Lease and MemArts

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    Lease and MemArts

    I read on this forum a couple of years ago that in the case of enfranchised buildings if there were a conflict between the lease of a shareholder and the MemArts of the RMC then the MemArts would take precedence. This question has now arisen in our building and may be the key to us all moving forward together. I wonder if anyone can confirm that it is the case that the MemArts trump the lease.

    For example: Our leases don’t provide for “improvements” but the Memorandum of Association does

    I can’t trace the original post but I did read other posts on the topic and from those I appreciate that the lease is the contract between the parties, whereas the Memorandum sets the objects of the company, but if, as is the case here, the Articles require the shareholder to “subscribe to the Memorandum” could that (or anything else?) constitute precedence for the Memorandum? Thanks.

    #2
    The lease is between the freeholder and leaseholder who is obliged to pay annual service charge for maintenance of the building.

    The RMC is a non-profit company with legal power to administer the service charge account according to the terms of the lease.

    The MemArts is for the RMC ( running of the company ) but has no power to demand the shareholder to pay money to the company.

    Any proposals for spending to improve the building would have to be passed by a majority the RMC Members but could be opposed by leaseholders if not under the lease.

    Comment


      #3
      No the stuff the directors make up does not trump the lease. Not sure where you got that. There is not even an obligation on anyone to be a shareholder (nobody can be forced). Making stuff up in the Memoranda of a Company is like a freeholder making up lease provisions. There are fine details where a Company can make stuff up (like the colour of the wallpaper).

      Comment


        #4
        Gordon 999, thanks. As you rightly say, the lease is the go-to document and in by far the majority of cases it will be adhered to, but as we know it is not sacrosanct, and tribunals and courts are capable of judging covenants inadequate or unreasonable and overturning them.

        The “improvements” example adds another layer. In this case the shareholder by subscribing to the Memorandum has signed up to improvements as an object of the company – it’s a condition of granting the shares. In addition, the lease doesn’t preclude improvements. It just doesn’t include them. It would be very difficult for a shareholder therefore to argue that the absence of the item in his lease means that he can avoid his commitment via the Memorandum. In effect he has said through the Memorandum that he will pay towards improvements while he has not said in his lease that he will not.

        I appreciate that a tribunal would not feel able to admit the Memorandum into its deliberations but a higher court might. If the Supreme Court can say that rules which are unequivocally set out in law can be ditched without a change in the law, then anything is possible in property law. If you know of any examples where the MemArts/Lease conflict has been tested I’d be grateful to hear of them. Or any firm or practitioner that has shown an interest. Thanks.

        Comment


          #5
          Andrew Dod, thanks for responding. Just to be clear, there’s no question of anybody being forced to become a shareholder. This concerns just current or wannabe shareholders. Also the Memorandum I’m quoting is an off-the-shelf one that has just serious stuff in it like reserve fund and improvements, with no whimsical additions by opportunistic directors.

          But that’s by the by. Perhaps we’re looking in the wrong place. Maybe the answer is in company law not property law? To take the improvements example again. The shareholder “subscribes to the Memorandum” (sic) as a condition of being granted a share in the freehold company (this is not supposition, the Articles state it). So if he fails by his actions to abide by an object of the Memorandum, in this case declining to pay towards “improvements”, may his shares be revoked on the grounds that he is failing to fulfil a necessary condition of his shareholding? The lease becomes irrelevant in this case. The sanction is revocation of shares.

          The aim is not to reach this point. The aim is to establish that the MemArts trump the lease, not in a legal sense but in the practical consequence that a shareholding can be revoked where there is a conflict between lease and Memorandum and the shareholder refuses to abide by the Memorandum.

          Maybe this is what the original poster was thinking of. Again. I’d be interested to hear if this has been tested in any way or if any practitioner has explored the area.

          Comment


            #6
            All pie in the sky. Memoranda and articles cannot feasibly add reserve funds where the lease does not provide for that .... etc etc.. Fact that the FTT can sometimes vary a lease very selectively and for a reason (such as ambiguity or illegality) does not make the lease "not sacrosanct".

            You COULD make membership of the company carry certain conditions, but you could not remove someone's shareholding because they didn't want to do something not within the lease, nor can you do most of the stuff you are considering. And all a shareholder would have to do to avoid a service charge (even if you could do it) is to sell back their shareholding. That's not going to fly very far.

            The purpose of the company is to implement the lease. They can no more foist new lease terms on lesses than can an ordinary freeholder.

            How exactly are you going to set up that "condition of granting the shares". Only some lessees are going to purchase a freehold (and pay for it) depending on their willingness to obey have new rules. And when a lessee sells their flat and share, they sell what they own (and a share they own) - you cannot make up stuff in retrospect at the point of sale or otherwise.

            Comment


              #7
              The asset that the company owns is the leases (as they are written) and the building.

              Comment

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