfer thoroughly, you may find yourself liable for some of the expenditure if you haven’t followed the legal documentation correctly.

If you have any specific budget queries then get in touch with me via the contact me page and I will be happy to help.

Management Companies

Confused by being part of a management company? Don’t worry here's some handy info.

A management company is a vehicle to ensure private communal areas on a development receive maintenance. They will be set up in the planning stages of a development by the developer or their appointed agent. Not to be confused with the managing agent (the company you deal with regarding management) the management company is actually made up of the owners of properties on a development.

You may get confused with the relationship between yourself, the agent, the management
company and your freeholder. Therefore I have put together this diagram to help.

The freeholder will invoice the lessee for ground rent as per the terms of the lease. The lessee pays the management company a service charge as per the terms of the lease. The management company will hire a managing agent and pay them a fee based on an agreed service level which will be documented in the management agreement.  Even
though you pay the management company on a day to day basis you will most likely deal with the agent. This diagram is a generalisation. You will need to consult
you lease for your specific relationship.

If a management company has been set up on a development then each time a property is sold the new owners will become a member of the management company. Usually this will be a membership limited by guarantee however sometimes the company will be set up to give each member shares.

The idea behind management companies is that when all the properties on a development are sold and all legal issues tied up the members of the company can appoint directors and take control of their service charge. Often when created the directors of the management company will be employees of the developer or their appointed agent. These directors will remain in place for as long as necessary until such time when directors from amongst the members can be appointed. You will receive an invite to a general meeting of the company specifically for this purpose. Generally any member can become a director, those appointed to the board will have complete control of the service charge, how it is spent, what contractors to use, what agent (if any) to appoint etc.



The management company will be a legally registered company at companies house. Therefore do not be surprised to see costs for statutory accounts and company secretarial fees in you service charge. It is essential that the statutory documentation if filled on time to companies house, in the worst case the company may be struck off. This will lead to huge complications not only to maintain the development but also when trying to sell your property.

If you believe that your management company is not performing then you can apply to the LVT to appoint a manager.

Developments without management companies may also be able to follow the right to manage process to set up their own management company and take control of the development away from the freeholder.

If you have any specific questions please get in touch via the contact me page.

Service Charges: The Basics

So you pay a service charge, the first and most important thing you need to do is read your lease or transfer. Contained within this document will be everything you need to know. It will tell you when you need to pay, what proportion of the overall charge you should be paying and what services the payment will cover. This article will make assumptions and speak in general, basic terms. No two service charges are the same, so please use this advice in conjunction with your lease or transfer.

The service charge is usually an annual payment in advance. You will be paying for services that are yet to be provided and your payment will help to fund these services. You should get provided with a budget or forecast of expenditure when you receive your service charge invoice. This should show a breakdown of the service charge you will be paying and exactly how much your landlord or management company expect to be spending on certain services over the service charge period. Remember at this point you have a legal obligation to pay the charge, therefore if you do not pay for any reason (however valid) the landlord or management company are well within their rights to enforce payment.

The service charge has to be two things “reasonable” and in line with the lease or transfer. If you feel one or both of these is not the case then discuss your points with the landlord or management company. They may have made a mistake or not taken something into consideration. In any case, my advice would be whatever your dispute, settle the service charge and dispute after. If you think the charge has been unreasonable for any reason then get some legal advice and look to apply to the LVT or the courts. You will stand a greater chance if you have met your obligations and paid your charge. If you do decide to withhold payment then it is important to realise that if all the service charge payers did similar, then no money would be available for services.


The budget or forecast that you receive will outline the services you should expect to receive throughout the year. These services should be mentioned in your lease and transfer; if they are not then legally they cannot be collected from you. Get familiar with your documentation; sometimes items are paid or budgeted for that, although may benefit a development, such as CCTV, are not recoverable from the service charge payers under the terms of the lease or transfer.

You may also sometimes find that you are being charged an incorrect proportion of the service charge than prescribed in the lease or transfer. This may be an error from the landlord or management company but it is not uncommon for all of the proportions on a particular development to add up to over or under 100%. If you think you are being charged the wrong proportion speak to your property manager, they can investigate and hopefully remedy this situation. This may be an occasion where a trip to the LVT is needed to vary the leases on a development to bring them in line with 100%.

At the end of a service charge year your landlord or management company have a responsibility to provide service charge accounts to you within six months. These accounts should show you exactly how much service charge was spent against what was paid specifically for each property on the development. They should provide a balancing figure and  deal with this balancing figure in whichever way the lease or transfer prescribes. Often a deficit position means you will incur an extra charge and a surplus may mean a credit. Your lease or transfer will specify exactly how these should be dealt with, if you have never had any form of balancing charge or credit then we would advise you consult your documentation.

There is a lot to service charges however you will find all the information you need right here, and remember these steps.


• Read your lease/transfer
• The service charge must be reasonable
• Pay your charge as demanded in advance
• Remember that your payment funds services. No payment = no service
• If you have a dispute, get some legal advice
• Make sure you are only paying for what your documentation states
• Ensure you receive service charge accounts within six months of the year end
• Check your lease/transfer to find out how year end balances are dealt with

But remember the most important thing – READ YOUR LEASE/TRANSFER! – I hope I stressed this enough.

Reserve & Sinking Funds

You will most likely notice, from your service charge estimate, that every year you are contributing towards a reserve fund or a sinking fund. But do you have any idea what these are used for? Why you are being asked to pay into them? And what the difference between them is? Well here is a basic introduction.

If you are being charged for this then this is most likely good news.When used properly both of these types of funds are very useful and effective block management tools. However they should only ever be used when a lease or transfer allows for such funds to be collected. Some of your legal documentation may state quite clearly “Reserve Fund” or “Sinking Fund”; some however may be slightly more cryptic. If in doubt ask your
property manager to highlight the specific section for you.

There is a clear difference between these two types of funds. A reserve fund is a fund which collects regular sums of money to meet recurring expenditure. The most common example of this would be redecoration to common parts such as painting. A sinking fund provides for expenditure which is much more infrequent and may only happen a couple of times throughout the term of a lease. This could be for an item such as lift replacement. Asking service charge payers to contribute to these funds on a yearly basis helps to ensure that funds will be available when the works are necessary. It is also a much fairer way of collecting the money rather than asking for a large one off payment when the works are due.

A good landlord or agent will have obtained a cyclical maintenance report to determine the level of reserve fund or sinking fund to charge each year. This means they have asked a qualified surveyor to identify the parts of your development that will need replacing over a certain timescale and most importantly how much it will cost. Without undertaking this exercise it is likely that the amounts you are being charge for are plucked out of thin air and therefore may not be adequate or you may even be paying too much.

If you do not pay into funds like these, but you quite clearly have communal areas, it would be worth asking your property manager or landlord why?  You may also want to be wary of agents who offer to save you money on your yearly service charge as they may just cut out the reserve fund. Most importantly when you buy a property with private communal areas make sure your solicitor enquires about these funds. The last thing you want is a large bill as soon as you move in.

If your lease does not allow for the collection of these funds it may be worth applying to the LVT for a lease variation. Discuss this possibility with you property manager and/or a solicitor.