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Management company dissolved

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Arborbridge
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Management company dissolved

#390167

Postby Arborbridge » February 26th, 2021, 9:19 am

We have owned a couple of flats in a small block for a good number of years. The managing agent has been excellent at carrying out various works when necessry, and we have no complaints. However, there is a basic legal flaw under all this sweetness and light. The story (which I did know about before purchasing) goes as follows:-

The lease created a management company for the block in which all the owners were equal shareholders. It was a normal Limited Co registered at Companies House. All was well for a few years, but when the original owners moved on, the others gradually lost interest. Eventually, the last two people holding the baby, decided to delegate the practical running, administration and budgeting to the current third party, a local letting agent. However, stupidly, the last remaining Director - when he moved abroad - couldn't be bothered to file accounts any more and dissolved the company. I rue the day he did that, and there seems there was no involvement or discussion with other owners.

Now we have an efficient managing agent with no legal authority. It's fine provided no one rocks the boat, but if some smart solicitor spots the problem, it could mean someone's sale falling through. Remarkably, at least four flats have changes hands without any solicitor raising it as an issue, AKAIK. The "authority" of our managing agent is based upon a sort a trick: provided no one refuses to pay their share, there is no problem, but if someone challenges it and refuses to pay....

One day, it seems sensible to try to regularise the situation.
As I understand it, if the landlord decided to, they could "take back control" which may be fine, though more expensive I imagine. It has been suggested we could go through a process which would start another RMC, but the quote we have for doing this seems rather high and difficult to sell to the owners who will no doubt say "if it ain't broke, why pay so much to fix it?".
Another alternative: I wonder is it possible simply to resurrect the original company - can it be "undissolved"?

Incidentally, as a former director of a management company in another block, I am not keen to get involved as a director again - I was jolly relieved to get out of it! I would not have considered changing anything in this case, but a "new broom" in charge at the managing agent spotted this as a potential problem and raised the matter with me.

Has anyone here faced such a problem, and how could it best be resolved? Indeed, is it necessary to do anything?

Arb.

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Re: Management company dissolved

#396730

Postby Clitheroekid » March 18th, 2021, 12:39 pm

Sorry about the late reply, this isn't a board I visit regularly, and I'm only here because of my post about leasehold flats.

In some ways you're lucky that you're managing without the manco - but in other ways it would be better if you weren't.

This is - or should be - a serious situation. Without the manco in place there is a vital component in the legal ownership of the flats missing. That's because, assuming the leases are typical, they contain a contract between the leaseholders and the manco that in return for the manco maintaining the building and the common parts the leaseholders will pay the service charge raised by the manco.

In essence, therefore, it almost certainly means that the individual leaseholders have no legally enforceable right to have the building maintained. (I have to say `almost certainly' as there are a small number of leases that place a secondary duty on the landlord, and without seeing the lease I can't be certain).

Remarkably, at least four flats have changes hands without any solicitor raising it as an issue, AKAIK.

Sadly, this isn't as remarkable as it should be. As I've often said before on these boards the general standard of residential conveyancing has declined drastically over the past 20 years or so. Savage price competition has resulted in a race to the bottom, and most conveyancing is now carried out by unqualified people with little or no legal knowledge. This situation is even worse when it comes to leasehold conveyancing, which is considerably more complex than freehold conveyancing.

The fact that there is no manco should be an absolute block to anyone going ahead with the purchase. Anyone who has bought one of these flats without having been warned in the clearest possible terms by their conveyancer would have a cast iron claim in negligence.

It should also prevent a lender advancing a mortgage loan. The CML Handbook, which covers all mortgages, and provides instructions to conveyancers acting for lenders, states as follows regarding the manco:

5.15.2 You should make a company search and verify that the company is in existence and registered at Companies House. You should also obtain the management company's last three years' published accounts (or the accounts from inception if the company has only been formed in the past three years). Any apparent problems with the company should be reported to us.

And I can tell you from experience that the result of such a report would be that the mortgage offer would be withdrawn.

Another alternative: I wonder is it possible simply to resurrect the original company - can it be "undissolved"?

Yes, at least in theory, a company can be `undissolved' by an application to restore it to the register. However, there is a time limit of 6 years to make such an application, and there are other legal requirements as well. This is generally the best solution, but it's not a simple procedure. Furthermore, if the manco owned the freehold, which is sometimes the case, the freehold title will have passed to the Crown, and it would be necessary to buy it back. Although the Treasury Solicitor will generally be reasonable regarding the price you will also have to pay their legal and valuation fees.

The leaseholders have been very lucky so far, but you can't rely on future buyers or mortgage lenders employing conveyancers who are incompetent nincompoops! You need to obtain proper professional advice and get it resolved.

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Re: Management company dissolved

#396765

Postby Arborbridge » March 18th, 2021, 2:44 pm

Clitheroekid wrote:
The leaseholders have been very lucky so far, but you can't rely on future buyers or mortgage lenders employing conveyancers who are incompetent nincompoops! You need to obtain proper professional advice and get it resolved.


