Resident management company director responsibilities

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    Resident management company director responsibilities

    Hello
    I am a leaseholder in a 32 flat building, it's a new building, all owner-occupied, we have a managed services company who are very below standard, some issues related to the developer but some just pure incompetence, inaccurate communication, delay in responding to issues, grounds services not complete etc. Anyway a resident management company was set up with 4 leaseholders being appointed as directors, it's not clear on what basis they were appointed, it seems they volunteered and were assigned, my understanding is this should have required a vote by shareholders (the rest of us) but this didn't happen. Most shareholders seem unhappy with the maintenance company and have asked for change, however nothing has happened, the RMC directors have regular meetings but none of this is shared with anyone else and it does seem breaches of lease by directors are ignored while other people are being fined. There's a lack of consistency and a lack of communication, my question is what rights I have to challenge all of this to ensure a better managed building that applies the lease conditions fairly and holds the maintenance company accountable?

    #2
    Sounds typical! You are lucky that you are all owner occupied.

    Assuming this is an RMC, and not an RTM company, the method of appointing the directors is detailed in the company articles, which you can request from the company (free of charge if you are member) or download (also free) from http://beta.companieshouse.gov.uk). Whilst directors can always be removed by a general meeting, having one appoint them is not mandatory, so you will need to see the articles. Often the rule is that the other directors can appoint them, but a general meeting must reconfirm every three years. If your articles require an AGM, you may find they have to be ratified by the first AGM, and then every three years.

    Directors are required to operate within the law (which includes only exercising powers that its articles give it, and complying with the lease), to use their best endeavours, and to act in the interests of their shareholders, not in their own personal interest. They are expected to declare conflicts of interest, and not to vote where there is one, unless there is agreement (normally just from the other directors, to allow them to vote.

    RMC directors are often unfamiliar with the Companies Act, their articles, Landlord and Tenant law, and the lease :-(. At least some of them need to understand these and the rest need to know their limitations.

    A 75% general meeting majority can change the Articles, but there needs to be advance notice of the proposed changes.

    (RTM's have a fixed set of articles. You can still request them, but they should be the same for all RTMs, except for the names.)

    Comment


      #3
      Thank you for the detailed reply. Yes, it is an RMC, already had a look on companies house but articles not on there only director details and original incorporating form. Maybe because first return yet to be made? One of the directors also is employed by the original property developer which feels like a conflict of interest as that develower still has obligations to fulfill.

      Comment


        #4
        The articles will be in the incorporation documents. If they are not there, the model articles at the time that company was formed will apply. Probably model_articles_private_ltd_by_shares_after28April2 013.doc

        The initial directors will be determined before the company exists, so no general meeting to vote on them.

        Are you sure the freehold has been sold to the company? If it has, but the development is not complete, I think I would expect explicit articles that said there could not be conflict of interest with the developer.

        Comment


          #5
          Thank you, great to have some unbiased advice. Incorporated documents only contains the application form which shows it is a private company limited by guarantee rather than by shares so is it a different link the one above?
          It's not a regular development, built by an especially licensed developer for affordable housing so whilst the freehold has been sold, the developer still has involvement, I'm unsure to what extent but they still do annual checks to make sure it remains owner occupied and on sale, they will take a percentage of the sale price. So when I say conflict, it is because that company still has that involvement and also she has this strange thing of wanting to be a director but not wanting all the residents to know that she lives in the building in case they keep asking her questions although obviously she has to be a resident to be a director

          Comment


            #6
            The limited by guarantee version is here:

            It is unusual to use limited by guarantee for RMCs, these days, as it is more difficult to ensure that new leaseholders replace the old one as members.

            One probably needs to read your lease carefully to understand what exactly is happening. There may also be freehold covenants that ensure the RMC enforce the affordable housing restrictions.

            You refer to "that company" and "she" as though they were the same person, but companies cannot live in a building. I think you have missed out an important detail.

            If you only have the model articles, there is nothing that stops a director from being a non-resident. Even with my, 1970s, limited by guarantee RMC, the initial directors were the developers, who then dropped out. Once they dropped out, the lease and the articles worked together, to ensure that only leaseholders could, legally, be directors.

            The names of the directors of a company are a matter of public record. Also a matter of public record is their service address. Their actual home address can be hidden, but needs to be reported to Companies House.

            Normally the RMC is formed by the developer, and wouldn't be formed in a way that hindered their powers, whilst they retained them. The fact that they are only using the model articles may mean that they failed to actually achieve that, but it doesn't seem a good idea to rely on a technicality.

