Share of Freeholder that won't pay

silvercar

Can the company that owns the freehold write to the mortgagor and tell them the lease is in jeopardy because the mortgagee is in arrears with payments for service charge? That should result in the mortgagor writing to the mortgagee reminding of their obligation (in the terms of the mortgage) to keep up with payments.

Fraise

princeofpounds wrote: »

Directors run the company according to its mission and for the benefit of all the shareholders in aggregate. That does not mean they cannot upset a single shareholder however!

They have reporting obligations and there are certain high-level matters which require shareholder approval under law, but they are certainly not required to consult shareholders before any changes unless specified in the company charter or other rules.

In fact, the basic powers directors have are very powerful, as a group.




The way freehold companies are challenged is very different depending on if you are a shareholder or a leaseholder. It's as different as if you sued a shop for selling you a duff computer or you sued a shop company director as a part-owner of that company.

Of course there are ways to contest these things in court, but apart from the hassle and expense (which to be fair is not a factor to be ignored), so what? Having legal avenues to dispute a the direction of a company doesn't mean the case has any merit.



Again, a bit so what? Directors are the representatives shareholders elect to run a company. They aren't doctors required to have medical degrees.

Directors are not actually bound by the leases. They are bound by the company's charter and bylaws. The company the directors run might be bound by the leases on a contractual basis, but this is totally different. Directors cannot be removed even if the company breaks a contract. It requires more than that.

Disqualification of directors is actually very hard to achieve unless they have done something seriously wrong (in the eyes of the law or the majority of shareholders), because their powers offer them a lot of freedom to act as they see fit.



Finally, pursuing someone who just happens to be a minority shareholder for an unpaid bill that is contractually owed is a million miles from a company not being run properly.

Directors ARE bound by the lease. Very much so, and if a director is useless or takes liberties they can be removed. Directors have no special powers, and have to abide by the terms of the lease. Shareholders, and leaseholders, have every right to be consulted on how their money is being spent.

And they have every right to take it to tribunal if a director is taking liberties or acting above the law. Directors can't make up their own rules lol

Yes, the company and the lease are two different things BUT the freehold company is formed in order to make sure maintenance of the property etc is carried out IN ACCORDANCE with the lease. The lease is more important than the company, and that's a fact.

But as you say, depending on whether one is a shareholder or simply leaseholder does make a difference. Of course it does.

Fraise

princeofpounds wrote: »

Directors run the company according to its mission and for the benefit of all the shareholders in aggregate. That does not mean they cannot upset a single shareholder however!

They have reporting obligations and there are certain high-level matters which require shareholder approval under law, but they are certainly not required to consult shareholders before any changes unless specified in the company charter or other rules.

In fact, the basic powers directors have are very powerful, as a group.




The way freehold companies are challenged is very different depending on if you are a shareholder or a leaseholder. It's as different as if you sued a shop for selling you a duff computer or you sued a shop company director as a part-owner of that company.

Of course there are ways to contest these things in court, but apart from the hassle and expense (which to be fair is not a factor to be ignored), so what? Having legal avenues to dispute a the direction of a company doesn't mean the case has any merit.



Again, a bit so what? Directors are the representatives shareholders elect to run a company. They aren't doctors required to have medical degrees.

Directors are not actually bound by the leases. They are bound by the company's charter and bylaws. The company the directors run might be bound by the leases on a contractual basis, but this is totally different. Directors cannot be removed even if the company breaks a contract. It requires more than that.

Disqualification of directors is actually very hard to achieve unless they have done something seriously wrong (in the eyes of the law or the majority of shareholders), because their powers offer them a lot of freedom to act as they see fit.



Finally, pursuing someone who just happens to be a minority shareholder for an unpaid bill that is contractually owed is a million miles from a company not being run properly.

But they are ALL minority shareholders, they each have a quarter share. Normally, on a property as small as this (4 flats) all shareholders/leaseholders will be directors of the company.

