Share of Freeholder that won't pay

G_M

I'm afraid this is a lost cause. Fraise clearly has a firm belief in his understanding of the law around this area, and an endless debate I fear will not change his (or my!) view.

so I'm out.

I just hope the OP can pick out some useful ideas from the somewhat laboured discussion - and select the wheat from the chaff!

Fraise

princeofpounds wrote: »

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.



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).



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.



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.

You are talking about CORPORATE law....huge difference! What's more, the links you gave are US law, which is completely different to English law....

Here we are discussing a SMALL freehold company (non-corporate), with four equal shareholders who all each own their own flats on one house. Either one or all of them can be, and probably are, directors. But they are not corporate directors, and they do NOT have any powers to BREACH the lease. And it's the lease of a freehold company which has to be adhered to.

You're suggesting a director could willy nilly make up new laws irrespective of the lease! That's complete rubbish. You're correct when you say directors are not the company..they merely act for the company....but they can be ousted or voted off from a freehold company without even having to explain why.

When you say the freehold company has nothing to do with the directors, you are wrong. The company is RUN by the directors...it doesn't run itself. And if it is being run properly, and in accordance with the lease,the directors can be ousted.

A single shareholder in a company of four can indeed have them booted out. That shareholder has an interest in that company, and if for some reason the three other directors were mad, inept, or just weird, of course the courts would take over and dissolve it if it wasn't being run in accordance with the terms of the lease.

I don't know why you're discussing corporate companies anyway?

propertyman

fraise, i have various gongs and badges 30 years practice and regularly deal
with these matters inc litigation. My last posts put the proper context of company law that applies here,as much as to any ltd co. Your and your solicitors understanding is veryMuch first principles so please abandon your reasoning in favour of my earlier posts

princeofpounds

You are talking about CORPORATE law....huge difference! What's more, the links you gave are US law, which is completely different to English law....

What on earth are you talking about?

My first two wikipedia links were to two legal concepts, corporate personhood and the veil of incorporation. They are not laws, they help you understand the origin and interpretation of laws. They are key principles of anglo-saxon common law, which is what forms the basis of the legal system in the UK and the US. They also exist in many other legal systems as it happens.

My last two links, which refer specifically to company laws, are from the UK. One is from Companies House for heaven's sake. You clearly haven't taken the time to actually read or understand things.

Here we are discussing a SMALL freehold company (non-corporate),

The size of a company does not matter. Its legal form does, it will be a limited company, which is the same legal form typically used businesses anywhere from a builder to a supermarket chain. (To be clear, other corporate forms such as sole trading or limited partnerships exist, but there are not relevant to the discussion)

Corporation is effectively a synonym for company, although the legal concept of 'incorporation' is a slightly wider term that can apply to other joint enterprises with different legal structures, it's of little relevance here. You seem to be under the misconception that companies are different because of their size, or only America has corporations, or something to that effect. There is no separate 'company law' and 'corporation law'.

For instance, take the quote below from HMRC's website: Companies pay Corporation Tax, because they are corporations.

"Corporation Tax is a tax on the taxable profits of limited companies and other organisations including clubs, societies, associations and other unincorporated bodies"

In the same way, when I point to the notion of the 'Veil of Incorporation', which is the legal distinction made between the Corporate Person and the Person(s) who are the Directors, this wholly applies to Limited Companies that own Freeholds.

Either one or all of them can be, and probably are, directors. But they are not corporate directors,

Corporate Directors = Company Directors. If they are elected directors of a limited company, they are company directors with all the rights and responsibilities that office entails.

and they do NOT have any powers to BREACH the lease.

Of course they can breach the lease. It would be a very strange thing for them to do, and it would not have good consequences for anyone, and their actions may be challenged in time by various parties, but it's entirely within their capability. A lease is just a contract. Breaching it would be as simple as refusing to pay to fix a broken roof tile, which is entirely a decision the Directors would have to make (unless they had delegated those powers to a manager).

You're suggesting a director could willy nilly make up new laws irrespective of the lease! That's complete rubbish.

No I did not. Only parliament (and the European Parliament too these days) makes laws.

I said directors have remarkable freedom to direct and act for a Company. Outside of law, and company charters and bylaws, they are free to make what decisions the see fit. They are also not personally bound by contracts the company is a party to.

