Secret commissions

[Macromia]

But that's what ground rents are for (in part) ...... If a lessee owned company decided not to collect ground rents, that would be their hard lines. In the case of RMC, there is an issue if the Freeholder is being passed ground rents -- but then the legislation relating to RMC is defective and ill considered -- and this is one of many reasons why. By the way there are a host of other company expenses which are not service charges nor covered by insurance (like if the Directors fail to file with Companies House and get fined. A conventional freeholder is not covered against his own follies and private expenditure and the same should apply here. What would you suggest should be the case if only 3 of 6 lessees were shareholders in the freehold Company -- that the non shareholders should cover company expenses.......

I agree with much of what you said here.

Yes, hypothetically, the costs of running a leaseholder run management company should be covered by ground rents, or by passing a company resolution requiring shareholders to contribute to the all company costs (I would exclude fines due to directors failing to perform their duties properly from this, but would include insurance that covers directors for decisions that were made with the right intentions but ultimately turn out to be flawed - and yes, I realise that this is likely to also cover them for many less well intended decisions).

As you say yourself, the legislation covering RMC's (under some circumstances) is already not really fit for purpose, and if proposals to abolish ground rents, or fix them at low amounts, go ahead, leaseholder run management companies will need an alternative way to pay costs because otherwise no one will be willing to take on the role of director.
I really don't see any reason at all why it wouldn't be fair to pass legislation allowing reasonable costs to be included as part of the service charges. Even non-shareholder/non-member leaseholders benefit from having their building managed, and if unreasonable company costs were put through the service charges, these can be challenged in the same way as other service charge costs.

Once again, I am aware that management company costs are usually not allowed for by the terms of most leases (except perhaps leases that included a management company when they were written), but that doesn't mean that it shouldn't be considered reasonable these costs (which will usually be insignificant, especially when compared to the cost of 'professional' managing agents) to be recouped through the service charges.

I wonder how many of the people who refuse to pay a contribution to the costs of a management company, including D&O insurance, would be happy if no one was prepared to act as a director and consequently their building had no management at all?

In is possible for a course of action to be legally correct but, at the same time, to be the wrong course of action to take.

[Stacker]

False statements directors chose not to declare business run at property/omitted facts when it suited them not performing duties and obligations hiding behind corporate veil, claim ignorance of facts, taking undue risks with the money of others has consequences- disqualification.

[Macromia]

False statements directors chose not to declare business run at property/omitted facts when it suited them not performing duties and obligations hiding behind corporate veil, claim ignorance of facts, taking undue risks with the money of others has consequences- disqualification.

I agree - and if this is the problem, then your best course of action would be to get the directors replaced with new directors who will provide better performance.

However, if you expect people to take on full responsibility and potentially accept the financial costs involved with the running of the company as well as potentially leaving themselves open to being sued personally for any mistakes (paying for any insurance against this risk themselves), then don't expect many people who actually understand leasehold law to volunteer.

[Stacker]

Macromia,

Macromania I am not sure if you are aware but I have mentioned it before, it is nigh on impossible to remove them...they know this and I have no intention of paying for and insuring a director and fellow shareholder for acting in their own interests and hoping the insurance will cover it meaning D&O insurance.. Also if there was a shareholder dispute which is brewing I am not again paying for their insurance should they lose the case! If they were half decent and any good they wouldn't need insurance.

[leaseholder64]

D&O insurance doesn't cover negligence. It's, unfortunately, rapidly become a necessity of even directors who are well skilled. People who become RMC directors rarely have relevant experience.

[Section20z]

What legal requirement is there to have insurance ?

What must be provided is the insurance cover that meets all of the requirements given in the lease (and all legal requirements, with legal requirements taking precedence if they contradict the lease), no more, no less.

[AndrewDod]

What legal requirement is there to have insurance ?

None, apart from the lease (contract).

[leaseholder64]

Failure to make adequate provisions for insurance is one of the grounds for a forced change to the lease, so I would imagine people would act on the basis that any challenge based on a claim that the lease doens't provide for insurance would result in an application to change the lease with the consequent conveyancing costs on the leaseholders.

[Stacker]

D&O insurance doesn't cover negligence. It's, unfortunately, rapidly become a necessity of even directors who are well skilled. People who become RMC directors rarely have relevant experience.

If they dont have the experience and are not prepared to attempt to or at least learn the basics then they must pay for the D&O insurance themselves, if it is not recoverable from the Lease or Articles then they cant charge this to the service charge account.

[Stacker]

leaseholder64,

All leaseholders have to agree and need 75% agreement, no FTT will agree and impose a cost on a leaseholder which does not benefit ALL.

[Stacker]

None, apart from the lease (contract).

Thank you Andrew, yes its ALL about the Lease so if its not in the Lease you cant charge for it.

[Stacker]

What legal requirement is there to have insurance ?

Legally building insurance is vital and nothing else unless your lease or the company articles state anything

[Stacker]

D&O insurance doesn't cover negligence. It's, unfortunately, rapidly become a necessity of even directors who are well skilled. People who become RMC directors rarely have relevant experience.

So could a director not informing the insurance company on two separate occasions the wrong information be considered negligence?

[Stacker]

So not presenting the facts and misleading an insurance company is seen as FRAUD, invalidating the insurance.

[leaseholder64]

All leaseholders have to agree and need 75% agreement, no FTT will agree and impose a cost on a leaseholder which does not benefit ALL.

Not for a defective lease. A single party can get a lease changed if the FTT agrees that the lease doesn't make adequate provision for insurance. I was responding to the general point about legislation and insurance. D&O may well not be considered necessary for adequate insurance, but that is a different question.