How to deal with elusive fellow freeholder?

[CryptoPlankton]

I own one of four flats in a large Victorian house (I have one of four shares in the limited company), all of which are currently let. The previous managing agent failed to maintain the property properly and we finally managed to transfer the management to a decent company two years ago. However, the years of neglect meant that extensive work (on the roof, fire escape and exterior in general) was required. While the new managing agent did make a start on smaller jobs and was preparing for more major works, they were concerned that one of the other owners wasn't paying his fees. After twice fining him (from our pooled funds!) they served notice and have now left us to get on with it. I have agreed to become a second director and we have taken over the funds with a view to managing the place ourselves (the other director does property management, but previously was reluctant to take this on as a part owner - having agreed now on the condition that someone else becomes a director to keep him accountable).

The problem is what to do about the owner who owes a couple of years' worth of fees? He ignores all attempts at contact through known addresses and telephone numbers, yet replaced bathroom fittings in his flat recently - presumably having been notified through the letting agency that he uses (unknown to us, but I'm sure we could find out). He was agreeable to the change of managing agent at the time and, as far as we know, his contact details haven't changed.

We very urgently need to do some work on the place, but the other director is reluctant to start before resolving this problem (we are all going to have to inject funds above our usual annual fees to refurbish the exterior properly). I have found the offender's mortgage lender through land registry and we are considering asking a solicitor to get involved, but I wondered whether anyone has any advice that may possibly save us that expense?

Very grateful for any thoughts...

[pochisoldi]

You've got the title wrong. It should be "How to deal with a defaulting leaseholder".

The directors should put on their directors hats and rubber stamp the decision on whether to pursue legal action.
You can't decide not to, as you do not have the power to selectively waive service charges - you'd be acting "ultra vires" if you did, and you could make the freehold company insolvent (hint: the third silent leaseholder who pays whats due on time could complain to the land tribunal that they are being charged too much - e.g. paying a third of actual costs instead of a quarter - and the freehold company would lose)

Then take action against that leaseholder.

If this makes you feel uncomfortable, then you must be wearing your "Mr CryptoPlankton hat" - take it off and try one of your other hats:

"Directors Hat" - "Sorry, but I'm legally obliged to do this."
"Shareholders/Freeholders hat" - "It would be unfair to the other shareholders if the directors don't do this"
"Leaseholders Hat" - "I'm paying in, you have to. You're quite happy to have the benefits of the flat, but you won't accept the duties which go with it"

Oh, and while I'm here, you should be suing the previous managing agents for their annual fee(s), assuming they were responsible for service charge collection and debt management.

PochiSoldi

[CryptoPlankton]

You've got the title wrong. It should be "How to deal with a defaulting leaseholder".

The directors should put on their directors hats and rubber stamp the decision on whether to pursue legal action.
You can't decide not to, as you do not have the power to selectively waive service charges - you'd be acting "ultra vires" if you did, and you could make the freehold company insolvent (hint: the third silent leaseholder who pays whats due on time could complain to the land tribunal that they are being charged too much - e.g. paying a third of actual costs instead of a quarter - and the freehold company would lose)

Then take action against that leaseholder.

If this makes you feel uncomfortable, then you must be wearing your "Mr CryptoPlankton hat" - take it off and try one of your other hats:

"Directors Hat" - "Sorry, but I'm legally obliged to do this."
"Shareholders/Freeholders hat" - "It would be unfair to the other shareholders if the directors don't do this"
"Leaseholders Hat" - "I'm paying in, you have to. You're quite happy to have the benefits of the flat, but you won't accept the duties which go with it"

Oh, and while I'm here, you should be suing the previous managing agents for their annual fee(s), assuming they were responsible for service charge collection and debt management.

PochiSoldi

Thank you very much, PochiSoldi. I am not uncomfortable about taking action - in fact, he's made me about as annoyed as I can get! I will urge the other director to contact his solicitor (and also get him to ask about pursuing the previous managing agent).

Out of interest, what would happen if the freehold company were to become insolvent (though I don't think it is likely the other owner would take the action you mention)?

[pochisoldi]

Out of interest, what would happen if the freehold company were to become insolvent (though I don't think it is likely the other owner would take the action you mention)?

The assets get sold, the liquidators get paid, the creditors get paid, and anything that's left goes to the shareholders.
The company then ceases to exist, and the freehold is then owned by another person/company more interested in revenue generation than buildings maintenance...

Pochisoldi

[Meatyfool]

Apologies for being vague, but someone on this very site had reason to find a person who spent his nieces inheritance. He used a person searching agency and found him pronto.

Probably cheaper than using a solicitor?

Meatyfool..

[vrdiver]

Apologies for being vague, but someone on this very site had reason to find a person who spent his nieces inheritance. He used a person searching agency and found him pronto.

Probably cheaper than using a solicitor?

Meatyfool..

viewtopic.php?f=44&t=5362&hilit=niece#p55663

(I think that's the one you were referring to?)

VRD

[Meatyfool]

Vrd,

Yes that's the one.

I seem to have a terrible time finding old posts on some bulletin board software - I confess I didn't even attempt to.

