Head Lease- Directors abusing their position

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    Head Lease- Directors abusing their position

    I am a leaseholder in a period converted building of 4 flats. The headlease states " the first and second floors of the demised premises shall be kept and used as four private self contained residential flats each in the occupation of one family only "

    Is it a breach of the lease if one of the leaseholder has acquired the flat next door to him, 2nd floor flat, and knocked through to form one flat so the building is now three flats. When there was the four individual flats we each had a 25% share of The freehold company -which is "the Landlord".

    Now there are three flats one resident has taken 50% share which I believe to be a breach of the Articles of Association - "The share capital of the Company at the date hereof is £4.00 divided into 4 shares of £1.00 each" and, "each issued share in the capital of the Company shall relate to a different flat forming part of the property and the Directors shall by resolution determine on the date of the issue of any new share the flat to which such share relates". The Company appears to have been set up so the Residents have equal shares of the Freehold Company and, not one resident to have more power over the others. He claims he is now the majority share holder and, has the authority over others.

    Now there are three residents and, 2 are Directors of the Freehold Company (both Masons) the company accounts are being abused. Because I have challenged the Directors about personal expenses being put through the service charge account and their failure to maintain and repair in line with the lease they now do not inform me on anything, they do not provide me with the accounts/invoices/bank statements on request in line with Section 22 of the LTA 1985 and, ignore my maintenance reports and, they cherry pick the repairs so only the left hand side is maintained.

    The communal hall /stairs was badly flooded and left un repaired for two years until I finally applied "self help" to repair the damage which cost me £5,000 of which 50% was the other leaseholder's ( Director's) obligation - he refused to reimburse me. The gutters also flooded my flat because the Directors had not had them cleared for years. This remained unprepared for four years until finally I managed to get an insurance claim to cover it. The front door lock is temperamental so I have been locked out on several occasions and the Directors fail to repair it. The front door would not close and, even though the Director was aware (he notified me by email) he left the door unrepaired and, swinging open in Central London. I was away at the time and the Police contacted me to let me know my flat had been broken into in the middle of the night. I then had to make an 8hour round trip to London to instruct the repairs at my cost (a 50% share with the Director who was next door) . There is rising damp in the communal hall left unaddressed, the lighting was not working for over 12 months and, I fell down stairs on several occasions - the list goes on.

    The Directors who has acquired the 2nd floor flat has positioned his boiler outside his demise on the wall at the top of the stairs in the communal hall (which he does not use anymore). This must also be a breach of the lease.

    The boiler is very noisy and disturbs me very early in the morning and in the evening. There are no fire alarms, carbon monoxide alarms in the hall way. Judging by the way he has maintained the building I am concerned the boiler is not serviced or has a gas safety certificate. The communal hall fixture and fittings are not insured as I found out when the hall was flooded and, in the event of a fire from the boiler I would be trapped in my flat.

    The communal hall/stairs was badly damaged from a flood on two occasions from a sky light that they refused to repair. This damage was not affecting the Director who no longer used this entrance so the damage was left un repaired for a period of two years. I finally applied "self help" and, decided to pay for it myself because I could no longer let my flat due to the condition of the hallway. This cost me over £5,000 of which 50% was his cost. I have not been reimbursed.

    I applied to Tribunal but the Directors wanted to sort matters out at Mediation so I agreed. I agreed not to proceed with an appointment of a manager because they agreed to keep me informed, instruct on all the repairs that were reported etc. They came out of Mediation ignored the agreement and carried on as before! They finally appointed a manager because I said I was taking the matter back to Tribunal but, I am still in the same position because they will not instruct the manager to carry out the maintenance issues but only instruct on matters that affect them. so now I have the extra cost of the management fees but still no management

