Forced Transfer of Freehold Share

sleedham1

Many years ago, as part of a group of leaseholders, I bought the freehold to the properties we leased - 36 maisonettes plus associated communal land. 21 of us paid money and were issued a share in the subsequent company that was formed to manage the freehold. The other 15 did not participate and were not issued a share. Over the years we have received dividends from lease extensions and also from one new leaseholder who paid to buy a share. I recently sold my maisonette, but at the point of exchange, the company solicitor refused to transfer the lease to the new owner unless I also transferred them my share in the company. I was told this was a legal requirement, even though this had never been mentioned when we first grouped together to buy out the freehold. I was offered no financial compensation to transfer this share, and the buyer had already agreed a price and wasn't willing/able to buy the share from me. I initially refused, but due to the time running out on the buyer's mortgage offer, I reluctantly transferred the share.

I have subsequently obtained the Articles of Association for the company and find there is no article that mandates the transfer of share on selling the lease. When questioning the lack of such a clause, the response from the Directors was "we have been following the legal advice originally obtained regarding the transfer of company share with the title of a relevant property when it is sold. The original legal advice, which was obtained at the point of company set up, has recently been reconfirmed by our solicitor. This supports the need to have only bona fide property owners be members of the company; those who have a vested interest in their property and the whole Close".  

Now, whilst I can see a logic on only having leaseholders voting on changes to the freehold, there is the matter of lost future dividends as well as the asset value of the communal lands that I owned a share of.

Would appreciate any comments / advice as to whether I have any recourse against the company / solicitor, and if so, what should I do next?

anselld

The horse seems to have already left the stable.  The time to challenge the legal view of the management Company would have been before you "relctantly" but willingly transferred your share.  You accepted their position which they still hold ( "recently been reconfirmed").  What did your own Solicitor advise at the time?

propertyrental

Very common. Not exactly the same but I am currently buying the freehold to a property in an estate which is managed by a management company that runs the roads, surrounding woodlands etc etc etc.

The various relevant documents require that
* all property owners on the estate must automatically become shareholders
* ONLY property owners on the estate can be shareholders.

Indeed, had this not been the case I would have thought twice (and probably walked away. I certainly would have been unhappy to find that (some? most?) voting) shareholders were non resident, with no interest in or ties to the management company other than financial.

As for the income from dividends you will lose by loss of sharehold, why did you not 
a) show your buyer what income you've generated over the last (5?, 10? ) years and
b) tell him your sale is conditional on the simultaneous purchase of the freehold for £X? Though simpler would have been to include this in the agreed price for the lease.

Either you and/or your solicitor, should have been or become familiar with the Articles. There again, your buyer's solicitor should have investigated this long before getting to Exchange.

Would appreciate any comments / advice as to whether I have any recourse against the company / solicitor, and if so, what should I do next?

You said the Articles of Association 

supports the need to have only bona fide property owners be members of the company; those who have a vested interest in their property and the whole Close".  

thus you have no right to maintain your share so I  don't see any recourse you have against the Directors who are so ably doing their job.

sleedham1

anselld said:

The horse seems to have already left the stable.  The time to challenge the legal view of the management Company would have been before you "relctantly" but willingly transferred your share.  You accepted their position which they still hold ( "recently been reconfirmed").  What did your own Solicitor advise at the time?

Thanks, that is what I feared. I didn't accept their position but my buyer's mortgage offer was about to expire and he was ready to walk away (since he got his mortgage offer on favourable terms before interest rates went up), and so I chose to transfer to preserve the sale. My solicitor at the time was a simple conveyancing solicitor and had no experience of this. 

However, I still own the lease to another property in the freehold and so am wondering how to affirm my position before I ever contemplate selling that property.

sleedham1

propertyrental said:

You said the Articles of Association 

supports the need to have only bona fide property owners be members of the company; those who have a vested interest in their property and the whole Close".  

thus you have no right to maintain your share so I  don't see any recourse you have against the Directors who are so ably doing their job.

Sorry, that was the statement from the directors only. My point is that there is nothing in the Articles of Association that mandates transfer of share upon sale. And hence, although that might have been their intent (unbeknown to me), they have not setup the managing company correctly (I suspect they just used generic wording)

anselld

sleedham1 said:

anselld said:

The horse seems to have already left the stable.  The time to challenge the legal view of the management Company would have been before you "relctantly" but willingly transferred your share.  You accepted their position which they still hold ( "recently been reconfirmed").  What did your own Solicitor advise at the time?

However, I still own the lease to another property in the freehold and so am wondering how to affirm my position before I ever contemplate selling that property.

Just make sure the selling price includes the value of the share of freehold before accepting any offer.

propertyrental

So do the Articles restrict shareholders to leaseholders (or similar) or not (irrespective of any duty to 'sell' the share)?

If there is some such clause, please quote.

sleedham1

propertyrental said:

So do the Articles restrict shareholders to leaseholders (or similar) or not (irrespective of any duty to 'sell' the share)?

If there is some such clause, please quote.

No, there are no articles that require a share to be transferred upon sale of lease. As I said earlier, there are only generic articles related to shares:


And there is no specific article restricting buying a share to only leaseholders, although it is up to the Directors to decide who can have the unused shares (i.e. the remaining leasehold properties where the leaseholder did not participate in the original freehold buyout). Presumably they would only sell them to who they thought appropriate i.e. leaseholders.


In summary, it is the Directors' opinion that is driving the mandated transfer of share, not a legal article in the Company's incorporation document. Hence, surely I must have some sort of legal redress to this situation? 

propertyrental

Would need to also see the referred to sections eg the Act, and 'the regulations of the company'.

Suggest this is one for a solicitor.

But too late now for this sale: " I reluctantly transferred the share."