Q: Our block is an 1895 house, most recently converted into 10 flats around 20 years ago. We have recently organised quotations for some serious work on the exterior of the property.
The leaseholders (all of whom are directors of the company) agreed some time ago that the maximum we could jointly afford would be around £65,000; ie £6,500 for each leaseholder. However, we have just been advised that we really need to replace, rather than repair, the roof, at a cost of around £90,000.
We do not have a sinking fund, and I am certain than at least half the leaseholders will not be able to afford this. On the other hand, we are aware of the legal obligations of the company to maintain the property.
We recently approached our bank re a loan of around £6,500 to cover one leaseholder’s share of what we thought was going to be the cost of the work, but the bank refused our application, on the grounds that the company does not have any income, other than the leaseholders’ monthly maintenance payments. So a loan seems out of the question.
Please do you have any suggestions for any avenues we can explore in this predicament?
We understand the issue to be that the company has carried an informal consultation in relation to the service charge costs of replacing the roof and the initial budget was £65,000.00. It appears that the actual budget will be £90,000.00.
In the event that one or more of the shareholders cannot afford the capital cost of carrying out the repairs then the only other available option will be for the individual flat owners to consider re-mortgaging and/or drawing down some further equity on their leases so as to be able to contribute towards the capital cost of repairs that are required.
Clearly, it is for the company to set a budget for the repairs and to consult in accordance with the appropriate provisions within the service charge legislation.
As you say in your letter, the company has an obligation to maintain the property in accordance with the terms of the leases.
If individual leaseholders are unwilling/unable to contribute towards the required capital costs then provided that the company consults under the service charge legislation our suggestion would be that it makes an initial demand for the payment that is required. In an extreme circumstance (such as repeated non-payment) it may become necessary to sue the flat owner or owners involved for the required funds.
Provided that the Tribunal would determine that the amount required was ‘reasonable’ then such an application would be enforceable. It would be possible to obtain a charging order or similar against the non paying flat owners properties.
As an alternative, could the work perhaps be split into phases to assist in cash flow?
The only other option would appear to be some kind of loan to the company from one or more of the directors and/or members (we are not certain that any individual would want to do this without adequate security being in place).