    The property is in prime central London
    The Managment have not replied or done anything about it; they have ignored my Formal Complaint so the matter will have to go to the Ombudsman. They also fail to communicate their position of whether they are not able to instruct without the Directors authority. Does anyone know the answers to the following.
    1. The fire and safety regulations for a communal hall/stairway, what should the management be complying with.
    2. The leaseholder's boiler being positioned in the communal hall - what can be done to make him position it within his demise with immediate effect
    3. Have the management a duty to check the service record and gas safety certificates for the boiler in the communal hall ?
    4. Is it correct that a managing agent does not have the authority to enforce the breach of the lease? Should they then make an application to tribunal or is that the obligation of the leaseholder.
    5. Does the management act for all the residents equally or are they only obliged to only act on the Directors instruction. I feel I have no one who I can report matters to because Managment ignore my emails and Directors ignore the emails.
    6. The Directors are wearing two hats - they are leaseholders but also directors of the Freehold company - so there are conflicts of interest. The director who is responsible for 50% of the costs for the communal hall (which he no longer uses to access his flat) obviously has no interest in paying the costs for repair so he does not instruct the manager to repair accordingly. What can be done about this?
    7. Are there any solicitors who would be prepared to take on the case with a no win no fee instruction. The directors have breached their obligations to the Freehold Company, their own lease and, have been abusing the company accounts and have claimed on insurance for personal matters to update their properties. There is so much to tackle I think I am out of my depth to take the matter to court Acting in Person. The Directors have been using their positions of authority for the "Landlord" for their own gain.
    Thank you

    #2
    There is a lot there. Most of which are breaches of the lease. The boiler is, almost certainly, a breach of fire safety law. From a CO point of view, it is possibly also a Health and Safety Act breach.

    The managing agent is not a party to the lease. Only the freeholder, for those covenants made between leaseholder an freeholder, and only a leaseholder, for those covenants between the freeholder, or other leaseholders, and the leaseholder, can enforce those covenants. There may or may not be one of the second type requiring the first type to be enforced.

    Check with the council to make sure that there is building regulation approval for the removal of the wall and for the boiler installation.

    Comment


      #3
      Thank you for your advice. I have emailed Building Control about he boiler.
      Because there are so many issues I am at a loss to know how to get them resolved. I am paying a large management agents fee but, they aren't managing the property and, paying service charges that don't cross reference with the audited accounts. My request in line with Section 22 to inspect the accounts and, invoices are ignored.

      Is there an organisation who will take these matters to Tribunal on a no win no fee basis. I suspect the breach of the Officer's duty to the Company - "Landlord" - are Company Law and, not a matter for FTT Tribunal.

      The directors have breached the Articles of Association and, operate as if they are above the law. They also have claimed on insurance for personal improvements to their property but put the same invoices through the service charge account.

      Comment


        #4
        The tribunals were set up to be friendly to litigants in person. I doubt that there is enough money in it for a no win no fee solicitor to want to touch the case, especially given that this is presumably a company with no money of its own. (In the worst case, the lease might allow them to recover the fees from the service charge, even if you win.)

        By claiming on the insurance for personal improvements, do you mean that insurable damage occurred to such an improvement, or that the insurer paid to make the improvement. No insurer will willingly do the latter, so let them know what has happened. For the former, I think you would only really have them on the basis of the, likely, clause not to do anything that would increase insurance premiums.

        Breaches of articles seem to be a complex area. To a first approximation, only the company can sue for those, so you need to change the directors first. However, there are circumstances, where a member may be able to take action themselves.

        Going back to point (5), by management, I assume you mean the managing agent, not the management of the company. Anyone that the managing agent, or any other contractor, believes to be a director, to be acting on the authority of the directors, can make a valid contract with the managing agent. (That's so that when a company makes a purchase, the seller doesn't have to check that the purchasing clerk actually had the authority to make the purchase.)

        The directors, however, are under a duty to act in the best interests of the company (which is not necessarily the same as the members, and is certainly not always the same as their own personal interests). As noted above, it is primarily the company itself that can take action against them if they fail to do this.

        Comment


          #5
          On (6), the options are suing for specific performance of the repairing covenants, or applying to the tribunal to appoint a manager. A manager takes on the role of the company in management, as well as that of the managing agent, and their duty is to the lease, not to the company articles.

          Comment


            #6
            Can S Hill sue. for anything more than specific performance, e.g has already paid out a significant amount for repairs ?

            Comment


              #7
              OP should make a complaint to the local council health & Safety Officer about the position of the gas boiler. venting waste gas into communal hallway.

              Comment


                #8
                Originally posted by scot22 View Post
                Can S Hill sue. for anything more than specific performance, e.g has already paid out a significant amount for repairs ?
                I don't have the experience or expertise to give a definitive answer, but I suspect the duty to mitigate losses may mean you get a loss less back than you actually spent.

                Comment


                  #9
                  I don't think it was actually said that the there was any intentional connection between the boiler air and the air where it is installed. The CO risk most likely relates to the boiler or flue being breached by a fault.