We will have to agree to disagree when you say"directors powers offer them a lot of freedom to act as they see fit"

Absolutely not!

If a director is inept, acting unlawfully, or, say, has personality issues that cause friction, then of course he can be removed. You're attaching too much importance to the word ' director'. A director of a tiny non profit making freehold company of just 4 flats cannot dictate or make up their own rules! It's laughable.

Fraise

silvercar wrote: »

Can the company that owns the freehold write to the mortgagor and tell them the lease is in jeopardy because the mortgagee is in arrears with payments for service charge? That should result in the mortgagor writing to the mortgagee reminding of their obligation (in the terms of the mortgage) to keep up with payments.

The man may own the flat outright.

But I can't see how even if he did have a mortgage, the mortgage company would have a say in what he does or does not pay in respects of maintenance. Lots of people allow their properties to crumble to bits.......I don't think there's much the mortgage company can do about that.

Maybe I'm wrong?

princeofpounds

Directors ARE bound by the lease.

A lease is a contract. Who are the counterparties to this contract?

1) The owner of the lease
2) The company owning the freehold.

Directors are not the company that own the freehold. In law, a company is a separate legal person to its directors.

http://en.wikipedia.org/wiki/Corporate_personhood
http://en.wikipedia.org/wiki/Piercing_the_corporate_veil

The directors are not in any way bound to the contract as they are not a party to the contract.

They happen to direct a company that IS bound to the contract, but in legal terms it's as different as charging a boy for a crime or charging his innocent father for a crime.

EDIT: I should add that this failure to appreciate the nature of separate personhood, or that people can have multiple legal identities, is at the root of much confusion people have over how leasehold/freehold arrangements work.

Very much so, and if a director is useless or takes liberties they can be removed. Directors have no special powers, and have to abide by the terms of the lease.

How do you think directors are removed then? The freehold company breaking the terms of the lease legally has nothing to do with it.

Directors can only be removed by the shareholders (either through a majority resolution at the general meeting or via special procedures inserted in the company charter). Shareholders may choose to do this if the directors cause a breach of contract that damages the freehold company, but they don't have to.

Directors can also be disqualified through the courts, but that is exceptionally, exceptionally hard to do, often requiring criminal conduct. Bad business decisions just won't cut it.

http://www.companylawclub.co.uk/topics/removal_of_a_director_from_office.shtml

Directors have ALL the powers afforded to the company by law, and by its charter and any other bylaws. I would not describe them as special, they are however very wide.

http://www.companylawclub.co.uk/topics/directors_powers.shtml

I have already established that a director is not party to the lease (at least in their capacity as director - they may be a leaseholder themselves as a separate matter).

Shareholders, and leaseholders, have every right to be consulted on how their money is being spent.

No they don't. They have a right to certain mandatory reporting, which for small companies amounts to little more than outline annual accounts and an annual general meeting.

http://www.companieshouse.gov.uk/about/gbhtml/gp2.shtml

Outside of these channels or under direction of a court of other legal requirement (like data protection perhaps), directors don't even need to TALK to shareholders if they don't want to.

Obviously something is likely to be wrong if there is no process of consultation at all, and shareholders may well choose to remove the directors at an AGM. But a majority need to do so, not just one disgruntled shareholder.

Clearly limited companies don't need to consult all shareholders on business decisions. The CEO of Tesco doesn't write to every Mrs. Smith on his shareholder register to ask her if she wants a new store in Hartlepool.

We will have to agree to disagree when you say"directors powers offer them a lot of freedom to act as they see fit"

Absolutely not!

If a director is inept, acting unlawfully, or, say, has personality issues that cause friction, then of course he can be removed. You're attaching too much importance to the word ' director'. A director of a tiny non profit making freehold company of just 4 flats cannot dictate or make up their own rules! It's laughable.

I think you are stuggling to understand the points I am making. That's probably because you don't have a working knowledge of corporate law.

