Directors of block sell assets to themselves undervalue and evade fair share of annual service charge!Make Text Bigger
I have an unusual situation which I wonder if any anyone else on Property 118 has previous experience of or has advice on?
I own a two bedroom mansion flat in West London which I bought nearly twenty years ago, it has been rented out for most of that time and as I live overseas it makes it impossible for me to be on the Board, which consists currently of five members, all flat owners.
The mansion block is divided into several smaller sub blocks each adjoined and running the entire length of one side of the street and containing about 140 flats ranging from basement level to third floor.
At the time I bought my flat the Board was considering the sale of half the common areas in the basement of each sub block. These common areas could only be useful to the owner of an adjacent basement flat or raised ground floor flat as they were considered too small to be a separate dwelling, or at least that is the story the Board maintained.
Ostensibly this was to raise money to renovate the other common areas. I expressed interest to the managing agent to buy the common area for sale in my particular sub block, but my neighbour had an inside track being the Chairman of the Board. He used the managing agent to stonewall me and eventually bought the available common area, for a ridiculously low price which the Board had set, and also the adjoining basement flat which he joined together to create a much larger flat. Most flats are about 100SM in size, but extended basement or raised ground floor flats are easily 150SM. Some loft voids were also sold to owners of top floor flats virtually doubling them in size to 200SM, with no respective increase in their share of the annual service charge.
Unsurprisingly, most of the Board members themselves conveniently ended up owning a piece of the basement common areas for sale.
Apart from the travesty of selling these areas cheaply to themselves, they would be worth a fortune today and could have been converted into small apartments which would bring in a good rent to support the annual service charge, they also left their share of the service charge unchanged. The deed for each flat states the percentage of the annual service charge each individual flat must pay, usually ranging from 0.6 to 0.75 % of the total annual service charge. The argument is that as the Deed never returns to the Leaseholder then they are set in stone and cannot be changed.
Currently four out of the five Board members owns an extended flat and the service charge goes up by about 3% every year.
I find it unconscionable that Board members decide on how to spend everyone elses service charge payments when four out of five of them are partially getting a free ride by having a reduced annual service charge for themselves. One board member even owns a massive flat of easily 200SM which he created by purchasing two small flats originally designated as being for maintenance staff and so listed as not having to contribute to the annual service charge and then joining it up to a cheaply sold off common area.
He makes zero service charge contributions yet has the largest flat in the block and sits on the board deciding how to spend the money contributed by all the other owners.
I would like these board members to step up and change the situation for the common good of all owners by coughing up an increased and fairer share of the annual service charge for all the extended flats.
I think this could be done by the Board passing a special resolution to impose an increased service charge on extended flats. If not retroactively then surely this could be done at least every time one of these flats changes ownership.
I have consulted a solicitor specialist in director fraud who says nothing can be done about the sold off common areas, but regarding the service charge states my legal options will cost 20 to 30k and are
1, Application for a Declaration.
2, Derivative Action.
3, Minority Shareholders Action
I have asked the company secretary to ask the Chairman to contact me by email, as his email is not listed, but only a business address, but of course have not heard anything from him. I am considering writing to him but first thought I would ask if anyone on Property 118 has an opinion of how to gently persuade the Board to be fair and increase the service charges for the extended flats?
If there is no communication from the Chairman then I am considering writing to the owners of all the other flats. Obviously this will make me deeply unpopular with the Board members. All the details of sales are public records on the Land Registry website, the Local Authority planning Dept website and the Companies House website which has all the annual financial statements of the Mansion block ownership Company, of which each flat owner owns a share.
I suspect that hardly any of the other owners of non extended flats are aware of this situation and feel the non communication from the Chairman is indicative of him having something to hide and so an aversion to bringing this subject into the open.
Although the Board members involved are clearly shameless I do believe they would not particularly like this situation to be publicised to the other leaseholders in particular or it to be general knowledge locally in neighbourhood where they live.
Any advice greatly appreciated.
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