I think this latter point is what you fail to grasp. You seem to think that Directors are in some way bound by a leasehold agreement, as if it were a law. So let me make it plain:

The company is bound by the contract. The Directors run the company. The Directors may direct the company to break the contract. This is not a good thing to do, but they can do it.

The consequences are that the company is likely to suffer various legal penalties for breaching the lease, if challenged by the leaseholder. The leaseholders, who are all shareholders, may well choose to remove the directors, but this is a majority decision, it does not take one disgruntled shareholder.

If the disgruntled shareholder thinks that the Directors AND the majority of shareholders are not running the company for the benefit of all shareholders as a group, then perhaps they might go to the courts for further remedy.

You're correct when you say directors are not the company..they merely act for the company....

Yes I was correct. They do not 'merely' act for the company. An employee acts for the company. Directors are not employees (although they may also be so, if they are executive directors). They direct the company.

but they can be ousted or voted off from a freehold company without even having to explain why.

Yes they can. Please tell me how 1 shareholder out of 4 can remove all the directors for ordering the freehold company to sue him for unpaid charges. Because if you can, you should be a QC.

When you say the freehold company has nothing to do with the directors, you are wrong. The company is RUN by the directors...it doesn't run itself. And if it is being run properly, and in accordance with the lease,the directors can be ousted.

Now you are tying yourself up in knots a bit. Let me highlight one really critical thing you wrote: "if it is being run properly, and in accordance with the lease"

Running a company properly, and running the company to comply with the lease. These are a two separate things. Almost all the time, they point to the same course of action. But that does not make them the same thing.

Believe it or not, sometimes the most proper thing for a company to do is to break a contract. Directors can order a company to break a contract. The company then has to live with the consequences, and the directors have to live with the consequences of that, but there are no direct repercussions on the directors for breaking the contract.

It's pretty rare that a freehold company would ever need or want to break a leasehold contract. But all the same, directors do have the capability to order it.

A single shareholder in a company of four can indeed have them booted out. That shareholder has an interest in that company, and if for some reason the three other directors were mad, inept, or just weird, of course the courts would take over and dissolve it if it wasn't being run in accordance with the terms of the lease.

This was not a scenario any of us were discussing. You are conflating several strands of discussion into one, and perhaps this is the root of your angst concerning this thread. We've already seen you haven't taken the time to properly comprehend things, so perhaps it is not so surprising.

One strand of the discussion is the situation about the non-payment of legitimate charges by a single shareholder.

This is not a situation where the Directors are being mad, inept, or weird, and the non-payer is a small minority shareholder, so there is absolutely no danger of the Directors being removed for pursuing this matter.

The other strand is pointing out the simple fact that Directors are not a legal counterparty to the leasehold contracts signed by the companies they direct, and a variety of interesting legal consequences behind that.

To be honest, most of the latter discussion has been prompted by correcting your personal misconceptions about company and contract law, much of which seems to have confused you even further. I should imagine that this post will just add more flames to the fire but it is what it is.

Fraise

princeofpounds wrote: »

What on earth are you talking about?

My first two wikipedia links were to two legal concepts, corporate personhood and the veil of incorporation. They are not laws, they help you understand the origin and interpretation of laws. They are key principles of anglo-saxon common law, which is what forms the basis of the legal system in the UK and the US. They also exist in many other legal systems as it happens.

My last two links, which refer specifically to company laws, are from the UK. One is from Companies House for heaven's sake. You clearly haven't taken the time to actually read or understand things.



The size of a company does not matter. Its legal form does, it will be a limited company, which is the same legal form typically used businesses anywhere from a builder to a supermarket chain. (To be clear, other corporate forms such as sole trading or limited partnerships exist, but there are not relevant to the discussion)

Corporation is effectively a synonym for company, although the legal concept of 'incorporation' is a slightly wider term that can apply to other joint enterprises with different legal structures, it's of little relevance here. You seem to be under the misconception that companies are different because of their size, or only America has corporations, or something to that effect. There is no separate 'company law' and 'corporation law'.

For instance, take the quote below from HMRC's website: Companies pay Corporation Tax, because they are corporations.

"Corporation Tax is a tax on the taxable profits of limited companies and other organisations including clubs, societies, associations and other unincorporated bodies"

In the same way, when I point to the notion of the 'Veil of Incorporation', which is the legal distinction made between the Corporate Person and the Person(s) who are the Directors, this wholly applies to Limited Companies that own Freeholds.



