Flat/Property Management using Model Articles?!

17 March 2015

We regularly have professional clients approaching us, because their client has gone ahead and incorporated a new company themselves, to act as a flat/property management company, and then realised all the problems that this can create!

If a company is acting as a flat management company, so that (for example) the owners of the flats within a building are jointly responsible for the building and its freehold, then it usually necessary to have appropriate Articles in place.

However, many people (especially people who are not themselves professionals; they have been told by their professional advisor that they need a company and are just looking for the cheapest way of getting the company set up) will go to an agent or to Companies House itself and will incorporate a company using just the Model Articles.

A company incorporated using just the Model Articles will be able to act as a flat management company, but it is in no way ideal:  the company's activities are completely unrestricted and it can carry on any lawful activity that the directors want it to.  Furthermore, subject to the discretion of the directors, there are no restrictions on who may be a shareholder (or a director).

This can cause serious problems, with shareholders still owning shares but who no longer own flats in the property, or with the directors issuing new shares instead of arranging for the transfer of existing shares, and some time down the line someone realises that the company has drifted a long way from what it was supposed to be.

A client recently approached us in this exact situation.  His clients’ company had just the Model Articles for a private company limited by shares and there were more shares in issue than there were flats within the building (but not the same number of shares per flat, oddly).

Now, what we at Bourse would consider to be a "flat management type" company should probably have the following:

Specific defined Objects, to restrict its activities to the ownership and management of a specific named property;

It should require that directors must be members/shareholders, and that one must own a flat or dwelling within the named property in order to qualify to be a member/shareholder;

That there should be one share held by each flat (and if the flat is jointly owned by one or more persons then those people would jointly hold the share, and be treated as jointly being a single shareholder); and

Finally, that if one sells one's dwelling, then one can no longer be a member (or a director) - one resigns one's appointment, and transfers one's share to the purchaser of the dwelling.

We recommended to our client that the company adopted new bespoke Articles.  The new Articles provided for a 'block' of shares per flat (that is, for several shares per flat which may only be transferred as a group).  The company then issued new shares to each flat so that everybody had the same number of shares per flat.  The client was able to get all of the flat owners together in a room to vote on it and the matter was successfully resolved.  Going forward, he assures us that he will keep an eye on them and make sure that they keep everything done ‘by the book’…

If you have clients who are in this situation, or if you would like to discuss the options available, or if we can be of any assistance to you in a situation like this or in any other matter, then please do not hesitate to contact us here at Bourse.

““We have used Bourse for all our company formations for many years and have always been very pleased with their prompt and efficient service and with the quality of the documentation they produce for our clients. They are also very helpful and knowledgeable when we ask them for advice and guidance on other Company matters””

Chartered Accountants - Cirencester