Thank you for the reply. It would seem not many people here have had such and experience since yours is the only reply, and I am grateful for it.

The Managing Agent who flagged up this problem, has just initiated this year's round of service charges, and I have no doubt that things will bumble along as before for an indefinite period. It's not in anyone's interest not to pay the service charge so whilst it is a reasonable sum, I doubt anything will happen to disturb the current sleight of hand as regards lack of legal authority. The danger will come from a possible future very large expense, or the inability ot sell. With only 65 years left on the lease, it may be that future sales might be cash only, but raising a mortgage up to now hasn't seemed to be a problem. The idea of resurecting the original manco seems ruled out because it has been dissolved for at least 8-10 years.

Following your remarks, I have decided that I shall write to my solicitor for advice and see how to proceed.

Thanks again,

Arb.

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Re: Management company dissolved

#396944

Postby Clitheroekid » March 18th, 2021, 11:20 pm

Arborbridge wrote:Following your remarks, I have decided that I shall write to my solicitor for advice and see how to proceed.

I'd be really interested to hear what they have to say if you wouldn't mind reporting back.

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Re: Management company dissolved

#396948

Postby Dod101 » March 18th, 2021, 11:49 pm

Were I you Arb, I would just try to sell and get out., There are simpler investments.

Diod

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Re: Management company dissolved

#396957

Postby GrahamPlatt » March 19th, 2021, 1:16 am

A very wealthy man I knew had an an interest in a unit on an industrial estate. Probably dated from his early years on the rise, but retained for sentimental reasons. One year, there was a demand for a very significant rent rise. It came to his attention and he was appalled. So, he visited the “neighbours”, to see what they would be willing to do about it. To a man they all shrugged their shoulders and were more or less accepting of their fate. So he bought the whole estate.

I’m not sure whether this is at all relevant

Arborbridge
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Re: Management company dissolved

#396978

Postby Arborbridge » March 19th, 2021, 7:56 am

Dod101 wrote:Were I you Arb, I would just try to sell and get out., There are simpler investments.

Diod


In normal times, that would be easy - but not at the moment. It's possible to sell with a tenant but one is on housing benefit - a good payer but not attractive to a potential buyer so I wouldn't achieve a good price. The other I don't want to lose as they are my best tenants, counterbalancing two others in the depths of arrears.
In the "old days" one did not have to evict people to sell and get a good price because in small properties, tenants would always be moving on regularly. Now, they are not moving, but one cannot evict even if one wanted to.

Actually Dod, there's no particular reason to sell at the moment - this arrangement around maintenance has worked out fine for a decade, so there's no point in rushing. It's something that needs solving, but at a cost around £5000 to set up a management company, the other owners will take some convincing.

And as far as the principle of selling goes - I need to convince Mrs Arb who sees this as a safe place to put capital but I don't want to be messing around with BTLs into my 80's!

Arb.

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Re: Management company dissolved

#396979

Postby Arborbridge » March 19th, 2021, 7:58 am

GrahamPlatt wrote:A very wealthy man I knew had an an interest in a unit on an industrial estate. Probably dated from his early years on the rise, but retained for sentimental reasons. One year, there was a demand for a very significant rent rise. It came to his attention and he was appalled. So, he visited the “neighbours”, to see what they would be willing to do about it. To a man they all shrugged their shoulders and were more or less accepting of their fate. So he bought the whole estate.

I’m not sure whether this is at all relevant


If I had the capital and was young enough..... :)

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Re: Management company dissolved

#397010

Postby Mike4 » March 19th, 2021, 9:36 am

GrahamPlatt wrote:A very wealthy man I knew had an an interest in a unit on an industrial estate. Probably dated from his early years on the rise, but retained for sentimental reasons. One year, there was a demand for a very significant rent rise. It came to his attention and he was appalled. So, he visited the “neighbours”, to see what they would be willing to do about it. To a man they all shrugged their shoulders and were more or less accepting of their fate. So he bought the whole estate.

I’m not sure whether this is at all relevant


Even if Arb bought the other flats in the building, he would still only have the leases, not the freehold. Would the freeholder need to be involved in some way in the forming of a new ManCo, given the dissolved ManCo probably owned it and it passed the the Crown? Presumably the Crown solicitors would co-operate in setting up A new ManCo and start receiving ground rent. So many questions!


Clitheroekid wrote:You need to obtain proper professional advice and get it resolved.


But your lovely comprehensive and illuminating post seems to close off all avenues for resolution. Assuming a 'typical' lease, what avenues for resolution are available given the reluctance of the other leaseholders to accept there is any problem?

Is the only possibility flogging the place to someone with a nincompoop of a conveyancer?


Edit to add:
I guess the OP could negotiate directly with the Crown solicitors and buy the freehold himself. That would put him in a position to regularise the situation at any time, should the need arise.