Corporate Directors = Company Directors. If they are elected directors of a limited company, they are company directors with all the rights and responsibilities that office entails.



Of course they can breach the lease. It would be a very strange thing for them to do, and it would not have good consequences for anyone, and their actions may be challenged in time by various parties, but it's entirely within their capability. A lease is just a contract. Breaching it would be as simple as refusing to pay to fix a broken roof tile, which is entirely a decision the Directors would have to make (unless they had delegated those powers to a manager).



No I did not. Only parliament (and the European Parliament too these days) makes laws.

I said directors have remarkable freedom to direct and act for a Company. Outside of law, and company charters and bylaws, they are free to make what decisions the see fit. They are also not personally bound by contracts the company is a party to.

I think this latter point is what you fail to grasp. You seem to think that Directors are in some way bound by a leasehold agreement, as if it were a law. So let me make it plain:

The company is bound by the contract. The Directors run the company. The Directors may direct the company to break the contract. This is not a good thing to do, but they can do it.

The consequences are that the company is likely to suffer various legal penalties for breaching the lease, if challenged by the leaseholder. The leaseholders, who are all shareholders, may well choose to remove the directors, but this is a majority decision, it does not take one disgruntled shareholder.

If the disgruntled shareholder thinks that the Directors AND the majority of shareholders are not running the company for the benefit of all shareholders as a group, then perhaps they might go to the courts for further remedy.



Yes I was correct. They do not 'merely' act for the company. An employee acts for the company. Directors are not employees (although they may also be so, if they are executive directors). They direct the company.



Yes they can. Please tell me how 1 shareholder out of 4 can remove all the directors for ordering the freehold company to sue him for unpaid charges. Because if you can, you should be a QC.



Now you are tying yourself up in knots a bit. Let me highlight one really critical thing you wrote: "if it is being run properly, and in accordance with the lease"

Running a company properly, and running the company to comply with the lease. These are a two separate things. Almost all the time, they point to the same course of action. But that does not make them the same thing.

Believe it or not, sometimes the most proper thing for a company to do is to break a contract. Directors can order a company to break a contract. The company then has to live with the consequences, and the directors have to live with the consequences of that, but there are no direct repercussions on the directors for breaking the contract.

It's pretty rare that a freehold company would ever need or want to break a leasehold contract. But all the same, directors do have the capability to order it.



This was not a scenario any of us were discussing. You are conflating several strands of discussion into one, and perhaps this is the root of your angst concerning this thread. We've already seen you haven't taken the time to properly comprehend things, so perhaps it is not so surprising.

One strand of the discussion is the situation about the non-payment of legitimate charges by a single shareholder.

This is not a situation where the Directors are being mad, inept, or weird, and the non-payer is a small minority shareholder, so there is absolutely no danger of the Directors being removed for pursuing this matter.

The other strand is pointing out the simple fact that Directors are not a legal counterparty to the leasehold contracts signed by the companies they direct, and a variety of interesting legal consequences behind that.

To be honest, most of the latter discussion has been prompted by correcting your personal misconceptions about company and contract law, much of which seems to have confused you even further. I should imagine that this post will just add more flames to the fire but it is what it is.

Let's agree to disagree

It's very nice of you to go to such effort to type out such a long detailed post, but the minute you wrote that directors can BREACH the lease, I gave up reading......

Breach of a lease is a serious thing, and no one can breach a lease without facing serious consequences. YES, a person can breach a lease..if they're dense enough to do so....but they will pay dearly for their ignorance. And directors have to adhere to a lease too. You seem to hold directors in awe for some reason.......I happen to know some directors who are as thick as planks. As I said before, anyone can be made a director....it doesn't mean to say they're clever, experienced, knowledgeable, or know anything about company law.

Let's forget it.....ok?

Ulfar

Gonna put my 2p in here as an ex-director for a block of flats.

Directors breaching the lease would be a daft thing to do, as they would leave themselves open to the consequences. But going down this rabbit hole, the directors could be sued for not enforcing charges as they wouldn't be working in accordance with the lease or the interests of the leaseholders as a group.

By the same token the leaseholder who isn't paying is in breach of their lease, there will be a clause that they have to pay their share.