Meatyfool..

[pochisoldi]

Apologies for being vague, but someone on this very site had reason to find a person who spent his nieces inheritance. He used a person searching agency and found him pronto.

Probably cheaper than using a solicitor?

Meatyfool..

The eegit hasn't disappeared, he's just ignoring letters.

The simple answer is to set the solicitors on him. The guy has almost certainly failed to adhere to the covenants in his lease. The next steps are to move towards issuing a S146 notice telling him that the freeholder intends to forfeit his lease.
Once this stage is arrived at the mortgage company will have to be informed, and as soon as the mortgage provider sees the security for their loan threatened, watch as either the leaseholder or the mortgage provider pony up the money or maybe even you end up with a new leaseholder as the mortgage company repossesses the flat...

Mortgage companies won't step in early like they used to - but as soon as the threat of forfeiture becomes real watch them move.

PochiSoldi

(S146 notice = "A notice issued under section 146 of the Law of Property Act 1925 that warns a tenant who is in breach of covenant (other than the covenant to pay rent) of the landlord's intention to forfeit the lease")

[vrdiver]

Perhaps one last attempt to contact him, telling him what the likely outcome will be if he doesn't respond and fulfil his responsibilities, might be cheaper than a solicitor's letter, but loses you, at worst, say 2 weeks time before you revert to bringing in the solicitors anyway?

VRD

[CryptoPlankton]

Out of interest, what would happen if the freehold company were to become insolvent (though I don't think it is likely the other owner would take the action you mention)?

The assets get sold, the liquidators get paid, the creditors get paid, and anything that's left goes to the shareholders.
The company then ceases to exist, and the freehold is then owned by another person/company more interested in revenue generation than buildings maintenance...

Pochisoldi

I'm afraid I don't really understand this. The assets = the maintenance fund (pretty modest in scheme of things) + the whole building? The creditors are the mortgage lenders? The building is sold as a whole and what's left after the liquidators and mortgage lenders are paid is divided amongst the shareholders? Wouldn't the other owner be potentially shooting himself in the foot if that were the case?

I bought the flat as a bolthole when I returned to the area to look after my elderly parents - at which time one of the others was also owner-occupied and it seemed the property was effectively managed. If the place wasn't so run down I would have sold by now, but I've been letting it until it is hopefully going to fetch the price it should with the external work done (and proven management in place). If the scenario I have outlined above is a serious possibility then I may be tempted to just cut my losses now - I have no mortgage so stand to lose a lot more than at least the defaulter and the other director (mortgage situation of fourth owner unknown).

I'm certainly never going to get involved in a property where I don't have sole ownership of the freehold again - what a completely crazy world!

P.S. Many thanks for your further post.

[dionaeamuscipula]

You don't actually have to find him. All you need to do is serve notice in accordance with the lease.

There was an interesting recent case* in which a courier was supposed to deliver a formal notice of claim to the address to which notice was required to be given. When they got there they discovered that the recipient had in fact moved, so the courier didn't make the delivery and instead delivered it to one of the other parties. Instead the person concerned discovered the claim through other means. The judge found that notice had not been properly served, but would have been if notice had been served by delivering the notice to the address (as opposed to personal service on the individual) where the notice is left. This could also have been achieved by posting it through the letter box, pushing it under the door or leaving it with a person at the address. The judge recognised that valid service might therefore not bring the notice of claim to the relevant individual.

So as long as you validly serve a notice (strictly in line with the contract), it is the recipient's issue if they don't get it, not yours. Obviously, I would recommend using whatever reasonable efforts you can make to get in touch with them, but that is just for completeness, it isn't a legal requirement.

DM

*Zayo Group International Ltd v Ainger and others [2017] EWHC 2542 (Comm) as reported by CMS Cameron McKenna

[pochisoldi]

Out of interest, what would happen if the freehold company were to become insolvent (though I don't think it is likely the other owner would take the action you mention)?

The assets get sold, the liquidators get paid, the creditors get paid, and anything that's left goes to the shareholders.
The company then ceases to exist, and the freehold is then owned by another person/company more interested in revenue generation than buildings maintenance...

Pochisoldi

I'm afraid I don't really understand this. The assets = the maintenance fund (pretty modest in scheme of things) + the whole building? The creditors are the mortgage lenders? The building is sold as a whole and what's left after the liquidators and mortgage lenders are paid is divided amongst the shareholders? Wouldn't the other owner be potentially shooting himself in the foot if that were the case?

Assets:
The freehold company's only asset is the freehold. It doesn't include the leases - they belong to the leaseholders.
If the owner of the freehold changes, the leaseholders still own their leases, and still have a mortgage to pay off.

The maintenance fund:
This is held by the freehold company as a trustee for (or on behalf of) the leaseholders.
It does not belong to the freehold company, and does not form part of the freehold company's assets.
It is jointly (and inseparably) owned by all the leaseholders (and any successors in title).
If the freeholder changes, then the maintenance fund monies get passed to the new freeholder who continues to act as trustee for the leaseholders.

The creditors
Anyone that the freehold company owes money to.

