Freehold Company's MoU prohibits payment of dividends.

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    Freehold Company's MoU prohibits payment of dividends.

    Hello, this question was in part a follow on from the "Demise of the Loft" thread below relating to a leaseholder wishing to develop the roof space in their block.

    I bought a leasehold flat in a large block that included a share in the Freehold company. There is a very large, unused basement which could be converted to create new residential unit. Also, the block occupies a large plot that includes a ransom strip over access to separately owned garages that would be an ideal site for development.

    I believe that one day the opportunity of a windfall may arise for the FH company.

    However, the terms of the Freehold company's MoU appear to prohibit any such money being paid out as dividends (wording below). Is this the case and if so is there any incentive at all for the FH to grant licences or entertain development opportunities, etc? I should add, there is already a very healthy sinking fund and no major works are expected any time in the foreseeable future.

    "The income and property of the Company shall be applied solely towards the promotion of the objects of the Company as set forth in this Memorandum of Association and no portion thereof shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise howsoever by way of profit to the members of the Company providing that nothing in this clause shall prevent the payment in good faith of reasonable and proper remuneration to an Officer or servant of the company, nor prevent the payment of interest at a rate not exceeding a reasonable market rate on money lent or reasonable and proper rent for premises demised or let by any member of the company."

    The objects generally all relate to "preserving, improving, managing, developing, rendering valuable or turning to account, any property, real or personal, belonging to the Company or which the Company is interested".

    Is it limited by guarantee? If so that would be a natural consequence.

    Where I've normally seen such clauses is for charities, but I think it is more generally a condition for companies to be treated as not for profit, for tax purposes.

    If by shares, you can change it, by special resolution, but you should get advice on the tax implications.


      Thanks, it's a private company limited by shares (Ltd).

      I guess on the flip side it means there's less motivation for the FH to push for a large premium should I apply to extend myself.


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