There are several actions the directors can take, one option is to threaten the leaseholder with forfeiture of the property and to advise any bank that holds a mortgage on the property of this action. To protect their interest a bank will often pay the outstanding charges, add them to the mortgage and probably some of their own charges as well. They also won't be too impressed with their customer, which if you are a business can have some very long reaching consequences.

Another is to wait until the leaseholder comes to sell and then to block the sale until outstanding monies are paid. Any buyers solicitor will check for outstanding charges as their client upon completion accepts liability for the property and charges due, they would be highly negligent to not make sure outstanding monies are paid.

Fraise

Agree with the previous poster: directors breaching the lease would end up getting ousted and possibly sued, too.

Leases are a minefield sometimes, and it isn't just the leaseholders who can be problematic. Some management companies try and rip leaseholders off, or they don't carry out necessary works, in which case a leaseholder could argue that they are withholding their payments until the company carries out the necessary works. And if a group of directors wanted to raise the service charge to a ridiculously high level, that was wildly expensive and unnecessary, the leaseholder is within his right to refuse such ludicrous charges and can take the case to the LVT.

Some directors seem to think they're above the law, but they're not. They have to act in accordance with the lease and it's laughable if they think they can impose service charge rises to any amount they want! That's insane. It's also suspicious when a director, who us also a shareholder and flat owner, would want to raise service charges to a stupidly high amount......that's the equivalent to raising your own council tax! :rotfl:

If directors did that I would suspect they were up to no good.......lots of management companies cream money off residents by taking backhanders.....and that's where the LVT and courts step in and s
In the directors out.

propertyman

Some management companies try and rip leaseholders off, or they don't carry out necessary works, in which case a leaseholder could argue that they are withholding their payments until the company carries out the necessary works

If the SC is due in advance then they cannot withhold. They can only argue that the scope amount aren't fair and reasonable by application TO the FTT or Court and putting their arguments.

If directors did that I would suspect they were up to no good.......lots of management companies cream money off residents by taking backhanders.....and that's where the LVT and courts step in and s
In the directors out.

As said they do not step in at all, they can only rule on the basis of an application made to them. In this case as explained with only 4 shares and 3 in favour, most of the remedies of ouster are negated, criminal ones excepted, and all that can be done is determine service charge amounts at the FTT.

Ulfar

Getting directors ousted is not an easy thing.

Firstly in the case of the development I was a director, every owner had an automatic right to be a director under the articles of association. In this case ousting a director would have taken an intervention of the court. It couldn't be done by majority vote. Their request to become a director also could not be blocked.

In the case of the OP, even if they are able to oust directors it would take a majority vote, which if it is one against 3 isn't going to happen, again this would then take the intervention of a court.

Now from experience do directors and leaseholders do everything they should by the rules, absolutely not. Internal politics plays a very large role in some decisions.

An example of this from my experience came concerning communal gardens. At the front of the block there was an area of grass, which the directors allowed one of the residents to take over and plant bushes, making a very nice garden. This was prior to my buying the property. The problem came when the gardener moved leaving a lovely but very time consuming to maintain garden. By this time I had become a director with other new owners who weren't happy with the way things were being run.

It took a lot of argument on my point and a quite heated debate to get the garden put back to grass, mainly because the older directors didn't want to spend any money, despite us having a very considerable fund and the cost being quite negligible. My final point and something which resulted in a second vote was that the directors should not allow any further leaseholders to take over maintenance of an area that was the freeholders responsibility in the lease.

livewire27

This is a great thread and covers the sort of problems I face. Can I ask an additional question from the forum members? We are a 4 flat share of freehold house with one impossible leaseholder/director. He refuses in principle to accept as binding decisions made and voted for by majority at our board meeting. Our current dispute is over whether or not we gravel over a piece of our front garden where cars are parked or put in fresh turf. We voted 3 to 1 for gravelling. We minuted this decision. He refuses to accept this for stupid reasons like - 'it has been that way for 37 years' and it might make a noise late at night when a car park on the gravel (which never happens). He also rants that it requires planning permission but the planning site for our borough makes clear we don't need permission. He will certainly harass the gardener during his work although the gardener will be contracted by our managing agency who this guy absolutely loathes. All our flats are modernised except for this guy who has not done anything for 37 years. The houses on our street are £3m+ so our investments are substantial.

Would really appreciate input.