            Note that any modification to the articles needs to be notified to Companies House within 14 days, so I think you can be fairly sure that they are still on the model articles.

            Comment


              #7
              Sorry, by company I meant the 'developer', she being the employee and also resident. I am entitled to see the articles in whatever format they are in right? There must be some rules. Companies house only showing the form which as you say includes the original developer directors and separately shows where they resigned. I have asked to see the M & AA but am being challenged on why I want them by RMC directors.

              Comment


                #8
                If you are a member of the company, https://www.legislation.gov.uk/ukpga/2006/46/section/32 applies, and it is a criminal offence not to provide them. Any director who is objecting, is (theoretically) liable to be personally fined £1,000 and receive a criminal record.

                However, if nothing is filed at Companies House, either they are using the, unmodified, model articles, or they are committing a criminal offence under https://www.legislation.gov.uk/ukpga/2006/46/section/26 again with the directors potentially liable to £1,000 fines and criminal records.

                As it is post 2006, your company will not have a Memorandum; that will be incorporated in the Articles.

                It is fairly obvious that members have a right to see the constitution, as that governs how they can exercise control over the company.

                As well as showing when the developer directors resigned, CH should also have records or when replacements were appointed. Unless there is one remaining director, the company will get struck off in about six months. There is a page on the site, giving the current appointments, as well as records of those appointments.

                Comment


                  #9
                  How do I know if I'm a member? I'm not a shareholder as they have confirmed it is limited by guarantee only so there are no shareholders? Correct, Companies house shows the current directors and the resignation of the developer directors.

                  Comment


                    #10
                    You would have applied to be a member when you bought the flat. There will also be a clause in the lease requiring you to apply. You should have received copies of accounts filed with Companies House (actually more complete versions) before they are filed.

                    It's unlikely to be an RMC if you are not a member.

                    If you are not a member, all the above is academic, as there is no obligation for the company to act in your interests and no right for you to influence the company, other than your normal rights, as a leaseholder, in relation to any freeholder.

                    For a definitive answer, you can request to inspect the register of members. If you are not a member, you will need to pay a fee, most likely £35 (6 to 100 members). In all cases you need to state the purpose, but they can only refuse you by getting a court ruling, which they are unlikely to get for any reasonable purpose that you might have. They have five days to comply, or it is yet another criminal offence.

                    (Refusal is really intended to protect shareholders of companies like Huntingdon Life Sciences.)

                    Expect them not to be aware of this law, either.

                    Comment


                      #11
                      3 weeks on, my RFI has been ignored, is the five day compliance rule just for the register of members or should this also have applied to my request to see the constitutional documents?

                      Comment


                        #12
                        There is no specific time limit, but reasonable would seem to be return of post, and it should be possible to return them within the time limit for arranging a physical inspection. You only have a right to the constitution if you are a member. I may have said this already, but the current LPE1 form, used by conveyancers, to get information from freeholders, requests a copy.

                        https://www.legislation.gov.uk/ukpga/2006/46/section/32 is the relevant Companies Act clause.

                        Comment


                          #13
                          Hi, is it possible there is some confusion?

                          There are two possibilities I see:

                          1. Everything is working correctly but you misunderstand.

                          2. Everything is the usual horlix found in leasehold company management (whetever the government may claim. ("Hello" DCLG officials, you will learn a lot lurking on this forum as to the REAL world of leasehold).

                          We seem to have a new building of 32 flats "all owner-occupied"?

                          Take it you meant 'owner-occupied' to mean leaseholder occupied as distinct from all flats being company members in the freehold company?

                          As said, you cannot be a guarantor member unless you personally signed up - as the guarantee does not transfer on assignment (sale). Unlike shares.

                          You refer to the "the rest of the shareholders". As now established, you cannot be a shareholder in a limited by guarantee company. You would know if you signed up as a guarantor. Important to know.

                          The Memorandum and articles must be registered at companies house when incorporated as a limited company.

                          Directors being employees of the original developer are a common enough method of starting off an RMC development. You say they have all resigned now. Any developer 'shares' would die too, but you do not have shares, apparently.

                          The issue is what you and other unhappy neighbours can do to remove the new directors.

                          You say: "It's not a regular development, built by an especially licensed developer for affordable housing so whilst the freehold has been sold, the developer still has involvement."

                          Shouldn't matter as to democratic workings of the Companies Act.