Shooting themselves in the foot?
Certainly.
The way it stands the objectives of the freehold company, and the objectives of each of the leaseholders are aligned (or will be when matey coughs up) - to look after the building without a view to making a profit out of each other.
Once any part of the freehold is owned outside the circle of leaseholders, then that non-leaseholder will want to see some return on their investment, and that return will be funded by the current and future leaseholders.

PochiSoldi

[pochisoldi]

You don't actually have to find him. All you need to do is serve notice in accordance with the lease.

There was an interesting recent case* in which a courier was supposed to deliver a formal notice of claim to the address to which notice was required to be given. When they got there they discovered that the recipient had in fact moved, so the courier didn't make the delivery and instead delivered it to one of the other parties. Instead the person concerned discovered the claim through other means. The judge found that notice had not been properly served, but would have been if notice had been served by delivering the notice to the address (as opposed to personal service on the individual) where the notice is left. This could also have been achieved by posting it through the letter box, pushing it under the door or leaving it with a person at the address. The judge recognised that valid service might therefore not bring the notice of claim to the relevant individual.

So as long as you validly serve a notice (strictly in line with the contract), it is the recipient's issue if they don't get it, not yours. Obviously, I would recommend using whatever reasonable efforts you can make to get in touch with them, but that is just for completeness, it isn't a legal requirement.

DM

*Zayo Group International Ltd v Ainger and others [2017] EWHC 2542 (Comm) as reported by CMS Cameron McKenna

Which kind of hints that when posting a letter before action, you should send at least one copy by first class post.
If your only copy is sent by recorded delivery, and matey refuses to sign for it or pick it up from the post office, then your notice has not been served.

PochiSoldi

[Tempi]

I'm afraid I don't really understand this. The assets = the maintenance fund (pretty modest in scheme of things) + the whole building? The creditors are the mortgage lenders? The building is sold as a whole and what's left after the liquidators and mortgage lenders are paid is divided amongst the shareholders? Wouldn't the other owner be potentially shooting himself in the foot if that were the case?

I don't think that's what pochisoldi meant.

I assume the creditors would be who ever has been engaged to carry out work to the fabric of the building, as noted in your comments about work needing to be done. If they are not paid fully, by reason of insufficient funds in the Management company because your other Leasee has not paid his service charge, then they would seek to get the liquidators in.

The assets of the management company would be any cash and then an interest in the building that is 'merely' a freehold subject to the existing leases, with obligations as a freeholder under the existing leases. Not the building 'as a whole'. The new management owner might then only operate the company for the purpose of realising the ground rents etc and have no interest in long term maintenance of the property

I could see no reason for the mortgage Lenders for the leaseholders to get involved.

That would be my understanding

[didds]

Which kind of hints that when posting a letter before action, you should send at least one copy by first class post.

any reason why 2nd class would not be sufficient?

dids

[pochisoldi]

Which kind of hints that when posting a letter before action, you should send at least one copy by first class post.

any reason why 2nd class would not be sufficient?

dids

The point of a letter before action is to make it clear that time is up and urgent action is required.
For me, if someone sends me something second class post it is either routine "for your information" or if action is required, it can be done when it suits me, rather than the sender, i.e. in this case it sends the wrong message.

PochiSoldi

[johnhemming]

Letters before Action tend to be called Letters of Claim now and should be sent in accordance with the relevant pre-action protocol. It is important that people respond properly to letters of claim because otherwise they can find themselves liable to costs even when a case is withdrawn after issuing and the defence has been drafted. Hence I would personally recommend sending a letter of claim by looking up the relevant pre-action protocol and sending it on a signed for basis.

The fiver or so that it costs to have it signed for may make all the difference.

The pre-action protocols can be looked up on the court service website under civil procedure rules.
https://www.justice.gov.uk/courts/proce ... l/protocol

[GoSeigen]

Hence I would personally recommend sending a letter of claim by looking up the relevant pre-action protocol and sending it on a signed for basis.

The fiver or so that it costs to have it signed for may make all the difference.

I don't understand. What difference will signed for delivery make? A letter sent first class to the service address is already correctly served ...

GS

[pochisoldi]

Hence I would personally recommend sending a letter of claim by looking up the relevant pre-action protocol and sending it on a signed for basis.

The fiver or so that it costs to have it signed for may make all the difference.

I don't understand. What difference will signed for delivery make? A letter sent first class to the service address is already correctly served ...

GS

Go with the flow - some people want to feel like they've gone the whole hog or want peace of mind, so let them do it. So as long as they are aware that they need to send a copy ordinary first class, you've done your duty.

PochiSoldi

[johnhemming]

Hence I would personally recommend sending a letter of claim by looking up the relevant pre-action protocol and sending it on a signed for basis.

The fiver or so that it costs to have it signed for may make all the difference.

I don't understand. What difference will signed for delivery make? A letter sent first class to the service address is already correctly served ...

GS

It is a psychological issue. The recipient is more likely to take it seriously. In the end you need by law as a minimum to send it first class and get a receipt for postage. However, I would always personally prefer a tracked delivery because there also is proof of receipt. The Royal Mail are not perfect.