Together with other leaseholders within your building you have engaged in a collective enfranchisement. Now, as a group you have control of the freehold but how do you manage this?

You have two options, you can set up a company or buy the freehold in your individual names, this will make you all trustees.

As a result, people have found themselves directors of a management companies. This may sound like a great way to have your voice heard and make a real difference to the place you live but it’s important you fully understand your new legal responsibilities.

Unbeknown to many, taking on the mantel of director means taking on the responsibility of ensuring the success of the company. While that may sound straightforward, there will no doubt be times when there will be conflict between your personal interests and that of the company. These rules have been put in place in the Companies Act 2006 and governs a director’s role in a company. You can download a copy of this act by clicking on the link.

Acting Within Your Power

  1. Being a director, and as part of the board of directors, you will have a say in the day to day running of the company. This is to ensure the decisions that can be made quickly are not held up by unnecessary shareholder meetings. However, this does not mean that a director, or the board of directors can make every decision.
  2. Changing the company’s articles (the rules governing the company), substantial property transactions (large property transactions involving a director such as granting a lease) or the removal of a director etc will require all the shareholders consent. Failure to obtain the shareholder’s consent could undo the transaction.

Therefore, it is vital that as a director you act within your power, are authorised by the company to execute documents and where necessary obtain shareholder’s consent.

Promoting the success of the company

Even though a company is a separate legal entity, all of its decisions are made through the directors or the shareholders. This means that as a director you will have the power to influence the company which may determine whether it is a success.

As a director of a management company (which can also be known as a freehold company), the company is not for profit, but it must still work in the best interests of its shareholders. When making decisions, the director must sometimes put aside their personal interests especially when they are also one of leaseholders, to ensure the success of the company.

A good example of this is if building work is required. Although the cost of this work will be passed onto the owners of the flats (the leaseholders which the directors and shareholder are too). It is clearly in the company’s best interest of the company for the works to be done, otherwise the building could fall into disrepair. However, shareholders may not be so happy with the increased service charge (cost).

Exercise reasonable care

Having a diverse board of directors helps companies see matters from different perspectives. The board is required to take reasonable care, skill and diligence in making a decision.

Without taking the time to discuss a matter, decisions can be made hastily. This may later prove to be the wrong decision, therefore deemed not to be promoting the success of the company.

Declare interest in proposed transaction or arrangement

In order to avoid a conflict of interest, you will need to formally disclose your interest to the company (shareholders) even though the conflict may be obvious. Then, depending upon the rules of the company you may not be able to vote as a director.

It is important to note that this rule does not apply in your capacity as a shareholder. If you have been asked to make a decision as a shareholder you can partake regardless of whether there is a conflict.

Don’t panic Attwells are here to help

Now you have a brief outline of the task in hand you may be feeling legal guidance is required. When undertaking a collective enfranchisement with Attwells Solicitors we can also support you in arranging your management company or freehold company. Being property law experts we can even help you with your director duties, attend meeting and resolve any disputes.

If you would like more information regarding collective enfranchisement or setting up a management company, please contact collective enfranchisement specialist Phillip Hewett on 0207 722 9898 or click on the links within this article.