Additional contribution may be needed in residents managed block.

[fluffykittens208]

We own a 2 bed london flat (1930s). its leasehold but its residents managed i.e. 17 residents bought the freehold and they allow leaseholders i.e. people who didn't participate in buying the freehold to participate in the management of the block. We appoint a managing agent to manage it.

DH has been a director since we bought in 2019. The service charge has been flat since 2019 at £1750 per annum despite inflation in building costs. And we have been doing some work since 2019 i.e. painting and decoration and some repairs.

DH says that there is now talk of asking for additional contributions from leaseholders as the sink fund (£120k) would be much depleted due to all the works that are being taken i.e.

1. Replacement of intercom system
2. replacing flooring
3. installing skirting boards
4. repairing big pothole in driveway
5. installing fire doors.

etc etc etc

managing agent is taking quotes from multiple providers and choosing the cheapest one. He told me that they may have to ask for an extra thousand from us all each (could be less, could be more, could take more from sink fund).

I have zero issue with the works and i agree they are needed. Am ok with the money potentially since i can see from the quotes that they cost that much and the works are necessary imho but my question is that despite the flat block being managed by residents, shouldn't we have slowly increased service charge rather than ask for additional contributions. for example, if its an extra £1000 that was needed, shouldn't we just have increased service charges by £200 per annum ? surely purpose of sink fund is to cover all extra costs needed not keep service charges at artificially low level that it can't cover these extra works.

It is a period block so it is in need of some tlc. We knew that when we bought it, but honestly most of the flats and houses in our area are old!.

Update- sorry the reason why they are collecting extra is they need 70k in sink fund all the time in case something happens? I can appreciate that but is it normal practice for residents managed blocks?

Not an expert, but yes I think it is fairly normal to occasionally ask for additional contributions from residents.

I would also be asking questions about the roof.

I am confused by your post.

If your husband is a Director, why are you are not asking him why the service charge was not increased?

Yes the roof appears to be in good condition though hasn't needed doing for a long time.

i know that my dh has pushed for it to be raised before but the other directors were keen to keep it down. they are going to increase it now by 5%. Also the rationale for increased contributions is due to the need to keep at least 70k in sink fund.

also during covid, there were other leaseholders whose tenants weren't working so they deferrred service charge so probably wouldn't have been a good time to increase it then!

Also bearing in mind that building costs have gone up massively.

I think my question is whether this is normal, if managing agent should have strongly advised us to increase service charge rather than let the other directors just do as they wish. after all no one likes increasing charges...

Got you.

Managing Agents primary motive is to identify projects that they can make money on!

I thought roof before I'd finished the op.

Dm lived in a flat in a converted hotel back along with a management run by the residents who were all owners I think. The sink fund was pitiful too. My partner at the time was a roofer and did some repairs. He told dm the whole roof would need replacing in a few years and to sell the flat and get out because this would have cost each resident upwards of 15k. She sold it and didn't look back.

But yes the yearly fee should go up with inflation!

Not an expert but what you say makes sense to me, that the cost should be spread rather than asking for a lump sum. That way, when a flat is sold, no one is paying disproportionately more or less.

I think it’s normal. I am leaseholder of a council owned flat, the council wrote to us for lump sums for specific works (intercom, painting the communal halls, etc) on top of the monthly service charges. Obviously as it’s council run the contractors add an extra zero on the end of their quotes and we end up paying extortionate amounts for work!

Since 2019, we've had 2-3 years of covid, people were furloughed or lost their jobs and then Putin invaded Ukraine and the cost of mortgages, food & gas shot up.

Many people were struggling & perhaps the board decided the time was not right to raise charges.

Now things are stabilising slightly they are addressing the issue. Seems reasonable to me.

My first thought was that £1750 sounds cheap for London, especially given the age of the building. I considered buying in a 1930's block more than 10 years ago and the annual charge was about £4,000 (although I don't know how much was in the sink fund). I understand that people may be struggling post-Covid / COL etc., but eventually someone has to pay. Perhaps the Directors would consider increasing the charge by more than the rate of inflation for a few years to make up for the past few years where it has been frozen?

NB that's not to say that there won't still be an occasional need for one-off contributions, but I think it's essential to ensure a significantly higher regular amount coming in so that there is less pressure on the sink fund.

“i know that my dh has pushed for it to be raised before but the other directors were keen to keep it down. they are going to increase it now by 5%. Also the rationale for increased contributions is due to the need to keep at least 70k in sink fund.”

I think you’ve answered your own question there, it was up to the directors to agree to raise the charges by a percentage each year and they didn’t do that. We rent out a leasehold flat where the service charge has been too low for a number of years. The sinking fund is way too small and the annual charges just about cover the annual costs. Residents keep asking for things like external postboxes, intercom etc which is faithfully priced up by the managing agents then never implemented, because of course doing any of these projects would require additional monies from the owners. DH who is a property professional has been pointing this shortfall out for years and has been ignored by the directors. I think there’s only two of them now, and one didn’t even wait until the end of the AGM last year!

I think I understand the question being asked. What is the virtue of paying the immediate charge if the Sinking fund has the money and why not allow a slow increase each year to get back to the minimum for the Sinking fund?

The Sinking fund will be losing value due to inflation and the cost will likely be held in emergency and linked to a major issue i.e. Roof sounds like a good one.

Getting the block to pay for the entire amount shows the liquidity of the Leaseholders you want to get the most funds and get the job done fast and what you cannot get you get from the Sinking Fund.

None of what you stated sounds urgent but the cost will increase and the lease probably has a rule of redecorating every seven years. Fire regulations are a nightmare you may find every flat door need replacing and fire regulations have really ramped up.

The advantage of increasing the Service the way you mentioned is again lowers the shock but if you have a roof issue you need to get the money again fast.

Also (might not be relevant ) I think people on UC can get money for Service Charge but not Section 20s so there may be one thing regarding the Section 20 coming directly out of the Sinking fund by way of increased Service Charge. You pay some out of the sinking fund like 20% of the cost from the sinking fund.

I also think your SC is way too little the average in London is around £2400. I would never give the Service Charge cost to a vote. Let them argue it at a Tribunal I doubt they would win.

Also, the managing agent is a secretary nothing more Block is always representing the quality of the Directors.

Oh one question do your Managing agent get 10% of the cost of S20 work?