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Señorío de Aloha – Annual Report of the President

Dear Owners,

INTRODUCTION.

If you intend to vote directly or by proxy at the Annual General Meeting (AGM), I urge you to review the list of delinquent owners. There are a number of owners who may not be aware that they owe small amounts. If you appear on this list, you have until the morning of the AGM to settle the outstanding amount and exercise your right to vote in person or by proxy. An updated list of outstanding debts will be available on the morning of the AGM and will be used to verify which owners can exercise their right to vote.

The participation in the AGM/EGM through Zoom, Teams, Skype, etc. is only allowed in Catalonia, so it is necessary to hold the meeting in person.

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I hope that the newsletters from previous years have kept you informed and helped you understand how the administration team has prioritized and managed the daily challenges. You will recall that the motto of last year’s AGM was to bring the community to a position of “Fortress, Stability, and Transparency” and to leave behind the problems of the past. While much has been achieved since then, being stronger and more transparent, a series of past events have resurfaced, threatening the stability of the community.

Unfortunately, this means that difficult decisions are looming, which are described in this report and will be discussed at the AGM.

The year 2022 began once our new administrator Adenjo, our manager Victor, and our project manager Andreas took up their positions, enabled by the approval of a budget based on an approach to improve our subcontractors and a focused injection of funds to address years of infrastructure deterioration and non-compliance with the law.

I am pleased to say that there has been a significant amount of positive feedback about the improved appearance of the community since mid-last year. A key aspect of this has been the attitude of the community employees and the way they are now directed. I am sure you will agree that the gardens have not looked as good in a long time. In terms of maintenance, not only has the number of completed works taken a significant step forward, but so have the response times. There will be owners who do not perceive this, simply because they are unaware of the frequency with which things break or do not work.

Regarding cleaning, the improvements are perhaps more modest or inconsistent. A detailed analysis detected a conflictive relationship between the supervisor and the cleaners, which has now been resolved.

Undoubtedly, the biggest change with our subcontractors has been the approval to terminate the COFER security contract and reorient the concierge service to HELP.

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These changes came into effect in October last year and have since generated a lot of debate and concern as we transition from a “human” approach to technology to better protect both the property and the people. There is more detail in this report and it will be an important point of discussion at the AGM.

The derramas and increases in community fees, by their nature, are not popular, but the recommendations from last year were based on engineering evaluations and increasing costs related to infrastructure deterioration, legal compliance, and subcontractors. Let me illustrate this with three examples:

Perhaps some owners mistakenly think that the pools are a vanity project, but the reality is the risk of closure and a significant fine from regulatory authorities.

Another reason for carrying out these investments in infrastructure is the potential savings that can be made in the future. A good example is the introduction of a saltwater system for the pools. In 2016, the budget for pool maintenance for a year was €16,700, while in 2023 it is €4,500, a reduction multiplied by 4, and this will be repeated every year.

There have been similar regulatory risks due to inadequate maintenance and updates over the years, such as the sprinklers and fire extinguishers. The risk here was that the community’s insurance coverage would be declared null and void. These works have been financed from the community’s budget.

The deterioration and security have led us to start working on repairing terraces and garages. Regarding the latter, repairs have been restricted to those that do not infringe on the main lawsuit against the constructor FCC.

When I was elected president in 2020, I hastened to say that it would take more than 5 years and over €1.5 million to lift the community of Señorío, and my opinion on this has not changed. However, I congratulate the community on taking the difficult decision in 2022 to raise the first tranche of financing. This has put the ball in motion, and although there will always be a number of owners who disagree, we now have a team to complete these multi-year projects that can significantly impact the value of your property.

1. ACTIONS AGAINST PREVIOUS CONTRACTORS

I must draw your attention to some inherited problems from 2020. Since they have resurfaced, the administration team has no other option but to find solutions to safeguard the stability of the community.

A) Multimálaga.

