September 2016
Share transfer means shared responsibilities: can you live with that?
Whether you are buying or selling a share transfer flat, there tends to be some common sticking points. Share transfer ownership is different from freehold in that it involves a certain level of collective responsibility. Think of it like you are entering into a democracy: you will have a say, but you may not always agree with the final decision of the majority. You will be bound by ongoing financial contributions; the service charge, general maintenance and possibly a sinking/reserve fund (a savings account). Meetings can get particularly heated when some shareholders want to invest in the upkeep - and therefore the value - of the property, while others may not. Insurance could be invalidated if general maintenance is neglected. It is essential that you attend company meetings to ensure that, as much as possible, you have your say on such matters and protect your own interests.
Deal breakers
In the worst case scenario the information below can make the difference between a sale going through or falling through, so the earlier you address these points the better. Buyers can help themselves by asking these questions and vendors can take the initiative to give this information to their appointed estate agent to pass on to prospective purchasers.
Service charge
- How much is the service charge, how frequently is it paid and is it paid in arrears or in advance?
- What does the service charge include? This varies from company to company, e.g. some include parish rates, others don’t.
Sinking fund
- Is there a sinking fund/reserve fund (a savings account) held by the company?
- If there is, how much is in it and are contributions automatically transferred into it from the service charge or will they be extra?
Extraordinary costs
- Have any extraordinary expenses been planned or discussed by the company and, if so, what provision has been made to cover these anticipated costs?
- Some companies only use the service charge to cover regular bills and therefore any extraordinary costs are on top (e.g. external redecoration, driveway repairs). Check if this is the case for the property you are interested in.
Frequency of meetings
- Purchasers should ask how frequently the company holds meetings; regular meetings are generally a good sign. Often companies do not hold meetings for years and then have issues in reaching a quorum (the number of people required to validate the meeting and for decisions to be made).
- Does the company employ a professional secretary? Records are often better maintained if a professional is employed, but obviously there is a cost to this.
Disputes & parking
- Parking issues are often the cause of disputes. What is the situation regarding parking? Do you have “exclusive” rights to occupy a parking space or spaces, simply a right to park a car on the company’s property, or no rights at all? Is there allocated visitor parking; and is it used as intended? Some companies impose restrictions on commercial vehicles, so be careful to check out the position at the outset.
- Have there been any disputes between the shareholders or neighbouring properties? If so, why?
Rules & regulations
- Companies usually have the ability to draw up rules and or regulations the shareholders have to abide by. Often these can include restrictions on pets, children, hanging washing outside etc. Ask for a copy of the rules to see if any would pose a problem for you.
Reason for sale
- Why are the vendors selling? Ask whether any issues have been raised or discussed in relation to the company’s property at recent meetings that could involve unexpected costs for the shareholders. Request a copy of the last three sets of minutes of the company as these may give you an insight as to current matters being covered/raised by the shareholders.
Whilst the above are all points that your lawyers should raise as a matter of course, it can save time, often heartache and even money, if this information is considered sooner rather than later. Be a responsible vendor / purchaser and take an active part in the process because ultimately this will help minimise stress, time and expense for you.
