Reclaiming stolen shares of freehold

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    Reclaiming stolen shares of freehold

    A lady bought two flats in a house with total three flats about 15 years ago. The owner of the third flat (who was Secretary of the freehold company) repeatedly refused to assign the 2/3 shares of the freehold company to the new owner (she just ignored all correspondence on the matter), leaving herself as de facto freeholder. The buyer didn't do anything beyond repeatedly sending requests via the conveyancing solicitors.

    About 8 years ago I (foolishly) bought one of the two flats from the lady who owned two (long leasehold with potential share of freehold if reclaimed). At the same time, the de facto freeholder transferred the freehold to a new ltd company of which she was the sole director. She didn't inform the other leaseholder (who should of course have been a Director but wasn't) possibly putting her in breach of the right of first refusal in the Landlord & Tenant Act.

    Myself and the other lady are now trying to reclaim the two shares of the freehold co, and have each spent many thousands on solicitors. Their advice seems to suggest that the only way to resolve the issue is to take the de facto freeholder to court, which would involve a minimum outlay of around 25k given the complexities and no guarantee of success. The alternative is collective enfranchisement - which would financially reward the de facto freeholder for having stolen the shares of freehold. I'm struggling to understand why, in a case which seems to me (total lay person) to be outright fraud, the onus is on us to risk tens of thousands on a court case. Is there any other legal option, or one involving the police? Advice gratefully received.

    #2
    Get your MP involved. Parliament needs to understand the issues first hand so they can understand and push for legislation to resolve these ever increasing numbers of terrible situations

    Comment


      #3
      From posts read on this forum, if the leaseholders were not given "first refusal" to buy the freehold, then it has to be given back to the lesseholders. check it out / wait for clarification.

      Comment


        #4
        From what you say, it appears that Company A owned the freehold interest, so neither the lady nor you own or owned a share of the freehold.
        It should be a matter of fact whether or not the lady purchased 2 shares in Company A when she acquired the leasehold interest in the 2 flats. Consideration should have been paid at the time for the shares, even a nominal sum. That would have made her a member, but not a director of the Company. If she objected to the owner of the 3rd flat (X) being an officer of the Company, she had the right to call a meeting of members and remove that person from office and appoint herself as a director of the Company. If she did nothing at the time, I fear that she may be seen to have consented to X running the Company.
        Company A then appears to have disposed of the freehold interest to Company B. It may be possible to argue that Company B is associated with Company A as it was under the same control, therefore it is possible that there was no requirement to offer the right of first refusal to the leaseholders at the time.
        You do not say what has happened subsequently to Company A, does it still exist? What has happened to any proceeds of the sale? Were accounts ever issued to the lady? Have you checked with Companies House?
        You are saying that Company B now owns the freehold interest and X controls that Company. Is ground rent being charged by Company B and are you and the lady paying it? When did you and the lady first become aware of the disposal to Company B? There is a time limit on serving a notice and forcing the purchaser to sell the freehold interest to you on the same terms.
        You do not appear to have any rights to shares in Company B, the lady may have the right to shares in Company A but they are likely to be worthless if it no longer owns the freehold. It is a matter of fact whether or not the lady sold a share in Company A to you.
        You and/or the lady may have a claim against X if you can prove that you and the lady are entitled to shares in Company A. Your claim would be that X acted outwith her authority and she did not act in the best interests of the members at the time when she disposed of the freehold interest to Company B.
        The failure to take action earlier works against you both.
        It is complicated and any legal action would be costly, so it may be better to acquire the freehold interest and try to deduct the value of your claim or negotiate a deduction from the purchase price but beware X and Company B are separate legal entities, so it will not be easy. Much depends on whether or not you can produce evidence that the lady was entitled to shares in Company A.

        Comment


          #5
          As eagle2 says -- nothing in your post says that the freehold was actually bought at the time of purchase. Why does that have to be the case?

          You need to go back to step 1 here

          Comment


            #6
            This is fantastic feedback - much appreciated. Yes, apologies, I was trying to cut down on some detail as the case is even more complicated than presented here. Yes, the lady bought the two flats with two shares in Company A which owned the freehold, and she should be able to easily prove that with her purchase contracts. From what eagle2 says, she could have taken action even if the de facto freeholder was not cooperating, but she was not advised to do so by her firm of solicitors (who continued to send letters which were ignored and then told her to move to mediation and legal action).

            When I bought my flat, it was written into the contract that the lady was supposed to ensure that the shares of freehold company A (named) were passed to me once recovered. But that's worthless given Company A was at the time being closed. The freehold was passed to Company B at no cost, but the ownership was the same so the point eagle2 makes about that perhaps undermining the case seems relevant.

            Given the above analysis, I am beginning to understand why our case would not be clear-cut if we took legal action. In that case, the best (least expensive/risky) course of action does seem to be collective enfranchisement, even if the lady can prove she was owed 2/3 of the shares of Company A.


            Comment


              #7
              It may be that the lady that sold the two shares was selling something that was not hers to sell - in which case the locus of blame will differ. The solicitor at the time should have received that before closing their files.

              Comment


                #8
                The passing of time does not stop you from being able to invoke the powers reserved in the Landlord and Tenant Act 1987 where the landlord has failed to serve Section 5 notice - there is no time limit

                Your action would be against the company that owned the freehold, which is probably been struck off. If that is the case then the company should then be brought back to life which you can pursuant to Section 1029 of the Companies Act 2006 and you then take action against the company for your claim that they have failed to offer you the right of first refusal when the freehold was transferred

                If the company fails to take any action you will presumably get judgement in default, you then seek an order that the court request that the freehold be transferred back to the company from the company to whom it was transferred.

