Collective Enf : Management Company

[MetropolitanAnthony]

one flat owner from each flat is a director of the management company that owns the freehold so each flat has a 1/8th share of the freehold.
In a group of 8 would 5 be deemed a majority vote?
We use the majority vote in our meetings.

Background :
Am about to get involved in this nightmare myself. I have many concerns about the kind of management company (MC) to avoid when moving to collective enfranchisement (CE).

Currently, as one of 4 leaseholders, the service charge we pay is prorated between the 4 flats according to relative floor space. We do not each pay 25% of the bill. My flat is slightly smalll so I pay 21%. Another flat is larger than the rest and so she pays 28%. All four 'percents' add up to 100.

Questions :

a) Once the 4 leaseholders emerge through the CE process, is it better to ignore the relative floor space of each flat and consider the four as equal owners of the company with a 25% vote? Alternatively, should ownership of CE management companies accurately reflect the relative floor space of each owner's flat? Specifically, at MC meetings, should the large flat owner have 25% of the vote or 28% of the vote?

b) Where some leasehold flats are singly owned but others jointly owned husband/wife, brother/sister etc, how do you legally prevent the "couple" leaseholders from having a double voice at management meetings?

c) My gut feeling is that it is better to have a MC limited by guarantee not by shares. Am I correct ?

d) There is no sinking fund (SF) at the moment and no mention of one in the current lease. However, as part of the CE process, one of the 4 wants to redraft the leases for all to make provision for a sinking fund. How do I resist this.

[jeffrey]

a. (1) No, so far as concerns service charge; existing arrangements/split are unaltered by f/r purchase.Of course, everyone could (unanimously agree to re-write leases (= equalise service charge %) when re-granting these after f/r completion.

a. (2) For co. meetings, however, each member is equal (unless Articles of Association provide otherwise).

b. One vote per flat, whether or not weighted in service charge proportions.

c. Yes- avoid shares and go for guarantee (nominal £1 each).

d. Why not create such fund? Why do you object?

[MetropolitanAnthony]

d. Why not create such fund? Why do you object?

First of all, thank you for your expertise.

My life experience of jointly owned pools of money informs me that sinking funds bring more problems than they solve.

You can always take a prescriptive view of the world. Here sinking funds work as intended because they are run by fair minded people with good motives. I take a descriptive view i.e. the world as it actually is, where people are self-seeking, manipulative and ignorant. Sadly there are too many of these kinds of people around to safely commit jointly managed pooled funds of other peoples money to their care.

A sinking fund is fine until one or more leaseholders decide to mis-spend the fund on damp repairs for their own flat, or on legal fees demanded by the LVT or some other unintended use. A sinking fund is fine until one leaseholder sells their property and moves abroad without paying their final contribution, or who witholds a share because they feel they are due a rebate. I am wary and I want to avoid the kind of problems detailed in Wade's thread.

You can argue that civil law is there to protect against this misuse. My view is that civil law, at £5000 a pop, is a blunt, expensive, rarely used instrument.

I find the alternative paradigm to a sinking fund perfectly acceptable. i.e. every seven years or so, the tradesmen's bill for external/internal works is divided up between the leaseholders present at that time.

I am not saying I am right, but this is my current view.

[jeffrey]

Try opposite view.
P looks at flat that he wants to buy. There is no sinking fund.
He worries. quite reasonably, that - next year or the year after- he will face a very large service charge for new roof, retaining wall, etc. I know this from experience- that was me and my first home in about 1981! The experience left me:
a. far worse off (costs exceeded 10% of flat's value); and
b. older and wiser.