ArmAGUIDANCE
lan23 Lesseesand
ManageMent CoMpanies
Resident
This Lessee Advisory Note points outthe importance of thedistinctions betweenthe role of lessee andshareholder or member of anRMC
Manyblocks of flats are owned and/ ormanagedbycompaniesmade up of the leaseholders. These are usually known as Residents’Management Companiesor RighttoManageCompanies (RMCos). The role of lessee and the role of a shareholder ormember of anRMCo is not the same anddirectors ofRMCosneed to keep a cleardistinction betweenthe twobecause problemsmay arise if the roles are confused.
WHATARE THE DISTINCTIONSBETWEEN A ‘SHAREHOLDER’AND A
‘LESSEE’? Thereare both legaland practicalreasonswhy thesetwo creaturesare separate anddistinct fromeach other, even though theymay be the sameperson(s). A shareholder ormember of theRMCo will
be entitled to take part in decision-making (albeitprobablyrestricted to voting forthe removal of the board) and will have a say at companymeetings. If they think that the boardhas wrongfullyexceeded itspowers, theymay take the company to court under theCompanies
Act2006.Their liability to the companyand itscreditors is limitedtothe extent of theirshare-holding or guarantee (commonly £1). They cannot otherwisebe forced to participate in the company. Alesseehowever is contractuallybound
under his lease to abide by his covenants to theRMCoorlandlord, includingthe payment of
servicecharges.Any breachofcovenants rendersthe lessee liable to courtaction (possibly forfeiture of theirlease)and/oran application to the LVT. These can be ignored (and often are) butthe lessee cannot escape the consequences at the end of the day.
38 Meanwhile, if thelesseeconsiders that
theRMCoisinbreachofits covenants, or has actedorcharged unreasonably,theymay take theRMCotocourt or to theLVT under landlord
andtenantlegislation.The lessee’s rights arenot fettered by thefactthattheyare also amember of theRMCo. This allmakes senseinpractical terms
becausethe requirements of ashareholder and a lessee can be entirely different – even opposite on occasions. Fromalegal point of view,the fundamentalissueisthata shareholder’sorcompanymember’s interest is entirely personal,whereas holdingalease vests the flat in the lessee for the timebeing. So anRMCo boardorAGMshould not(and
hasnolegal rightto) take adecisionthatis againstthe termsofthe leases forthe block, even if there is complete unanimity. Nor should anyagent advise anRMCo to do so. Indeed to protect itspositionthe agentshould give stronglyworded writtenadvicetothe directorsthatany such decision is incorrect andmay lead to severe problemsfor the directors. Even if alessee/shareholdervoted for acourseofactionattheRMComeetingitdoes notprevent themfromchangingtheir mind at alater date andaskinganLVT to overturn that
decision.Ashas beencommented by LVTs,evidenceofagendas andminutes of
lesseecanbeentirely different–even opposite...
Therequirements of ashareholderanda
RMComeetings are not relevant to the issues of reasonableness andpayability of service charges.Whatisrelevantare thetermsof theleases andcompliancewithlandlord and tenant legislation.
DUTIES TO LESSEES
OWNED BYRMCOS The duties to the lessees will be set out in theleases,and cantaketwo forms: either theRMCoisaparty to theleases with its covenantsset outexpressly;ortheRMCo will be directly responsible forperformingthe landlord’scovenants (atleast insofarasthey relate tomanagementmatters). Either way, thefactthatlessees arealso
shareholders ormembers provides the RMCo with no excuse forfailing to perform its obligations under the leases. In any event, theremay well be lesseeswho are notmembers of theRMCo. Contractual duties(such as to repair,maintain,insure andaccountfor servicechargefunds)are combined with statutoryduties(including restrictingservice charges to reasonable amountsand consultation)and areowedto all lessees by theRMCo as though it were an institutional landlord;the lawrecognisesno difference. Consequently,itisessential that theRMCo’s
directorsand thoseadvisingthemare familiar andup-to-datewithlandlord andtenant legislation as well as theCompanies Act 2006.
DISTINCTIONSBETWEEN SERVICECHARGESAND
COMPANYEXPENDITURE Just as thesamepersoncan be twoseparate legalentities, asimilar situationcan arise
withmoney.TheRMCo will have control
Summer 2012 Flat Living
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64