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Re: Management company dissolved

#397022

Postby Arborbridge » March 19th, 2021, 10:23 am

Mike4 wrote:
GrahamPlatt wrote:A very wealthy man I knew had an an interest in a unit on an industrial estate. Probably dated from his early years on the rise, but retained for sentimental reasons. One year, there was a demand for a very significant rent rise. It came to his attention and he was appalled. So, he visited the “neighbours”, to see what they would be willing to do about it. To a man they all shrugged their shoulders and were more or less accepting of their fate. So he bought the whole estate.

I’m not sure whether this is at all relevant


Even if Arb bought the other flats in the building, he would still only have the leases, not the freehold. Would the freeholder need to be involved in some way in the forming of a new ManCo, given the dissolved ManCo probably owned it and it passed the the Crown? Presumably the Crown solicitors would co-operate in setting up A new ManCo and start receiving ground rent. So many questions!


Clitheroekid wrote:You need to obtain proper professional advice and get it resolved.


But your lovely comprehensive and illuminating post seems to close off all avenues for resolution. Assuming a 'typical' lease, what avenues for resolution are available given the reluctance of the other leaseholders to accept there is any problem?

Is the only possibility flogging the place to someone with a nincompoop of a conveyancer?


Edit to add:
I guess the OP could negotiate directly with the Crown solicitors and buy the freehold himself. That would put him in a position to regularise the situation at any time, should the need arise.


I've no reason to believe that the freehold is with the Crown Estates. We pay ground rent to a company who claims to be (or act for) the freeholder : Proxima GR Properties Ltd.

The company which was dissolved was the management company set up to run the block maintenance, but did not own the freehold. Interest in this company lapsed after all the original owners had moved on, and the last guy left holding the baby did not realise the implication of dissolving it - idiot!

There does not seem to have been a problem selling the flats (until Covid, anyway) but with only 65 years left on the lease it will get harder to raise a mortgage.


Arb.

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Re: Management company dissolved

#397026

Postby scrumpyjack » March 19th, 2021, 10:33 am

Seems to me the first thing you need to establish is who owns the freehold. That is crucial. Was the management company simply a convenient mechanism for leaseholders to control the maintenance of the building or was it a vehicle for their share of freehold?

If it was the latter it is a much bigger problem than if the former.

If someone else owns the freehold they presumably have a legal right to ensure the building is maintained and, in the absence of a leaseholders management company, can enforce that right directly on the leaseholders.

If the latter, the danger is that instead of effectively owning a share of freehold, you now only own a 65 year lease :o

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Re: Management company dissolved

#397044

Postby PinkDalek » March 19th, 2021, 11:06 am

Arborbridge wrote:We pay ground rent to a company who claims to be (or act for) the freeholder : Proxima GR Properties Ltd.


In case of any interest https://find-and-update.company-information.service.gov.uk/company/03829939/filing-history

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Re: Management company dissolved

#397049

Postby Mike4 » March 19th, 2021, 11:12 am

scrumpyjack wrote:
If the latter, the danger is that instead of effectively owning a share of freehold, you now only own a 65 year lease :o


Surely from the OP's latest post, we now know this is the case.

"We pay ground rent to a company who claims to be (or act for) the freeholder : Proxima GR Properties Ltd."

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Re: Management company dissolved

#397058

Postby Arborbridge » March 19th, 2021, 11:39 am

scrumpyjack wrote:Seems to me the first thing you need to establish is who owns the freehold. That is crucial. Was the management company simply a convenient mechanism for leaseholders to control the maintenance of the building or was it a vehicle for their share of freehold?

If it was the latter it is a much bigger problem than if the former.

If someone else owns the freehold they presumably have a legal right to ensure the building is maintained and, in the absence of a leaseholders management company, can enforce that right directly on the leaseholders.

If the latter, the danger is that instead of effectively owning a share of freehold, you now only own a 65 year lease :o


The invoice from Proxima GR does state on the back (I just went to check) that they are the landlord, so I'm guessing that means they are the freeholder, and it was an invoice for ground rent.

I never did have a shared freehold so it's a herring rouge. The management company was set up purely to run the maintenance and share its cost between the owners - it never was anything to do with the ground rent or freehold.

As I understand it - as you also mention - I believe the landlord has the right to step in and ensure that the building is properly maintained. However, if they did this (and it might not be a bad thing anyway) the owners would be able to go through the right to manage process to "take back control" :lol: Indeed, we would have to do that now if we wanted to resurrect a manco with legal authority.

In a sense, that's why I'm not even sure it matters. If we carry on as we are, the block is being maintained: if we let it lapse Proxima GR can step in and take over. If we set up a manco it will have formal authority, but in practice it won't make much difference from day to day - except that I'll most likely get lumbered with being a Director when everyone else takes a step back.

Arb.

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Re: Management company dissolved

#397061

Postby Arborbridge » March 19th, 2021, 11:42 am

scrumpyjack wrote:
If the latter, the danger is that instead of effectively owning a share of freehold, you now only own a 65 year lease :o


That's hardly unique. Most flats I've ever looked at to buy do not have a shared freehold. And there are problems with shared freeholds - like getting anyone to agree on anything to do with spending money, or put in any effort at all.

Arb.


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