If you have one of the 4.3m leasehold properties in the UK, in most cases, the freehold will be owned by a company. This company can be known interchangeably as a property management company, a residents’ management company, a flat management company, or a freehold management company. If you are one of the more fortunate leasehold property owners, when you bought your property you will have been offered a stake in the ownership of the management company, and perhaps also a seat on its board of directors. You might have as many as three distinct legal roles:
- Leaseholder – This describes you in your personal capacity as the owner of your leasehold flat/apartment/house.
- Member (aka shareholder or guarantor) – This describes you in your capacity as an owner of the management company. If you had a ‘share of freehold’ when you purchased your leasehold property, you will likely be a member.
- Director – This describes you in your capacity as a director of the management company (rather than simply a shareholder or guarantor).
The significance of the different roles above can be tricky to get to grips with for many buyers and owners of leasehold properties. This introductory blog is designed to assist anybody who has a stake in a management company and wants to understand the responsibilities (and powers) this brings.
Our follow-up blog on running a freehold management company then contains more detailed practical guidance on how your management company should make decisions, and a troubleshooting section to help you deal with some of the most common problems you might encounter.
What is a residents' management company (also called a property management company or flat management company)?
A residents’ management company (also called a property management company, flat management company or freehold management company) manages a property to protect the interests of the resident leaseholders, who contribute to costs of maintaining the property. Directors of a residents’ management company are responsible for ensuring the management company fulfils their obligations to the leaseholders (for example to carry out repairs and maintenance).
Being a director of a residents’ management company
You should know whether you are a director of your management company, but if you are in any doubt you can check on the Companies House register by searching for your own name or the name of your management company.
Your powers as a director
If your management company has default Table A or model articles of association (or a variation of them), you and the other directors are collectively responsible for all day-to-day management of the company. This is a significant responsibility, particularly as you may not have any prior experience of managing a property, or indeed a company.
Your responsibilities as a director
Your management company will have a lease with each leaseholder. These include various legal obligations that the directors are responsible for ensuring the management company fulfils. They usually cover things like:
- maintaining the roof and exterior of the property;
- carrying out necessary repairs; and
- keeping the building insured.
The leases will also contain various obligations on the leaseholders, like payment of service charges and maintaining the interior of their own property. As a director, you are responsible for policing and enforcing these obligations if a leaseholder is not complying with the lease.
As a director of the management company, you should familiarise yourself with what the leases say.
You must also ensure the management company complies more generally with landlord and tenant law – for instance by ensuring it consults with leaseholders before carrying out any repair or maintenance work costing more than £250 per leaseholder. Things like this are vital because if you don’t do it right, the leaseholders cannot be forced to pay more than £250 each towards the work that is done, regardless of how much it costs. If the board is not comfortable with this aspect of its role, or lacks the necessary expertise, you can appoint a professional managing agent to carry out these functions on your behalf.
Your duties to the residents’ management company and its members
All directors owe duties to their company to conduct themselves in a certain way. These duties are summarised in detail in our Q&A guidance here. In the context of freehold companies, it is particularly important to bear in mind your duty to act in a way which “promotes the success of the company for the benefit of its members as a whole”. This requires you to consider the long-term impact of any decision you take, and the way it will affect the owners of other flats in your building, their tenants, the environment and the wider community.
Being a member of a residents’ management company
As with your appointment as a director, you should already know if you own a stake in your management company. If you are in any doubt, you can check your company’s confirmation statements in its filing history on the Companies House register to see the most recent list of members.
Your powers as a member
Unlike a director, a member of a residents’ management company is not generally involved in any day-to-day management. Although members usually have the power to appoint or remove directors, it is those directors who will make all the key decisions. If you want to be involved in the management of your building, the best position for you is to be both a member and director of the management company.
Your rights as a member
If you are a member and not a director, unless your articles of association provide otherwise, you only have limited rights. If you are a shareholder in your management company, this quick guide to shareholder rights provides a helpful summary, depending on your % ownership of the company.
Will there be an AGM?
You should check your company’s articles of association to see whether your company’s board of directors has to hold an AGM each year. Even if there is no legal requirement for the company’s board to call an AGM, unless every member is also a director, it is good practice for the board to hold annual (or more frequent) meetings with members to keep them updated on the activities of the management company and any proposed expenditure.
How are common freehold management company problems dealt with?
Disputes inevitably arise in relation to freehold management companies between directors, leaseholders and/or other stakeholders. Common issues include:
- Disagreements about repair work and necessary expenditure;
- Leaseholder complaints eg about a leaking roof or noisy neighbours;
- Leaseholders failing to pay service charges; and
- Members disagreeing with board decisions.
Disagreements between directors may be resolved by getting an independent expert or other independent advice, or reminding directors of their duties to the company. Other options for dealing with disputes include negotiation and mediation between the leaseholders or through a neutral third party or obtaining professional legal or other expert advice for how to deal with a situation that arises. It’s important to avoid using board meetings to air private disputes that arise (directors must make sure they always act in the best interests of the company and its members). For further guidance on how your management company should make decisions, and deal with any disputes or problems that might arise, see our blog on running a freehold management company.
Harry is General Counsel and Company Secretary of FromCounsel, the specialist corporate legal resource trusted by top global law firms and FTSE 100 companies. Before joining FromCounsel in 2021, Harry was a member of Sparqa’s editorial team for over 4 years, having previously practised as a corporate solicitor for 6 years at Farrer & Co. Harry regularly contributes his expertise to the blog, focusing on corporate and commercial law.