4 July 2012 by Vincent Billings

How to manage a Freehold Management Company

We have recently seen an increase in the number of disputes between directors and shareholders of companies whose sole purpose is to own and manage the freehold interest in a property. These types of companies, where the individual flat-owners control the management of the company, are unique and so the relationships arising between the company’s directors and/or shareholders can sometimes be complex.

A Freehold Management Company (“FMC”) is unique in bringing together flat-owners who share a building separated into individually owned and occupied units. The owner of each unit or flat relies on all the others for support and protection when dealing with the management of the FMC.

A flat owner within an FMC will have a number of functions, usually leaseholder, director and shareholder. Each of these functions carries distinctive rights and obligations, and these may also overlap in certain situations. This can lead to complications when taking management decisions in relation to the FMC and/or the property itself.

Generally, the day-to-day management of a company is delegated to the directors of that company, the shareholders do not often retain day-to-day management powers. Usually within FMCs the directors and shareholders are the same people, but it is important to distinguish between the two roles as different obligations and liabilities arise in respect of each role.

When dealing with an FMC in practice, not all flat-owners will have the same ideas as to how the company should be run. Some may be non-resident, others apathetic and/or difficult to deal with. It is therefore important to ensure that you are clear about who you will be working with in the FMC before you agree to buy a flat. Management issues are likely to arise sooner or later, any of which may cause a dispute.

The FMC’s articles of association and company law in general will provide some guidance regarding the management of the FMC, but will not necessarily deal adequately with the practical issues that are likely to arise. One way to deal with the management of the FMC is for the flat owners to enter into a shareholders’ agreement which sets out, among other things, how the FMC is to be run and the managerial involvement of each of the flat owners. A properly drafted shareholders’ agreement will provide a formal and regulated structure that can potentially reduce the scope for disputes between the directors and shareholders and can also set out mechanisms for the FMC to take decisions and enforce its rights.

Prevention is typically better than cure and much less expensive when it comes to legal disputes, so every flat owner should ensure that a proper structure is in place for enforcing obligations (i) between the individual flat owners themselves and (ii) between the individual flat owners and the FMC.

For more information regarding FMCs and/or shareholder agreements, please contact us on 0207 288 4700 or email us at info@boltburdon.co.uk

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Squatters – a change in the law

Following detailed consideration and consultation the Government finally has law on the statute books which makes the squatting of residential […]

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