The deep end of pooled letting pools

24 April 18

We regularly review a variety of letting appointments (the agreement between the building manager acting as letting agent and the owners of the investment units used in a letting pool) and we often find that there is a noticeable gap between what the appointments state versus how they are interpreted. For the most part the gap can be attributed to overly simplified clauses that do not adequately state the practices that the majority of the industry operates under. In general, these inadequacies are rarely the subject of a legal dispute (when business is good) and so fixing them is often left on the “do it tomorrow” pile.
 

When we look at letting appointments where the income is pooled between owners, the gap between what the appointments state versus how they are interpreted by the manager and the owners is often far more significant. This is often due to the fact that the line between the income and expenses that are pooled and the income and expenses that are tracked individually can vary from building to building. This uncertainty can easily lead to disputes with the manager where owners contest the distribution of the pooled income or the allocation of expenses.

If you are operating a pooled letting pool, the common issues you could face include:

 

  • How to fairly determine the income ratio. Do you allocate based on number of beds, unit entitlements, quality of the unit, sea views or some other unique quality? Or do you divide everything equally regardless?
  • How to share expenses. Do you share any or all expenses across the pool? Do you share expenses only up to certain cost? Do you use the same ratio for sharing income to also share expenses?
  • How to determine who authorises significant expenditure. Do you ask the owner or should you be asking all owners as all owners are sharing the costs?
  • How to operate a maintenance fund. Do you collect a levy or withdraw expenses as and when incurred? What happens when an owner leaves the pool or has only just joined the pool? What happens to the owner who has just left the pool after getting a new water system paid by the pool?
  • How to adjust income when the owner uses their unit. Do you make no adjustment, or do you pro rata adjust for the days used?
  • How to change the terms of the letting appointment. What do you do if not all owners agree to your proposed change?


In the vast majority of letting appointments we see for pooled letting pools, the vast majority of the questions raised above are not sufficiently answered, or if answered they create arguably unfair scenarios where owners of a certain class are effectively subsidising the owners of other classes. For example, if two bedroom units are used far more often than three bedroom units, the owners of the two bedroom units are supplementing the income of the owners of three bedroom units and to add insult to injury the three bedroom units also have a higher sale value.

When you look at the examples above you can see there are many situations where a disgruntled owner could easily start to ask difficult questions when the terms of your letting appointment are either vague or silent on the issue. If you operate a pooled income letting pool and your letting appointment doesn’t have the answers for these kinds of questions it’s definitely recommended that you prioritise a revision of your agreements as it only takes an issue with one owner to be an issue with all owners.
 

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

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