Head Lease- Directors abusing their position

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  • SHill
    replied
    I am slowly unravelling the mess which I have described above. I have now discovered that the Company does not own the headlease as advised by the Directors. The RMC is the Lessee of which two of the three leaseholders/shareholders are Directors. I am the third Leaseholder/shareholder and the Directors are blocking me becoming a Director. They are telling me that I don't have a right I have to be elected and they are not prepared to elect me. The two directors have been running the RMC to their advantage for years so having me, the third resident on the board will upset their applecart. They are in breach of their duties as Director of the Company by not complying with the Maintenance obligations of the lease.

    Can they block my request to be a director if there is only three residents in the building. I have never been invited to an AGM, they do not consult with me on expenditure over £250 in line with Section 20 consultation .

    Does the Company Act 2006 have anything to say about leaseholder/shareholders of a RMC rights to be a Director. The Articles confirms that there is no max number of Directors and minimum is 1 director.

    Does the Companies Act consider reasonableness for Directors behaviour towards a fellow shareholder?. It does not seem correct that the two directors can isolate the third leaseholder/shareholder from a Residents Managment Company - it is not in the spirit of a Residents Management Company to isolate a Resident!! - but does the law make provision for this.?

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  • leaseholder64
    replied
    The legislation does not say that; the part that requires a separate account has never been commenced.

    Section 42 simply says the money that represents the service charge does not belong to the company, and must be accounted for separately.

    Not charging for many personal accounts is an aberration of the current UK banking system. Of course there will be bank charges for a commercial account, like this. In fact segregating the account will probably increase the total charges.

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  • SHill
    replied
    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.

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  • leaseholder64
    replied
    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.

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  • SHill
    replied
    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.

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  • leaseholder64
    replied
    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.

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  • SHill
    replied
    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.

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  • scot22
    replied
    Thanks Leaseholder. Probably like everything in law many ifs, nuts and perhaps.

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  • leaseholder64
    replied
    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

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  • leaseholder64
    replied
    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.

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  • Gordon999
    replied
    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.

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  • scot22
    replied
    Can S Hill sue. for anything more than specific performance, e.g has already paid out a significant amount for repairs ?

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  • leaseholder64
    replied
    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.

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  • leaseholder64
    replied
    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.

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  • SHill
    replied
    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.

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