Whether the motivation is to be able to grant lease extensions, use development rights or be in control of the block management, buying the freehold can be rewarding and challenging.
The role of the professional Managing Agent is to support decision making and offer up insights to help get the right thing done
A Freehold Management Company or “FMC” is required when more than four people want to own the Freehold of a block of flats. Each leaseholder who buys into the freehold then becomes a sharehder or member of the Freehold Company and as a stakeholder gets a say in how the block of flats is run.
Together the freehold shareholders/members in the are dependent on each other for support to get things done, and, to create long term common objectives etc... Some leaseholders will need to stand as Freehold Management Company Directors to either appoint a professional Managing Agent or deal with the day to day management of the block themselves.
A Freehold Management Company Shareholder wears many hats
A flat owner who is also a shareholder or member of a Freehold Management Company wears a variety of hats: as leaseholder, as shareholder or member, and, if so elected as a Freehold Company Director. Whilst each role is separate, the roles overlap in various scenarios and each hat carries specific rights and obligations. A Freehold Management Company Director has to take care when making decisions to ensure that decisions show no bias and uphold his fiduciary duties. For.example: a Freehold Company Director granting himself a lease extension at Nil premium or below market value, good for him as a leaseholder, but a.definite breach of a Freehold Management Company Director's fiduciary duties. The Director has a duty to ensure he achieves best value, or at least easonable value for the Freehold Company shareholders or members he serves. The very same members entitled to receove a dividend from the lease extension premium.
Running the Freehold Management Company day to day
Like any company, normally, the day-to-day management of a freehold company is the responsibility of the directors of the FMC. The members or shareholders elect and vest their confidence in the freehold company directors who then make all the decisions.
Each block of flats will comprise a range of people with different interests, personalities and agendas. Some Directors may be landlords and/or non resident, others will the be eyes and ears of the site. It works best when different board members take different roles: budgeting, accounts, compliamce, health & safety, gardening, housekeeping etc... If you are buying a flat in a block that has a freehold management company and want to convert the attic or extend the property you should raise these things before your purchase sonas to know if you are likely to meet any resistance. Whether you are a serious long term investor or byying a home it works best when leaseholders care and get involved. Management decisions will inevitably need to be made which effect the direction and destiny of the block and ultimately bow the money is spent.
The Articles of Association (or “Mem and Arts”) of the FMC and Company Law generally will give some guidance on the criteria to become a Director, e.g., to be of good standing with no service charge arrears. Most blocks need the assistance of a professional managing for support technical issues and stand offs that often come up.
We always recommend leaseholders should get a Solicitor to draw up a Shareholders Agreement when thinking about collectively buying the freehold. A Shareholders Agreement can protect the owners should an owner pull out jeopardising the whole enfranchisement. A Freehold Shareholders Agreement can also lay out how the FMC is to be run, voting etiquette and the managerial contribution each of the Directors and/or flat owners needs to bring to reduce friction and the scope for disagreements between the shareholders and directors.
What Freeholder Management Directors must know
Health and SafetyDirectors and Officers insurance is a must because the Freehold Management Company Directors are ultimately responsible for the health and safety of all communal areas: the grounds and commonal hallways. Directors need to look out for:
- broken or shattered glass
- slippery floors or broken stair nosings
- regular rubbish collecting
- pest control
- lift maintenance and statutory inspections
- secure electrical fittings
- lifting pavements and trip hazards
- regular cleaning – visit logs and clear specification
- electrical Safety – EICR testing
- gas safety - communal heating
Fire Safety:Freehold management company directors will be held responsible should the worst happen and the Fire Service decide to prosecute. So being able to prove good governance and audit trail is essential, for example:
- maintenance logs for fire/smoke alarms
- leaseholder advice notes on how to test and clean their heat detectors
- inspections of common parts fire doors inspections
- to advertise the fire strategy, i.e., 'stay put' or 'get out'
- to put up signage for all exits routes
- to put up no smoking signs
- ensuring doors are set to open in case of evacuation
- operational emergency lighting
- regular fire risk assessments
- to police a keep clear policy
- to prevent storage in electrical or riser cupboards
- to ensure adequate fire compartmentation between flats, and
- the ability to exit the building quickly and without using keys
Whilst not exhaustive these lists show the responsibility being a Freehold Management Company Director brings. It is the Freehold Management Company Directors sho set the service charge budget and need to budget for all things health & safety, all things fire as well as day to day maintenance. And, then there is the need to collect reserve funds for future big works such as re-roofing or redecorations. Service charge accounts have to be prepared and presented to the service charge payers and because service charges are not for profit, balancing charges to collect any deficits and credit any surpluses.
