Flat-Living.co.uk help & advice The ARMA Surgery


Bruce Maunder Taylor, a chartered surveyor and member of ARMA’s Council, provides answers to readers’ questions. If you have a question, email it to info@flat-living.co.uk. (All names and addresses are withheld).


Question: I along with one other director and a company secretary manage a small block of flats, six in number. The block of flats was built in 1983 and over that period the building has had a number of different directors and secretaries, as the flats have changed hands from time to time. The current six lessees own the freehold of the flats with each


lessee owning one share in the management company. I understand our property has for the past 26 years been managed by the flat owners regarding all maintenance issues. At the last AGM held in July 2010 we were informed by one of the


lessees that we should be implementing Section 20, which as you will be fully aware requires all works depending on price and type of contract to be consulted on. This unfortunately had not been the case for any works carried out to our property, as we were not aware of Section 20 until July of this year. In our defence and the defence of the previous directors all works


that were required were always discussed and agreed with the other lessees either at the AGMs or routine meetings which were held as required. All lessees were fully aware of the works and the price. At these meetings, minutes were kept and copies were sent to the lessees.


I would also wish to add that since July’s AGM we have introduced


Section 20 into our standard procedures, and, because we need to stay on top of new legislation, we are in the process of employing an outside management company. Unfortunately, we now find ourselves in an ongoing dispute with


one of the lessees with regards to Section 20 procedures for not being carried out for repair works over £1,500 going back a number of years. As you will hopefully appreciate, the current and previous directors


and company secretaries had good intentions for all works that they were involved in. We look to be advised, as the lessee is looking at taking the matter to an LVT.


Answer: The history of this matter you describe is unfortunately fairly common, but at least you have relevant records to demonstrate that, even if you did not follow the statutory consultation route, nevertheless you did consult at AGMs and other routine meetings. First of all, do the records of those meetings show whether this lessee who is now challenging you was at those meetings and participated in the discussions, and/or received the minutes of those meetings? Is there any record of him having complained or objected at the time? I would assume that he did not raise objections at the time. If you were an investment landlord, you would probably have little


or no defense to the challenge. If your company had been run on a “benign dictatorship” principle without discussions at AGMs and routine meetings, you might be in difficulty. The fact that you have discussed matters at AGMs and routine meetings (depending on the precise circumstances and the records you have kept or witness statements you can deliver) you are likely to be in a relatively favourable position. It would be appropriate for you to go to the Land’s Tribunal website and obtain a copy of Daejan Investments Limited – v – Benson (2009) UKUT 233 (LC) and read that decision. The Lands Tribunal is


the appeal body from the LVT and its decisions are followed by LVTs on matters of principle. A lessees’ management company can expect LVTs to take a less exacting approach than they would take with a local authority or a commercial landlord: but each case will be considered on its merits. An important point to be argued is whether or not your non compliance with the S20 procedures resulted in any significant prejudice to the leaseholders. It is advisable to do everything you can to open discussions and see if some sort of agreement can be reached without having to go to the LVT. It may be that the challenging lessee is not aware of this Lands Tribunal decision and, when he is, he may change his mind about taking the matter to an LVT.


Question: For the past 10 years the residents of a block of 29 flats have been running a residents management company. Time and age has caught up with us and last December we passed over the running of the building to a property management company with whom we are very satisfied. We need to transfer our large sinking fund money to this Company


and this poses three questions, which I hope you can answer. The money will be put into a trust account titled Customer account. 1. What would happen to our money if the company went into liquidation?


2. What could happen to our money if the company was taken over? 3. Can we take out an insurance against theft of our money or similar?


Answer: The bank account in which your sinking fund money is placed should be particular for your block and should have in its title the word “Trust” or “Client”. That is sometimes abbreviated on the cheque book to CPA (Clients Premium Account) and it is a copy of the bank mandate you should look at to establish that the account has been properly named. If the management company then went into liquidation, your sinking fund monies would not be part of the assets with which the liquidator or other insolvency practitioner can use to satisfy the debts of the company. The Sinking Fund monies would have been effectively ring fenced. Incidentally, the same applies to your ordinary service charge monies providing they are placed in a Trust or Client Account. If the management company is taken over then, subject to any contrary agreements you reach with the new management company, your monies are protected and ring fenced in the same way. Recovery after a theft has occurred is problematic, it very rarely happens, your managing agent should be covered by professional indemnity insurance cover against which you would claim, and you should expect to see the terms of his cover shortly after each year’s renewal. Your managing agent ought not to object to provide you with a copy. If your management company belongs to a reputable body (ARMA or RICS) they insist on checking the professional indemnity insurance cover of each of their members every year. The RICS has a bonding scheme but with a financial limit. Far better to protect yourselves before any theft occurs: if for any reason, you are asking these questions because of particular concerns you have, then I question whether you should be with that managing agent in the first place.


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