In summary, the courts ruled against the community, condemning it to pay costs to the plaintiff. The origin of this problem dates back to 2009, when the community terminated the security contract with the company due to non-compliance with security requirements. At some point later, the community’s security team was destroyed, and the community initiated a criminal procedure against the perpetrators. I understand that this ended very badly, and the final accusation ultimately failed. Once the criminal proceedings were over, a civil lawsuit was filed against the community. The two cases have occupied the courts for the past 13 years, and at the end of 2022, the court ruled in favor of Multimálaga for €49,000 plus interest and costs.

At the time of writing this report, the final amount owed to the community is unknown, but it is estimated to be between €60,000 and €70,000. Our current lawyers, who have reviewed the case conclusions, have advised us not to appeal the ruling because it would be very unlikely that we would win, and the costs would increase even further.

B) Previous Lawyers.

Everyone knows that the community has been overwhelmed for years by the number of debtors. The previous administration appointed lawyers with close ties to the community, whose task was to recover these debts. Despite the passage of time, the overall results can be interpreted as insignificant. In accordance with the terms agreed at the time, the lawyers arrived late last year and demanded payment. The current administration is unable to object to these demands, partly because only a small fraction of the community’s documents and records were handed over in 2020. The demand is for €29,000, which we have been able to negotiate down to €22,000 to be paid in installments over this year.

C) Painting Company.

In 2014/15, a contract was approved for approximately €870,000 to repaint the community, which was finally completed in 2017. At the time of signing the contract, the community did not have sufficient funds, and the administration of the time requested a single payment of approximately €500,000 to compensate for the deficit. We do not have a record of the actual amount received or how it was spent or accounted for.

For reasons that are not fully explained in the minutes or plans of the General Meetings between 2017/18/19, and without any proof of contract, the community agreed to additional painting work for €148,000. This brought the total cost of repainting Señorío to €1.1 million. At the end of the works in 2017, the community did not have the money to pay for the painting.

This debt is recognized in the list of creditors at the end of 2019 but was never explained to the community in clear terms about the exact scope of the work in relation to this verbal agreement. It is worth noting that during this entire period, the community hired a supervisor, but no irregularities related to the payment of painting were detected.

After the change of administration in 2020, the painting company began requesting €148,000, less the installments that had been paid in the months leading up to the General Meeting, which formed part of a payment schedule agreed upon. The new administration then asked the painting company to provide evidence of a contract or something about the additional work, as well as documentation to support the request, such as certificates of work on the accepted and quality of the work.

In the absence of receipt of documentation by the Painting Company and the previous administration, we refused to make such payments.

As you know from the creditor reports that you have been receiving annually, the Painting Company has been included as a creditor. What has happened now is that someone from the community has handed over to the Painting Company a copy of the documentation from the 2020 General Meeting that mentions them as creditors. The Painting Company has then gone to court to demonstrate that there is a record of the debt in the community’s official records, despite the fact that, as far as we know, there is still no evidence of a contract. This is a clear indication that the community has some responsibility regarding the debt. It is more than evident that the work done was terrible, but the community still accepted it. There is no evidence of commitment or guarantees because there is no documentation. As things stand, the community cannot fulfill its obligation to pay.

In summary, in the coming months, we will better understand what the community has to pay to cover all the previous claims. As things stand, we do not see any other option but to request approval for a new derrama. You will have to decide whether to provide or not additional funds for the community to resolve these historical cases brought against it, taking into account the timing of additional financing for the long-term works program that is already underway, and whose details are summarized later.

It is likely that the amount of the derrama will be similar to that of 2022.

2. ACCOUNTS 2022

During 2022, the community’s financial situation remained stable. This is largely due to the 15% increase in community fees and the derrama, which brought in more than €400,000 for the infrastructure projects that could not be financed with ordinary fees. During the period, nearly 90% of owners paid their community fees, which is considered a good level of participation. However, the fact remains that at a time of significant investment in community improvements, responsible owners have to bear the burden of those who refuse to pay but still benefit from the improvements.

