Issue No. 110 Autumn 2014
Federation of Private Residents’ Associations Newsletter
houses will contribute financially to the private road, save for negotiating and reminding the developer of the provisions to maintain the private road. We would however hope that this is a consideration the freeholder’s solicitors will make when drafting the new documents for the proposed new development. If the residents’ association has a “relationship” with the freeholder/developer – it might be worth reminding them about the cost provision for the private road. This may also mean the existing properties receive a reduction in the amount they are required to contribute also.
Banks don’t understand Q A
I am endeavouring to set up a Service Charge Trust Account and should be grateful for advice. It is proving difficult as our bank does not seem to understand the concept in relation to leasehold property. I recall many articles I have read on this subject, however, I cannot seem to track down the latest requirements and how to go about implementing them. It appears to me that the problem is the banks are not familiar with the legal requirements. Your views, comments and suggestions would be welcomed. FPRA replies: This is a difficult area to advise on and it is not uncommon for banks to be unsure of the issues. Under section 42 of the Landlord and Tenant Act 1987, service charge funds are funds held in trust for the lessees. Service charge funds are not company funds and therefore best practice is to hold the funds separately from company funds in a separate “ring fenced” bank account.
Options available to you are as follows:
Ask the bank to open a second bank account and to use this bank account for service charge transactions only. Inform the bank in writing that the account is to be used for service charge funds only and therefore, the funds are held in trust on behalf of the lessees and there is no right of set off with the other Company bank account.
Set up a new bank account outside of the of the company account (e.g. in the name of the residents’ association) and only put service charge income and expenditure through this account. However, if the company does not have any income (it does not collect ground rents and has no other income of its own) and the lessees and shareholders/directors are one and the same, then the distinction between company funds and trust funds becomes academic. In these circumstances the company account can be set up as normal and operated as a normal company bank account. The legal position has not changed and the funds held by the company are still held in trust even if the name on the bank account is in the name of the company.
Water leak claim We have just sustained a water leak from a second-floor flat which has caused damage to the two flats underneath. Due to the amount of the claim, we have already informed
the block insurance company, and will be making a claim. I have, however, just been informed that the first-floor owner has submitted a claim for damage to fixtures and fittings and that his insurance company has informed him that they will try and recover the cost from the management company. Has anyone had a situation where such a claim has been made against the management company or the owner of the second-floor flat? FPRA Hon Consultant Belinda Thorpe replies: The flat owner that suffered the damage to their contents cannot make a claim against the block insurance policy, as fundamentally they are also part of the management company limited and therefore cannot make a claim against themselves. Their contents insurers probably do not appreciate how the company is set up and what interest in the management company their client has.
No smoking We have had an item put onto our AGM agenda by a resident which I would like your views on please. We have 27 apartments in our apartment block, each with a balcony. Most apartments are owner-occupied but there are seven which are rented out. One of our owner occupiers has put forward a motion for smoking to be banned from balconies as he finds it unpleasant to be subjected to other people’s smoke. Most landlords have probably included in their tenancy agreements a clause that no smoking is allowed in the apartment to protect their property, so inevitably their tenants smoke outside on the balcony. Owner-occupiers can of course do what they like in their apartments or on their balconies. Has this issue cropped up before and what have other residents’ associations done? FPRA Chairman Bob Smytherman replies:
I deal with matters relating to local authorities and health and safety – I am not a lawyer and we need to get a legal opinion about the specifics in your building – but simply, the situation since 2007 is that internal communal areas of block of flats must be smoke-free by law. Residents who smoke in communal areas can be prosecuted by the local authority and fined up to £200.
Signage announcing that the premises are smoke-free must be placed in all blocks with internal communal areas. There are different regulations about signage for England and Wales. It is an offence not to display the signs. Whether you agree or disagree with the law, your landlord and managing agent have a duty to prevent anyone from smoking in communal parts of the building. If they do not challenge smokers, they can be fined. You can find guidance on the ARMA website (arma.org.uk
). With regard to balconies, providing they are SOLELY used by the flat owner and have less than three enclosed sides then my view would be that they would NOT be covered by the smoking ban.
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