                In any event do the articles of association restrict ownership of the share to a leaseholder ?

                Comment


                  #9
                  That is an interesting alternative by sgclacy. I too suspect that Company A no longer exists but you can easily check the Companies House website to confirm. A Company can be restored to the register but you should enquire at Companies House if there would be any conditions attached eg outstanding fees to be paid. You would need to pay those and you may not be able to recover part of those costs.

                  I am not convinced that there was a requirement to serve a s5 notice as explained in #4 and you may not be able to obtain judgment in default as suggested at #8. Seeking an order that the freehold interest is transferred back from Company B to Company A is bound to be opposed and that would be costly. I am concerned about the passage of time which has elapsed since Company B acquired the freehold hence my questions regarding when you first became aware and have you been paying ground rent to Company B which may be seen as acceptance of the new freeholder. The Articles of Company A should be checked because your entitlement to be a member may have ended when the property was transferred.

                  As an alternative to #8, you may be able to restore the Company, claim control of it (subject to the Articles) and agree that the Company ought to have served a s5 notice. Assuming that you do not know the terms of disposal, you would then need to request the details from X and Company B and take legal action against them if they fail to supply the information.

                  It just illustrates that it is not straight forward, it will take time and involve costs, so on balance I still suggest that you try to negotiate to acquire the freehold interest and include a deduction to represent your claim against X.



                  Comment


                    #10
                    Originally posted by eagle2 View Post

                    I am not convinced that there was a requirement to serve an s5 notice, as explained in #4

                    I note your point, but if Company B were associated with Company A, it would have to have been a subsidiary for two years prior - this seems highly unlikely because of the director's conduct.

                    The transfer of a property from one company to another ( not being a group member) for perhaps a token sum would be treated as a dividend in specie and attract corporation tax - its failure to disclose this would open up a lot of problems to the person behind the transaction who may prefer to regularize the matter by being sensible in the negotiations (veiled threat). A copy of the transfer form should be available from HM Land Registry if not forthcoming. The accounts for company B may show what value was placed on the freehold.

                    As eagle2 advises at the end of his post, you must try to negotiate your way out of this - litigation must be the last resort.

                    Comment


                      #11
                      Originally posted by sgclacy View Post


                      The transfer of a property from one company to another ( not being a group member) for perhaps a token sum would be treated as a dividend in specie and attract corporation tax - its failure to disclose this would open up a lot of problems to the person behind the transaction who may prefer to regularize the matter by being sensible in the negotiations (veiled threat).
                      That is a valid point, HMRC may well be interested in the transaction and it is definitely a negotiating point.

                      Comment


                        #12
                        To add to the woes, the property has to be transferred at market value and the missing corporation tax will of course be an issue to HMRC who may come after company B and if they fail to pay and HMRC think the director has been enriched by such naughty deeds raise an assessment on her

                        it would very much be in that directors interest to regularize the matter sooner rather than later

                        Comment


                          #13
                          Following all these responses to my question with great interest (and appreciation) although it may take me some time to work through the technicalities. To answer a few of the questions raised, for a couple of years the de facto freeholder issued company accounts for Company A and asked for ground rent, which we paid (which from the sounds of it may mean we accepted her as freeholder). Then she stopped issuing accounts and demands for ground rent. She told me that the onus was on leaseholders to remember to pay and failure to do so would put us in breach (which she wanted so she try and get our leases off us - having had such success stealing the freehold. This doesn't even begin to describe what a nasty piece of work she is, but that's a different story!). We haven't paid ground rent for a while because the de facto freeholder closed Company B thinking the freehold would transfer to her personally and didn't realize the freehold transferred to the Crown. I found out the freehold was with the Crown and tried to extend my lease with their solicitor but they made us inform the de facto freeholder who restarted Company B and got the freehold back. (I told you it was complicated!). The de facto freeholder many years ago bragged to me that she'd stolen the two shares of the freehold company off the lady - she told me that the solicitor sent the notice but used the wrong name on it (not sure if that's true or what burden of proof might be required. I assume she will say she sent it but has no records given it was 8 years ago).

                          The freehold was passed from Company A to Company B at no cost. I'm fascinated by the idea that this would have put her on the wrong side of HMRC especially as she is keen to benefit to the max from the lease extension applications. I definitely think this fact could, at v least, be used to incentivise her to regularize the situation.

                          The idea of restoring Company A, taking control of it (if the lady's rightful ownership can be proven in her purchase agreement) and then claiming the freehold back from Company A also sounds very interesting. I would love to explore that.

                          Comment


                            #14
                            Originally posted by Asking4aFriend View Post
                            To answer a few of the questions raised, for a couple of years the de facto freeholder issued company accounts for Company A and asked for ground rent, which we paid (which from the sounds of it may mean we accepted her as freeholder). Then she stopped issuing accounts and demands for ground rent. She told me that the onus was on leaseholders to remember to pay and failure to do so would put us in breach (which she wanted so she try and get our leases off us - having had such success stealing the freehold.
                            Just to be clear, regardless of what it may say in the leases, she is incorrect here.
                            As the law currently stands, ground rent must be demanded before it becomes payable, and must be correctly demanded with a notice that contains specific information.

                            Comment


                              #15
                              Macromia is correct, a s166 notice should be issued together with a formal demand before ground rent is payable,

                              By paying ground rent and applying for an extension of your leases counts against you as accepting the freeholder. On the other hand, X's attempt to transfer the freehold interest into her own name works in your favour,

                              She is a slippery character and her use of Companies for her own purposes only strengthens the argument for avoiding any legal action, the legal teams would have a field day and by the time you had won any case, the freehold is likely to have been moved into yet another Company.

                              Comment

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