A summary of accounts is attached for your review before the AGM. To be as clear as possible, and in accordance with the community’s usual practice, we produce separate budgets and accounts for the use of ordinary fees and derramas. As was the case last year, Gerry Burke, Vice President of Señorío and a qualified accountant, will take the opportunity to explain the accounts and answer questions at the AGM.

3. CREDITORS

Just like in a recent past, we have paid some creditors from our cash flow. The most significant one in 2022 was COFER, and this was done as part of the change in security strategy. At the time, we did not know that other creditors, along with the unexpected claims received against the community, would act against us.

However, the community must continue to move towards a position of solvency that does not depend on the goodwill of creditors. The attached report should provide assurance that the current administration is dedicated to reducing the community’s creditors and not adding new ones.

4. DEBTORS

Adenjo will provide an update on the various debtors at the AGM. In the meantime, two reports are attached. One provides a summary of debtors in 2022 in relation to the total amount the administrator was authorized to collect. It also breaks down ordinary fees, so you can see the difference in participation in ordinary and extraordinary fees. The lack of payment of either now results in the application of penalties that can be claimed in court.

The second report details each debtor and the amount owed. You can see that the top 10 debtors have been in the community for a long time and represent approximately 80% of the total debt. It is very important that owners understand that significant amounts of that debt are not collectible. It is the nature of “community accounting” in Spain that prevents the cancellation of uncollectible debt, as would be normal in commercial businesses and other countries.

Owners should appreciate the significant amount of time that Adenjo dedicates to pursuing debtors, which seriously distracts from other work. In the case of long-term debtors, it is the complexity that consumes time, due to the involvement of lawyers, notaries, etc. With short-term debtors, a great effort is made to encourage them to pay before it is necessary not only to request penalties but also to initiate legal action.

Unfortunately, it seems that we will have to take more legal action in 2023 to prevent further growth of short-term debt. The community simply cannot afford to let those who do not pay get away at the expense of those who do!

Another example of where the administration is trying to be more proactive is in the application of the new Spanish law that allows communities to deny access to pools or internet services to delinquent owners, their tenants, and guests.

There will be the opportunity to discuss this at the AGM, but we assume that most owners want to see how the full force of the law is used to make delinquent owners pay their debts.

5. SECURITY

Over the past three years, I have written several times and spoken at meetings about the “cost versus effectiveness” of having a single person provide security for the entire community. I have mentioned the impossibility of one person simultaneously monitoring multiple CCTV cameras and making rounds around the community.

I have mentioned how many robberies are the work of people with privileged information who can rent apartments with this purpose in mind and know perfectly how to evade the security of a single person. Or, as a person sitting almost all day in the entrance office leaves anyone to enter the community with the simple pretext that they want to access; or even that the owners themselves have to call the police in front of disturbances due to the lack of action by the guard; and perhaps, and worst of all, catch the guard in the act of stealing from a property.

In the 7 years I have been in the community, the service of a single person has cost around €850/900,000. Apart from providing a semblance of security, it is fair to say that the cost-benefit ratio has been very poor. Attempts to obtain a better quality-price ratio from COFER for the night service were obstructed because they were an important creditor to whom over €100,000 was owed.

Meanwhile, the daytime concierge service contracted with HELP did not include someone with a license to review the CCTV cameras.

It was reassuring to see a man at the door, acting as a postman in the community, but offering a very low level of security.

I mention this precedent because after a majority approval at the last General Meeting, the COFER night security service was terminated with effect from October 2022, saving an annual €58,000 (if summer coverage is approved).

As part of the agreement to terminate the contract, the €65,000 debt with COFER was settled. In the case of HELP, with a cost of €60,000/year, we redesigned their service to achieve a better quality-price ratio. The way this works in practice will be explained by Andreas Norman, our project manager, at the AGM.

a) A “access control” system based on technology will be proposed. The plan is to implement it in phases throughout the community, starting with the perimeter doors and entrance. The essence of access control is to limit access at several points in the community to those with permission to enter through non-duplicable keyfobs and through mobile applications. This will allow owners to grant access to outsiders, but in a controlled manner. It will allow monitoring throughout the community at different access points and is dynamic, as the keyfobs and applications can be activated and deactivated.

