Property management companies

[JapanRed]

I wasn’t sure if this needed to go in finance or in the homes section. Mods feel free to move.

We are in the process of buying a freehold house. It’s an independent local builder and there are 5 detached properties, with a shared access road which is probably about 400-500 metres in length. I assumed that the shared access road would just be left for the 5 properties to self manage (it’s going to be tarmacced, with a path at one side and hedging/shrubs down the other - see CGI of site below) however our solicitors have sent us a draft transfer deed which mentions a management company being set up to manage the shared area. The directors are the builders (it’s a family run business). There are the usual restrictive covanents in there which are ok I guess, but what is annoying me is that we are going to be paying for this management company for years to come (indefinitely probably).

I’m also worried about management co costs. There is no mention of whether the costs might be £150 or £1500 per year. There is no mention of capped costs - what is there to stop the company increasing charges year on year like I’ve read in the news this past year? There’s no mention of whether the directors will take salary or dividends or if the company is not for profit. I’m sure the builders are all above board but what if the builders sell the management company to someone who wants to profit from it?

I’ve emailed all this back to my solicitor but would welcome any advice in the meantime.

[Eric Mc]

Be very wary. As far as I'm aware, there are no regulations limiting how much management companies can charge for the "services" they provide.

[barryrs]

The builder may have set up a company in readiness to transfer it at a later date which is common practice, so I wouldn’t be alarmed just yet.

Typically we seek at least 4 budgets from management companies so if they have reached the point of selling they should be able to provide an annual budget estimate for manco fees.

ETA

Might be worth checking if the sewers are being adopted or if these will go to the manco also.

Edited by barryrs on Monday 14th June 15:08

[NickCQ]

You (or your independent solicitors) need to see the management contract between the owners of this road (i.e. you / the other homeowners) and the management company (i.e. the related party of the builders). Without seeing that you have no idea whether the fees are capped for any length of time and whether you have the ability to terminate the management contract.

I would assume that the statutory "Right to Manage" for leaseholders is not relevant in situations like this.

[JapanRed]

Thanks all. I’ve spoken with my solicitor and also to the builder. Builder says (and companies house corroborates) that is the third site that they have built where they’ve used a management co. The plan is for the builder to remain as director for first 6-12 months after everyone has moved in, and then ideally at least 2 of the properties (or more) take over the company. This would mean the builder resigning as director and is as owners managing it ourselves.

I’ve checked with companies house and the builders have indeed resigned as directors of the other 2 management companies last year.

So this makes me feel a lot better about the whole thing. Do you guys agree?

[Eric Mc]

What happens if the directors decide not to resign?

[NickCQ]

JapanRed said:

So this makes me feel a lot better about the whole thing. Do you guys agree?

Get it in writing.

[JapanRed]

Eric Mc said:

What happens if the directors decide not to resign?

I get your point Eric. What can I do to mitigate any risk? We really don’t want to pull out of the house (especially as everything “seems” to be above board). It’s our dream house (we’ve been looking for 2 years). We’ve already sold our old house and are currently in rented whilst this gets built. The builder lives 2 villages away and my wife’s mum has known him for 30+ years. He seems genuine and is well liked locally.

Agree with you that this doesn’t mean anything in the eyes of the law though. Are there any steps I can take to mitigate risk? Other than pull out of the purchase, what can I do?

[JapanRed]

NickCQ said:

JapanRed said:

So this makes me feel a lot better about the whole thing. Do you guys agree?

Get it in writing.

Thanks Nick. Does it have to be drawn up by a solicitor or would an email suffice that basically says that they will hand over to properties owners after xx months following completion of all 5 houses. Or if not email, a word document with signatures of the builders?

[NickCQ]

JapanRed said:

Thanks Nick. Does it have to be drawn up by a solicitor or would an email suffice that basically says that they will hand over to properties owners after xx months following completion of all 5 houses. Or if not email, a word document with signatures of the builders?

IANAL - ask yours for guidance but you need to get comfortable about the "what if" scenarios (e.g. some of the houses get delayed or don't sell for a long time, some of the other homeowners don't want to take over the mgmt company, builders change their minds).

Personally I could get comfortable with email confirmation of all of the following: (i) the plan as described to you; (ii) management fees reflecting reasonable costs; and (iii) a majority of homeowners (excluding any homes still owned by the builder) having the right to replace the management company.

[JapanRed]

NickCQ said:

JapanRed said:

Thanks Nick. Does it have to be drawn up by a solicitor or would an email suffice that basically says that they will hand over to properties owners after xx months following completion of all 5 houses. Or if not email, a word document with signatures of the builders?

IANAL - ask yours for guidance but you need to get comfortable about the "what if" scenarios (e.g. some of the houses get delayed or don't sell for a long time, some of the other homeowners don't want to take over the mgmt company, builders change their minds).

Personally I could get comfortable with email confirmation of all of the following: (i) the plan as described to you; (ii) management fees reflecting reasonable costs; and (iii) a majority of homeowners (excluding any homes still owned by the builder) having the right to replace the management company.

Thanks Nick, this is very helpful.

[superlightr]

Another common situation when you when you buy the property (even freehold) that has some communal aspect that you are all required to look after you would also get a share in the ownership of management company. The purchase/sale ties up with the man co so cant be seperated.

You then hold meetings etc and can appoint directors to run the man co. So I would hope to see in your purchase documents confirming this.

[Deadlysub]

This has happened with the small development I live in, two residents became directors. Still loads of petty arguments over fees though.