                  Also, smoke alarms are generally undesirable in communal escape routes, and are only there to compensate for a fire safety defect, which the boiler may well be

                  Comment


                    #10
                    Thanks Leaseholder. Probably like everything in law many ifs, nuts and perhaps.

                    Comment


                      #11
                      Thank you very much for all the advice. There is D & O officer insurance in place so if the matter went to court I assume the Director's fees could be recovered which leaves me as a member to pick up my own costs which seems little unfair when I am only having to go to court because they are in breach of their duties. An application for a Section 20C order would hopefully stop any costs being put against the service charge.

                      When the Freehold Company only has 3 Members and 2 are Directors/Leaseholders, who are running the company to their advantage it appears it is very difficult to regulate. I have been running around in circles with this and getting no where.

                      Is the breach of the Articles a Company Law matter? You say the Managing agent is only responsible to manage the lease.

                      Comment


                        #12
                        The costs would fall back on the company, rather than the directors, initially. I don't think the directors should rely on the liability insurance, but I have no details of when such insurance actually gets paid out. In any case, how was this insurance paid for. Are you sure that the premium is recoverable. (I hope insurance companies don't see insurance as an alternative to acting properly.)

                        The breach of the articles is a breach of contract between the directors and the company. It is generally covered under contract law, and enforceable by the company, but, I believe, there are some cases where the members, rather than the company can also enforce the contract.

                        Comment


                          #13
                          It seems to be the case here, that the Directors of a Freehold Company can pretty much get away with what they want because they are the point of contact for the Managing Agents and, without their instruction the Managing Agents cannot proceed with maintenance issues etc I am a 25% shareholder of the Freehold Company so if the matter was taken to court and, the legal costs fall back on the company I will have my own costs to cover and a share of the Companies costs which is not reasonable. How interested are the Superior Landlords (Grosvenor) if there are breaches of the Head lease?

                          COMPANY SECRETARY - No requirement
                          Another matter I would like clarification on if possible is -

                          1. The husband of the Proprietor , who is guilty of the boiler in the communal hall is getting paid £400 as Company Secretary, an expense that the Managing Agent is putting "quietly" through the service charge accounts and, no invoice is being issued for it.
                          2.The "alleged Company Secretary" is not a Proprietor of the flat, is not a director or a member/shareholder of the Freehold Company, his wife is a Director.
                          3.I have questioned whether this expense is reasonable because he is not an owner of the property, the Articles of Association say only owners of the property can be shareholders and, there is nothing stating a requirement for a Company Secretary. We have managing agents so there is no need for a Company Secretary and, a Company Secretary is no longer a requirement arising from the gradual implementation of the new Companies Act 2006. from 6 April 2008, private limited companies in the UK are no longer required to have a company secretary appointed. 4. When we did not have a Managing Agent and, "the Company Secretary" was holding the cheque book he was putting some personal expenses through the service charge and, he is still getting money out.
                          5 Is it correct that the Directors of a Freehold Company are not remunerated nor do they have contracts of service. Their duties to the company will flow from their position as office holders.

                          Comment


                            #14
                            1) Of what criminal offence was the guilty person convicted by the courts?

                            They should certainly be requiring at least receipts, and invoices would be a good idea. Otherwise they may need to operate PAYE.

                            2) Irrelevant. Company secretaries of big companies are typically lawyers, who are neither shareholders, nor directors.

                            3) Ownership is a complete red herring. Acting as a company secretary would be an added cost item for the managing agents; it is not a core duty of a managing agent.

                            3b) The company articles may require a company secretary. The change in the law was mainly for the benefit of one man companies. A director needs to take on the role if there is no company secretary.

                            4) Report him to the police. Managing the chequebook is not a company secretary role, although control of the cheque book might be delegated to the same individual.

                            5) It is neither true nor false. You generally need an entry in the articles, allowing payment, and you also need a source of money. Most leases don't provide such a source of money and resident run companies tend not to have other sources. If you dig too deeply, you may find you have no source of money for the Companies House fees!

                            I think it would be unusual to have a contract of service for a director. You really want a written one for the company secretary, if they are being paid (there will already be a verbal one).

                            Any payment to a director should be done under PAYE.

                            Comment


                              #15
                              Thank you for the reply it is really useful to have the feedback.

                              I understand that monies paid by lessees for the service charge expenses are trust monies and should be held in a ring fenced designated bank account (Section 42 of Landlord and Tenant Act 1987). Would it be normal to incur bank charges on this account. The service charge budget allows for £200 under the heading of Bank charges & Interest.

                              Comment

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