The current intercom system is expected to function in parallel. Many owners will have doubts, but this system is already in use in other communities, companies, government institutions, etc. However, we recognize that the summer periods in Señorío bring significant problems. Until the new system is fully operational, the plan is to hire a person to cover the night security during the summer.

b) The HELP service will be retained, but will be focused on maintenance, security, and mail delivery. The HELP employee will have the following schedule:

Monday to Friday 8:00 a.m. to 2:00 p.m. and 4:00 p.m. to 10:00 p.m. Saturdays 4:00 p.m. to 10:00 p.m.

Adenjo will provide a contact number.

However, I want to emphasize that this is not a service to fix a broken washing machine or change a light bulb. Community maintenance and repairs must be notified in advance to Adenjo so that Victor, our manager, can schedule them, otherwise they cannot be done efficiently. The HELP employee will have maintenance and repair schedules that occupy most of their time. They will also make random patrols around the community as part of their security duties. They will be locatable during their working hours in case of a security breach or an emergency, such as a water leak or a power outage, etc. Delivery companies will be able to access the community through the intercom system of the owners. We encourage delivery companies that regularly deliver to come at certain hours when HELP is also available to allow access in the absence of the owners.

There will be a lot to discuss about security at the AGM.

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I am convinced that we are developing a much better approach with real improvements and savings. The time it takes to get it up and running depends largely on the speed of investment. Andreas will explain all this at the AGM.

6. UTILITY COSTS

In 2022, there was a global increase in the cost of public services, including electricity and water. The community exceeded the budget for both services. In the case of water, the community experienced significant leaks in the underground cisterns that form part of the supply to homes and the fire extinguisher system, as well as the network of pipes that feed the pools.

Victor will provide a technical description of these problems at the AGM, but I can anticipate that the complete review of the pools and the use of saltwater will significantly reduce water consumption in the future.

The necessary repairs to the cisterns and pipes are underway, and we are confident that water consumption in 2023 will be reduced.

A real area of improvement regarding water consumption is the irrigation system in the garden. One of the first works carried out by Victor and Andreas at the beginning of 2022 was the repair of the faulty irrigation system, which had led the gardeners to use uncontrolled manual irrigation. Repairing this system ourselves saved tens of thousands of euros in external contractors and has also benefited us in terms of lower water consumption. Additionally, the decision to disconnect the faulty irrigation system from the apartments last September also resulted in a reduction in water consumption.

Regarding electricity, it must be accepted that the Spanish market is rigged between generators and distributors, so there are constant offers to change providers. What is also complex is the tariff system based on Power and CUPS: these influence the tariffs, but critically in 2022 determined whether a user met the requirements for the large reduction in VAT. (Take a look at your electricity bill to understand it.)

The situation in Señorío was totally suboptimal, to say the least.

The electrical circuits in Señorio have never been realigned to reflect how consumption has changed over the years. Victor is now working on this. We are also working with an electricity consultant based on results to negotiate better tariffs and conditions. The estimate is for a reduction of €15,000 in a similar base consumption. Half of the savings obtained will go to the consultant in the first year, and from that moment on, the community will keep the entire savings obtained.

These are significant efforts to achieve future savings. Adenjo is working with the consultant and will be able to inform us of the progress at the AGM.

7. COMMUNITY FEES

Increasing community fees by 15% for the second half of 2022 was an absolute necessity to keep up with the higher costs. Many owners were not happy with this decision for various reasons, including the cost of administering the community.

I would like to point out that with a projected income and expenditure of €1.1 million, the amount of work generated justifies the cost of the team. For comparison, the Aldea Blanca community, near Señorío, has average community fees of around €5,000 per year for a 2-bedroom apartment. Their annual ordinary budget also rounds €1.1 million, and their general administrative costs are very similar to ours. It is true that the value of the apartments is higher than ours, but that is the reason why we are investing in bringing Señorío to a comparable quality.

In the 2023 budget, we are proposing to the owners to maintain the current level of community fees. This reflects better control over subcontracted services and maintenance carried out in the community.