The role of a professional managing agent is to advise and support the Freehold Management Company Directors, to help uphold the covenants of the lease, get AGMs called and advise tbem how to keep safe governance-wise.
Frequently asked questions
What is a freehold management company?
A freehold management company is a company that manages the common areas and services of a property or development, on behalf of the freehold owner.
The main aim of a freehold management company is to maintain and enhance the value of the property, by ensuring that the common areas are well-maintained and run efficiently. In addition, a freehold management company can also provide a range of other services to residents, such as security and concierge services.
A freehold management company is usually set up when a property or development is first built, and is run by a board of directors who are elected by the freehold owners. The board typically comprises representatives from each of the different blocks or properties within the development.
The day-to-day management of an FMC is usually carried out by a professional property management company, on behalf of the board.
If you are a freehold owner, it is important to ensure that your freehold management company is run effectively and efficiently, as this will help to protect and enhance the value of your investment.You can do this by:
- Ensuring that you are registered with the freehold management company and have received a copy of the rules and regulations.
- Attending freehold management company meetings and voting on important issues.
- Paying your annual service charge promptly and in full.
- Keeping up to date with developments and being proactive in offering suggestions and feedback to the board.
By working together with your fellow freehold owners and the management company, you can help to ensure that your property or development is well-maintained and run smoothly.
Can a management company own the freehold?
In some cases, the management company may also own the freehold of the property or development. This is known as a 'collective enfranchisement' and gives the management company certain rights and responsibilities in relation to the property.
For example, the management company would be responsible for maintaining and repairing the common areas and would be able to make decisions about how the property is run.
If you are a member of a management company that owns the freehold, it is important to be aware of your rights and responsibilities, as well as those of the other members of the company.
You can find out more about collective enfranchisement and management companies from your local authority or a professional property management company.
Is the management company the same as the freeholder?No, the management company is not the same as the freeholder. The freeholder is the owner of the property or development, and is responsible for maintaining and repairing the common areas. The management company is a separate legal entity that is responsible for managing the common areas and services on behalf of the freehold owner.
Can a freehold owner set up their own management company?
Yes, a freehold owner can set up their own management company. However, it is important to be aware that setting up and running a management company can be a complex and time-consuming process.
It is therefore advisable to seek professional advice from a property management company or solicitor before setting up your own management company.
Is there a difference between a leasehold and freehold management company?
Yes, there is a difference between a leasehold and freehold management company. A leasehold management company is set up by the landlord of a property to manage the common areas and services on behalf of the tenants.
A freehold management company, on the other hand, is set up by the freehold owner of a property or development to manage the common areas and services on behalf of the freeholders.
Can a management company be dissolved?Yes, a management company can be dissolved. However, this is a complex process that can only be carried out by a professional property management company or solicitor.
What are the benefits of having a management company?There are numerous benefits to having a management company, including:
- Ensuring that the common areas and services of a property or development are well-maintained and run smoothly.
- Giving freehold owners a greater degree of control over how their property is run.
- Allowing freehold owners to pool their resources and appoint professional property managers to oversee the running of the property.
What are the disadvantages of having a management company?There are also some disadvantages to having a management company, including:
- The cost of setting up and running a management company can be significant.
- The management company may not always act in the best interests of the freehold owners.
- The decision-making process within a management company can be slow and cumbersome.
- Freehold owners may not be able to sell their property without the consent of the management company.
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