Directors of block sell assets to themselves undervalue and evade fair share of annual service charge!

Dear Alan,

I am not an expert in this area and hopefully others will be able to add some assistance.

However, I have been researching the Leasehold Advisory Service and the alternative dispute resolution section is interesting as most avenues seem to end in First-tier Tribunal

See >> https://www.lease-advice.org/advice-guide/application-first-tier-tribunal-property-chamber/#23

"Alternative Dispute Resolution

Where appropriate the Tribunal should seek to bring to the parties’ attention the availability of any appropriate alternative procedure for the resolution of the dispute which may include mediation and if the parties wish the Tribunal should seek to facilitate the use of the procedure.

Tribunal hearings are open to the public and their decisions can be seen at the Tribunal offices. LEASE provides a schedule of decisions with access to the full text of the determination. Tribunals can determine a wide range of disputes, including:

disputes about the terms and price of buying the freehold or extending a lease;
disputes about the liability to pay, and reasonableness of, a service charge, an administration charge, or an estate management scheme charge;
disputes relating to building insurance;
whether it would be appropriate to appoint a new manager in a block of flats;
whether a residential long lease (primarily of flats) should be varied;
disputes relating to the right to manage;
alleged breaches of a lease prior to a landlord serving a notice under Section 146 of the Law of Property Act 1925; and
whether a dispensation should be granted in respect of the consultation requirements under Section 20 of the Landlord and Tenant Act 1985."

Section 19 of the Landlord & Tenant Act 1985 says that service charges are only payable to the extent they are "reasonable". On the face of things, the situation you have described is entirely unreasonable. The First Tier Tribunal exists to adjudicate on such matters and is designed to be a low-cost dispute resolution service.

I would write to the manco and say that you consider the apportionment of charges, part which constitutes their "zero" contribution, as unreasonable. On that basis you are making an application to the FTT for determination of your liability. If the FTT find in your favour, you could tell the other leaseholders and they can use your judgement to get their contribution changed. Alternatively, a group of you could band together and make a joint application.

I dont think that you will get anywhere withe sale of the communal areas but it sounds like there has not been transparency in this process to say the least! I would avoid committing to spending thousands of pounds with solicitors for no real prospect of a meaningful outcome.

LEASE can give you lots of good free advice over the phone.

Thank you Neil and Robert for bringing to my attention LEASE and FTT, I will contact them and give an update when I know more.

Well what a mess. As a previous member said you can go to the First Tier Tribunal and make an application for the unfairness of the directors. you can make a case for unfair practices on their part. LEASE offer legal advice for a small charge.
Service charge is based usually on Square Footage and that should be in lease. If the directors buy additional space then they have to pay the additional service charge.

If you need advice contact Amanda Michaels of Bright Willis in Birmingham She owns her own company and is legally qualified to help you

Reply to the comment left by PATRICIA SIMPSON at 16/10/2017 - 21:59
Thanks Patricia, I will contact Amanda to get an opinion of where my case may go.

Hi Alan, I would ask the Chairman for a copy of the Articles of Association or Constitution & Rules. At some point these documents will have been agree to and voted in by the members. It will prescribe how the board of Directors behave and will always include a clause that prevents the directors from benefiting from such "opportunities". It will also describe what to do if you wish to propose a vote of no confidence etc. If it is a Ltd Company then the Articles of Association will be available from Companies House. Remember, however, that these Board roles are often voluntary, time consuming and unpaid and sometimes deserving of the odd perk!

Hi Rob,
The Board members have to sign a statement entitled "Rules on conflicts of interest for directors of xxxxx Ltd" which explains all the situations of a conflict of interest. I would say they are contravening this document every day.

Also the Articles of Association state in one paragraph as below,
"If a Director has an interest in a matter to be discussed by the Board, the Board may (by a simple majority vote and with the Director(s) with the interest voting) exclude that Director from the Board’s discussions, and eventual vote, on the business in which that Director has an interest. In addition, a notice must be included in the Company’s annual report and accounts each year to the following effect: “The current Board rules on conflicts of interests relating to directors are available on request from the Company Secretary.”

This ought to exclude four out of five board members from voting on any proposal to change the proportions of service charge per flat to something more fair as these four members have a conflict of interest due to owning a flat with a reduced contribution of service charge. Its doubtful the just one remaining board member could make the vote. This would effectively make the board non existent for this vote so probably it could never be voted on for that reason.

I recently bought the lease of a flat in West London. The RTM is and has always been a dormant company. The directors hardly communicate with the leaseholders outside their close group. They never ever had a general meeting. I just discovered that one of the directors of the RTM is not a leaseholder. His parents are but not him. He is also not a member of the RTM. Is this legal?