                          You need to establish a few facts by a process of elimination:

                          1. Who is your landlord? Check the invoices you get for ground rent. This must show your landlord. Is this the RMC we are talking about?

                          2. Who is your freeholder? Spend £3 on the land registry for your leasehold title extract. Or pay £3 for the freehold extract. Eithereway this will list your freeholder. Is this the same RMC?

                          3. Who are the directors? Are they all leaseholders? Must be listed on Companies House under 'People'. They can hide their private address but you may establish anyway by asking around or buying the leasehold title extracts for any addresses you think they live in (or spend £3 each for all 32!).

                          Once you know who your landlord is and your freeholder and the directors...

                          4. Are you a guarantor member?

                          This should be the easiest to answer. I would not expect membership by guarantee to be a 'condition' of purchase of the lease. That is not how a guarantee works. It is voluntary, even in Commonhold Associations. So YOU signed something? If you aren't sure, contact your conveyancing solicitor. Don't tell me they were recommended by the developer?


                          You say in post #9 that the developer resigned its directors. This is standard (or should be) once the estate is up and running. All good.

                          You say... "obviously she has to be a resident to be a director"

                          Directors do not have to be residents if the company articles do not require this. For instance RTMCs do not need to have leaseholder directors. What your RMC requires is a matter for the articles.

                          What you can do with your neighbours depends on if you are all company members.

                          If not, becoming a member by guarantee would be by right. Just send in the chitty. If not a right, it is a shambles and not a real RMC.

                          Once you establish you are all members, use the Companies Act to build the numbers needed to forcibly remove any directors who are not operating to your collective liking, and replace with others.

                          Meanwhile, pass your experiences to your MP and ask them to pass on to the APPG. Leasehold sucks and will not get better until leaseholders lobby for change and not simply complain here.
                          Do not read my offerings, based purely on my research or experience as a lessee, as legal advice. If you need legal advice please see a solicitor.

                          Comment


                            #14
                            The OP says there are no (Memorandum and) Articles in the constitution documents at CH, which means that they are either using the model articles, or they have failed in their legal obligation to inform CH of the articles. The former would be a bad idea, for a company that really should have restrictions on membership. The latter would be criminal.

                            (It is almost certain that the directors are completely out of their depth.)

                            Membership can be a condition of sale (assignment), e.g. in my lease (in this case the RMC is also freeholder):

                            "3 (i) (h) (ii) to ensure that the person or body entitled to the residue of the term granted by this Lease becomes a member of the Lessor and pays a membership fee of £2.50 (two pounds and fifty pence) to the Lessor" (Lessee covenants with lessor)

                            "5 (g) Not to assign the Demised Premises to any person or persons who shall not have completed an application for membership of XXXX Court ... Limited" (Lessee covenants with lessor and other lessees)

                            (The articles say that membership ceases as soon as the board are aware that the member is no longer a leaseholder.)

                            Unfortunately, I think MPs are more concerned about profiteering businesses as landlords, rather than mis-managed RMCs. (I have written about the lack of effective criminal enforcement of L&T legislation, but only got an auto-response, even though my member is on APPG.)

                            Comment


                              #15
                              Originally posted by leaseholder64 View Post

                              Membership can be a condition of sale (assignment), e.g. in my lease (in this case the RMC is also freeholder):
                              Aye, but be you perhaps a shareholder? Shares do transfer on assignment but my understanding is that guarantees must be voluntary? Certainly they are in RTMs and Commonhold Associations so that you can opt to join or resign at any time, whereas a share stays live with the lease ownership.

                              No obvious reason why limited by guarantee is used in leasehold as it leaves the company at risk of diminished support over time, or sudden resignations. Maybe Parliament saw this a fun hurdle for leaseholders?

                              Accepting individual MPs can be chocolate fireguards regarding leasehold and just wait for their Whips to tell them what to think, if they actually sign up to an APPG, it usually shows interest.

                              Best thing would be to have responded to the recent now closed wide-ranging consultation on leasehold reform, or failing that the existing open one about managing agents, as this includes a chance to refer to such things as RMCS and RTMs or whatever takes your fancy.

                              Reform is coming. Whether it will make a difference is another thing. Somebody somewhere need to teach leaseholders that they need to exercise collective rights and learn what these are, including how to run a blessed company. You can take a donkey to water...
                              Do not read my offerings, based purely on my research or experience as a lessee, as legal advice. If you need legal advice please see a solicitor.

                              Comment

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