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Joshua
Joshua, Lawyer
Category: Property Law
Satisfied Customers: 25486
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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, I am director of a Right To Manage limited company

Resolved Question:

Hello,
I am director of a Right To Manage limited company who employ a managing agent. We had a major project worth £300,000 (rough figures used for purpose of question). The money was released by the managing agent to the contractors solicitor to hold who then release it to the contractor on agreement by all parties.
Erroneous information from our managing agent meant we authorised £330,000 (30K to much) which was sent to the contractors solicitor.
Fortunately, one of the fellow directors noticed the error around 6 months ago and we demanded it be returned immediately. This has not happened.
They appear to be trying to say they will only return it if we agree to sign off the project which we are not doing yet simply because of snagging issues. We see sign off of the project as unrelated to returning surplus funds which should never have been sent in the first place.
Our managing agent is meant to be trying to get these funds returned but they do not appear to be acting in our interest and as a result it still has not happened.
The directors including myself has asked the managing agent to send some kind of preaction letter to the solicitors contractor holding the funds demanding they be returned or we take action.
At present when we the directors try contact the solicitor we do not get any response presumably because their client has instructed them not to return the surplus.
My very basic understanding is if client funds are sent in error then they must be returned, but that's as far as my knowledge goes.
My question here is, are laws being broken and if so which ones and by who and how best to demand the funds be returned? My feelings are the managing agent should be returning the fund immediately to our bank account and then the onus is on them to get the surplus returned to themselves.
Thanks
Submitted: 2 years ago.
Category: Property Law
Expert:  Joshua replied 2 years ago.
Joshua :

Hello and thank you for your question. I will be very pleased to assist you. I'm a practising lawyer in England with over 10 years experience.

Joshua :

You refer to erroneous information from your managing agent leading to the release of £30K too much. Could you clarify who made the error and briefly what the error(s) was please?

Joshua :

For the avoidance of doubt, do I understand correctly that the contractor accepts that £30K too much has been paid and the contract value was only £300K (using your rounded numbers)?

Joshua :

Is the contractor financially solvent to your knowledge?

Customer: Reading through our logs the project manager appointed by our managing agent signed off the release of the funds based on a bunch of extra work which was never agreed on and was never done in the end. To correct my previous comment it looks like neither of us directors agreed to it either. We simply noticed the funds missing later. The contractor does agree the funds are in surplus and we have several emails which show that. The contractor is waiting for their final 3% to be released back to them and the emails suggest they will return the surplus once we sign off the project and return the 3%. We can't do that now until we have all snagging issues resolved. The company is still solvent (big window company) and the solicitor holding the funds is also solvent.
Joshua :

Thanks

Joshua :

I appreciate we are using round numbers here but do I understand correctly that they have £30K too much but are owed £9K as the final stage payment following completion of snagging? In other words assuming the full final stage were to be released to them the net amount of £21K is due back to the company?

Joshua :

Finally I assume you have a formal JCT or similar contract in place which provides for a retention subject to snagging and under the terms of that contract the final retention is not yet due because the snagging has not been completed and the RTM company is not overdue in respect of the timescale provided for snagging - i.e. you are not delaying snagging?

Customer: Actually a total of 39k would be sitting with the solicitor of which 9k will go to the contractor.
Customer: That at is correct we are not overdue the 9k as the snagging has not been resolved and the conditions say it will be returned once our project manager signs it off which has not happened.
Customer: It is also true that the contractor are trying to push some of the snagging issues out the way by saying either they have resolved them or no longer their issue. On each occasion we revert back explaining the issue they agree it's outstanding.
Customer: That sounds odd but that kind of behaviour seems really common if such can get away with it. My point being there is no disputed regarding the project being complete or not. However it appears they want to settle the funds issue then look at any outstanding issues after. That would be a bad idea and it doesn't seem right to hold funds which should never have been sent and not return them until we pay them the remainder when it's not due.
Joshua :

Thanks - could you lastly just confirm the position regarding the JCT or similar contract above?

Customer: We have actually been trying to get the money back for around a year long before we started debating the final retention. Also previously the contractor did agree to return it.
Customer: Yep I do not have the jct in front of me but the other directors have confirmed that is the case.
Customer: I can get hold of the contract to confirm the type and contents but not in front of me. So not sure if it's a jct or some other contractor but based on the other director comments so thing should be in place.
Customer: sorry about my spelling and grammar - I'm using my phone !
Joshua :

thank you. Based on what you say, this is a relatively simple matter whereby the contractor has been overpaid and therefore they have no option but to refund the money without delay; the only frustrating factor to the otherwise above simple position is that of the contractor attempting to use the return of the above monies as leverage in rspect of its obligations under the contract.

Joshua :

on the basis you have a formal JCT agreement however this makes things simpler. JCT agreements as you will likely be aware provide for a formal structure to the building payment process whereby the contractor is only entitled to payments in certain stages once each stage is complete and not before.

Joshua :

based on what you say, if slagging has not yet been completed and the RTM company is not overdue in its obligations under snagging, then no snagging payment is due at this stage and the contractor is not entitled to leverage payment using funds it has incorrectly received nor is it entitled to hold a lien over that incorrectly received money

Joshua :

it seems to me there are two ways in which you can proceed from here. The first is to insist that the provisions of the contract are complied with precisely whereby no final payment is yet due, and monies transferred incorrectly to the contractor must be repaid immediately and snagging and the final payment will be dealt with in the usual way failing which the RTM company reserves its right to charge interest and issue a statutory demand for the money and/or court proceedings.

Joshua :

the alternative approach is what might be considered at least by the contractor if not the RTM company a more practical approach is that you could require the return of the money less the final retention immediately with snagging being dealt with in the usual way. this however may not be practical from your point of view because the contractor may be less keen to ensure that any final matters are dealt with as efficiently as they may be if they had not yet been paid so there is no reason to agree to this approach

Joshua :

finally, if you can identify negligence and the part of one of your advisers, there is also potential claim for negligence against that party by the company. This is probably not overly useful in practice but may be so if you are not able to recover monies or costs from the contractor in recovering monies

Joshua :

if the contractor is solvent and wishes to remain so, a simple approach might be to serve a statutory demand on the company which is a formal demand requiring them to pay what is owed within 18 days of receipt or face the possibility of a winding up order. Such a notice requires them to formally apply to set the notice aside in court within 18 days of receipt or they will be vulnerable to an application for a winding up order

Joshua :

Your solicitor could assist with this if needed though it is very straightforward and there is no cost other than that you must send it using a recorded or special delivery.

Joshua :

This is the form you need assuming the contractor is also a limited company:
https://www.gov.uk/government/publications/statutory-demand-insolvency-form-41

Joshua :

Does the above answer all your questions or is there anything I can clarify or help you with any further?

Customer:

Hi Joshua,

Customer:

I am finally at home so easier to respond now. Much appreciate your detailed response. It certainly answers my query and I am going to discuss this with the rest of the directors. I will rate this now. One final little question if possible - am happy to raise a new question if you suggest. In the period between the RTM requesting our property management initiate this action (assuming we do not do it directly from the RTM), as the property management sent their client funds (the RTM's) based on the erroneous information

Customer:

can we ask/expect the management company to immediately reimburse the funds whilst the action is taken? As they are responsible for the bank account etc ?

Joshua and other Property Law Specialists are ready to help you

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