You seem to confuse how directors SHOULD behave, with how they CAN behave legally.

I never said directors can make up their own rules. Of course they can't. What they can do, as a group, is act with the full powers of the company aside from anything set aside by law, by the company charter or any bylaws.

Of course there are legal remedies to address bad behaviour from directors, the principal one being to vote them out at a General Meeting. But we are specifically talking here about a situation where there is a single rebel shareholder with a 25% share. He can call as many general meetings as he likes, but he can't vote out the majority of the directors.

princeofpounds

But I can't see how even if he did have a mortgage, the mortgage company would have a say in what he does or does not pay in respects of maintenance. Lots of people allow their properties to crumble to bits.......I don't think there's much the mortgage company can do about that.

Yes they can. Most mortgages contain terms and conditions that allow the mortgage company to protect their interest in the collateral.

It is in fact quite frequent that the threat of legal action will get the mortgage company to pqy up to freeholders to preserve the lease. The charges then get transferred to the balance of the mortgage. It's one of the most common ways of solving the problem short-term.

propertyman

G_M wrote: »

It is not a grey area, and actually not pedantic (even though I used the term initially.

Look at it this way. I own a few shares in British Airways (true). But that would not stop BA suing me if a failed to fully pay for an airline ticket!

Or to claim " I own BA":rotfl:

It would be pedantic to say it would be a share in IAG so you might take a look at the BA shares - signed by Derek Trotter Esq?

propertyman

silvercar wrote: »

Can the company that owns the freehold write to the mortgagor and tell them the lease is in jeopardy because the mortgagee is in arrears with payments for service charge? That should result in the mortgagor writing to the mortgagee reminding of their obligation (in the terms of the mortgage) to keep up with payments.

Yes though many lenders will want to see a lot of information especially that the demands comply with the lease, that the correct statutory information was provided, title to the freehold, service charge accounts etc, and some insist that a CCJ or determination of breach( FTT) is first obtained.

Not the like the old days when they paid at the threat of a s146 notice

propertyman

Fraise wrote: »

But they are ALL minority shareholders, they each have a quarter share. Normally, on a property as small as this (4 flats) all shareholders/leaseholders will be directors of the company.

We will have to agree to disagree when you say"directors powers offer them a lot of freedom to act as they see fit"

Absolutely not!

Actually it does they are appointed as agents of the company and have the authority to enter proceedings of this nature.

Even if all four are directors then under the model articles will act in majority 3 against 1.

While they are accountable to shareholders you then have to apply that principle to the facts.

Any resolution by a shareholder to remove the Directors is likely to fail
a as the majority will have voted to take the action and won't vote, as shareholders, against their earlier decision, as directors
b even if it was say 100 flats those voting would look at the facts and in most cases that it was a sensible if difficult decision.

propertyman

Fraise wrote: »

My solicitor has told me wrong then.

According to him, the directors of a freehold company work for the shareholders and must report to them before making any changes. If a shareholder of that company is not happy with the directors decisions, they have every right as a shareholder and leaseholder to contest it , even if it means going to court. ANYONE can be elected as a director of a company, it needs no skills or experience, and if one - or all - directors are not acting in accordance with the lease, the court will strip them of their title.

So the Crown will take over a freehold company if it isn't being run properly......

That's what I was told by my solicitor, but maybe I have it wrong...

Yes very often its a specialized area and just this week I have explained to a solicitor acting on an enfranchisement that most of her understanding was wrong, but she happily accepted that and has put matters right with her clients. I got a nice fee
......................................

Once appointed the directors have to get on with the job and act accordingly. The accountability to shareholders is in law an ultimate one- they can be removed, bit in practice the amount of accountability for day to day or complex matters is one that, in this context of block management, is arrived by consensus, taking into account the subject and makeup of the block.

In the case of arrears it is unlikely that the shareholder will be informed that flat X owes Y and his life in down the toilet for obvious reasons and the decision would rest with the board.