The work of Adenjo in collecting receipts and pursuing debtors also contributes significantly to keeping fees in line or better than inflation.

8. IMPROVEMENT PLANS

The following list is a combination of new works and continuation of ordinary budget and derrama works. The financing of some of these works needs recognition and approval from the owners:

• Continue improving terraces that are causing problems for owners on lower floors.
• Continue installing ventilation in affected storage rooms.
• Continue impermeabilizing affected areas in garages. Note: Work cannot start in areas that are the subject of a lawsuit against FCC.
• Continue replacing fabric covers on sun loungers.
• Continue controlling water pipes in the community. Many times, there are random explosions of pipes, so it is a reactive and not proactive work.
• Increase control regarding works in the community to avoid illegal constructions and improve current community rules for this purpose.
• Calculate areas that were included but not completed in the 2015-18 community painting contract to include them in future payment negotiations.
• Several chimneys in apartments are experiencing problems with smoke that are not common to all apartment chimneys. It is necessary to carry out more evaluations to determine the most cost-effective solution.
• Seek approval from the owners at the AGM to start with phase 1 of the access control system and complete proposals for subsequent phases for approval.
• Continue verifying health and safety aspects within the community to ensure compliance with the law and regulations, including community insurance conditions.
• Continue with simpler painting works that improve the appearance of the community.
• Continue with the repair process of tiles in community paths, stairs, and other community areas.
• In line with the general security strategy, increase the effectiveness and scope of the CCTV system.
• Modernize and repair the community intercom system, which is an integral part of the general security system.
• Improve the state of all community railings and where necessary, install additional railings on terraces.
• Change/improve lighting in some community paths.

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9. DIRECTIVE COMMITTEE / WORK COMMITTEE

Last year, I asked for volunteers to update the community rules that are not suitable for their purpose.

A key aspect was to try to put in order the proposed modifications and improvements by owners. No owner came forward at the time, although a recent owner has expressed interest if others are willing.

The invitation remains open, and I must be frank and say that within the administration, all resources are focused on what is considered a priority.

An owner approached me last year with the request that a representative join the community committee. If there are candidates who want to present themselves, they should let Adenjo know.

10. NAO POOL CLUB

Almost a year after discussing this issue, it cannot be emphasized enough the threat this club poses to the value of properties in the area. Nor should we underestimate the power of the club’s political and institutional connections that protect its illegal operations.

The club’s activities do not comply with the license for its opening.

The noise level exceeds all legal norms.

The antisocial behavior impacts neighboring communities.

After numerous meetings with our neighbors and legal representatives, we now understand the scope of the work and the approach to follow.

The recommendation for the AGM is that the owners approve the joint work with neighboring communities to initiate a legal procedure and approve funds for legal expenses and associated costs according to the budget.

11. PRESIDENTIAL EXPENSES

I am obligated to comment on this matter due to the number of owners who have accused me of receiving a salary or being remunerated by the community. I would like to remind everyone that it was a group of grateful owners who proposed a gift as a gesture of appreciation for the time and experience I bring to the community. If I say so myself, it is more than what most people even think about.

When I was asked to comment on the matter last year, I said that I thought it was fair that a president should not have to pay the community like a regular owner since all owners benefit from an efficient president.

As I never requested any remuneration, mainly due to the complaints received, I decided not to receive any payment from the approved funds. The 2022 accounts show a small compensation payment in comparison to what was approved at the AGM.

For 2023, I have instructed Adenjo to reduce the amount by 50%.

I have decided to present myself again in 2023 because I believe my continuity is essential for the community to overcome the difficult financial situation caused by the inherited lawsuits that are currently active.

If I am re-elected, I want to point out that it is not realistic to expect someone to take on a significant additional workload of several years, in addition to the normal duties of the president, without a fair reward in return.

I have served the community for 3 years as a volunteer, not as an employee. I believe it is correct that another owner is ready to take on the role.

Sincerely,

John Riley President of SdA

March 2023.