Managing freeholds need Ltd Co?

Does my relative need to set up a Ltd Co to manage the freehold on her flats, or simpler option?

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My elderly relative owns the freehold of a house divided into three flats. She lives in the ground floor flat, and sold the other two leasehold flats over twenty years ago. Since then she has asked the leaseholders for contributions for repairs to the building as and when needed. She has not asked for a service charge, only £25 ground rent each year.

I need advice on how to help her organise this better, I don’t think it needs an outside management company, just a way to formalise the arrangement. I am reluctant to say to her it should be set up as a Limited Company, as I don’t know if this is necessary.

Any advice appreciated.

 

Replies (14)

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RLI
By lionofludesch
16th May 2024 14:03

Legal question.

Personally, I wouldn't touch this with the proverbial barge pole, relative or not.

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Replying to lionofludesch:
Flag of the Soviet Union
By thevaliant
17th May 2024 11:34

I agree.
Only as a cautionary tale, my firm were approached by a pre-existing personal tax client about six months ago. "Could we help with a flat management company?" was the question. Personal tax client lives several hundred miles from our one and only office.
The partner who says 'Yes to Everything - worry about how to do it later'(mentioned in my earlier thread) said Yes, and then remembered I'd run a flat management company for eight years where I lived (A thankless, difficult task). So in his head, we could definitely do it!

I made searches and polite enquiries and found out:
1. We were being asked to act as accountants for the freehold company.
2. The freehold company had two shareholders (and shares!!!! Not Guarantee), one owned by pre-existing client who WASN'T a lessee, and one owned by another lessee.
3. There were more than two flats (quite a bit more). Some of those flats had been promised and paid for a share in freehold company (but no shares issued) and some had not.
4. There was a pre-existing management company owned by the lessees, but which wasn't used to buy the freehold (new company had done that).
5. There were existing lawyers and a managing agent, neither of which had been approached to help.
6. Lease extensions hadn't been thought about, despite one of the reasons for buying the freehold was to get that done.

I emailed privately, setting out all the issues and said we shouldn't act. It was a complete dogs dinner and needed specialist legal and leasehold advise to resolve, not a firm of Chartered Accountants half way across the country.

Client thanked me, and I've heard nothing since. Partner has never asked 'what happened to that company we were to quote for?' which I suspect is for the best, as he was only chasing fees and not interested in the best interests of the leaseholders/members.

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By David Ex
16th May 2024 14:12

Wonder if the arrangements put in place when the (presumably) long leases are granted were adequate.

Agree legal advice is the way to go.

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By taxdigital
16th May 2024 14:15

Agree with others - this forum is unlikely to be of much help in this case.

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DougScott
By Dougscott
16th May 2024 15:29

As others have said this appears to be mainly a legal question and that needs to be clarified first. However you don't need a limited company you can just have an agreement between each party to share maintenance costs - but clearly best if it is a legal agreement in writing (which may/should already exist in the leasehold agreements)

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By ireallyshouldknowthisbut
16th May 2024 15:29

I am commenting purely on the administative side here. Legal side - lawyer time.

But I can tell you the main reason you have these companies is the company owns the freehold.

In this case your relataive owns it.

I am not sure why a limited company would help run a management company for two flats.

I would also listen hard to what the two leasholders want to do, ie pay on an "arising" basis? or monthly to build up a pot of cash?

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Replying to ireallyshouldknowthisbut:
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By FactChecker
16th May 2024 18:08

My hackles (the warning ones, not the anger ones) flared into action when I read:
"She .. sold the other two leasehold flats over twenty years ago. Since then she has asked the leaseholders for contributions for repairs to the building as and when needed."

That sounds horribly like either the Lease documentation is inadequate or it isn't being adhered to ... neither of which would be good news.
Of course that's all in the nature of legal issues that a good solicitor should be able to advise on - and that sounds like a fairly urgent next step.

Unless there are other objectives (not disclosed by OP) then there's no obvious reason why sorting this out would involve creating a limited company (with all the immediate costs plus annual costs plus likely longer-term tax impacts - none of which sound attractive to someone who seems to have gone for 'keep things simple' up to now)!

OP: the only other certain thing is that (unless you hold PoA for your relative), you should not be advising or even encouraging her down routes for which she needs proper professional advice.

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By Elea1
16th May 2024 16:10

Thank you very much for replies, very useful.

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By More unearned luck
16th May 2024 17:53

If your relative is to continue to manage things, how does forming a company help? Does it help sufficiently to outweigh the admin and costs of running a company?
Why does her current practice need improving?

Before you do anything read the leases.

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By Bobbo
16th May 2024 18:35

One immediate question that springs to mind is buildings insurance. I.e. how has cover for the property been being arranged for the last 20 years and who has been paying for it?

On a much more minor level, cost of electricity for lighting in communal areas (I assume there's at least a hallway with a light or two in it) - who has been paying for this.

I wouldn't say a limited company is necessary but it would be recommended to look at the leases and start following them properly in terms of service charges.

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Replying to Bobbo:
DougScott
By Dougscott
16th May 2024 23:42

Nonsense, no need for a limited company in this scenario.

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Replying to Dougscott:
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By Tax Dragon
17th May 2024 05:24

"it would be recommended to look at the leases [etc]" not "I wouldn't say a limited company is necessary but it would be recommended".

There isn't even a missing (or extra) comma making the sentence ambiguous. How do you cope reading legal documents, such as leases?

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Replying to Dougscott:
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By Bobbo
17th May 2024 09:20

Dougscott wrote:

Nonsense, no need for a limited company in this scenario.

Whilst TD has kindly stated my sentence isn't missing any punctuation, on re-reading it is perhaps not as clear as I intended.

So for the avoidance of any doubt, a limited company is not necessary in my view. For example the freehold and management of the building I live in is not within a company. Unfortunately my freeholder does demand sums from me annually rather than the casual management exercised by OP's relative!

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Replying to Bobbo:
DougScott
By Dougscott
17th May 2024 09:25

Ah okay I misunderstood. And yes you need to dig out the leases first and see what they say.

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