management company issues property management guideAs shown in a recent example where somebody owns an office block and contributes towards a shared rear car park, things can appear straightforward on the surface, but when you dig deeper you find a nasty set of problems. In this scenario, the owner was re-letting to a new commercial tenant and during their enquiries, solicitors were starting to unearth various issues.
 
In particular, there were 5 aspects to this that happened to all converge together in one scenario. They’re best explained as the story unravels about it.

1. The Original Car Park Lease Was Not Transferred 

So whilst they owned their actual property freehold, the ownership of the rear car park was through a long leasehold interest and management company, with this particular owner having a sub-lease granted for so many car parking spaces. On one side this will provide them a right of control over their spaces and access to them, whilst on the other an obligation to pay a service charge to maintain them and become a shareholder in the management company.
 
But fifteen years ago this was never transferred over, a serious mistake by their solicitors. So they purchased the freehold, but never formally took on the car park interest. Although in reality they had bumbled along with use and payments, there was no documentation, not only worrying for use but also potential loss of value with not technically ‘owning’ the valuable car park interest.  

2. A Management Company Was Involved 

So the owner of the car park was a management company just set up for this property and purpose, often the case in communal commercial and residential developments.  
 
In order to make it self-regulating though, each beneficial party can have a membership or shareholding with this management company, so on one hand they may be a tenant through their leasehold interest with the landlord management company, yet on the other hand having a direct interest in this landlord entity.
 
Confusing I know, and what not only needs explaining in terms of different company- as well as property-related liabilities, but clearly documenting and any shares and membership changing with transfers of interests.

3. They Wanted Their New Tenant to Pay the Service Charge

In reality this makes sense, as they were the effective end-user of the spaces, but the official way to route this is for the management company to still charge the owner, who can then separately recharge their tenant through an appropriate agreed clause in the lease.
 
However, in reality you can cut out the middleman, and the management company just charge the occupier, but make sure this is clarified in writing and does not override the reality of the middleman still being liable.

4. Realise Who Pays the Bill For Resolving the Issues

So here the owner was already racking up legal fees of over £2,000 to sort this mess out, but you need to check if the other side’s costs also need covering as well as your own, both legal and general property advise fees. 
 
Worst case scenario, you also need to see if someone else needs to cover these due to the initial error, either directly or through a claim against them – very messy. 

5. Building Insurance Being Covered 

This was the worst part of it all, that the management company who’s focus on paper is just the rear car park also ended up arranging the building insurance for the properties. This actually made sense in reality, as they were all part of one construction and therefore one policy is best for all, but on paper there was no obligation to. 
 
So it’s kind of like you paying your next door neighbour to arrange your own house insurance, but if you had to make a claim and you were under insured you have nothing in writing to oblige your neighbour to do it correctly – therefore worst case, you suffer a serious loss.
 
In this instance, while solicitors were busy with legal documents, the opportunity was used to get this arrangement clarified for the benefit of everyone.

Keep Opening the Can of Worms

It can be tempting to bury your head in the sand on issues like these, particularly as one piece of bad news seems to come from another, but it’s essential you keep on digging to get everything out in the open. 
 
Longer term, it will not only save you with direct issues later on, but costs to resolve can be lower and of better value now whilst professionals like solicitors are agreeing new documentation.

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