Stand up to the bullies in your block

The directors of freehold management companies are subject to the same rules as any other firm - and can be prosecuted if they flout the law.
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The Independent Online
You have bought the freehold of your property from an unscrupulous landlord, set up a management company with the other tenants in the block and are now ready to run your own show. Then the reality begins to dawn.

One leaseholder in a block of five flats has found out the hard way that life in a freehold is not necessarily wonderful. She is the only flat- owner in the household who has not been made a director. She is rarely provided with minutes of meetings, is not given her right to vote on matters to do with the household, is not informed of all the changes of directors, has not been supplied with a detailed summary of the accounts and so far has had her request to inspect the accounts ignored.

The rogue company secretary, who has now resigned, on one occasion delivered a note under her door demanding more money for the service charge plus an extra, one-off amount of close to pounds 200. He gave no prior warning and no explanation.

When approached for more information, he refused and allegedly remarked: "I don't have to tell you anything. We can pass anything without you. You're in a minority." He was, in fact, breaking the law.

So don't fall for the bully boy neighbour turned savage "android" who has manoeuvred his way into a company seat purely for kick power.

Apart from being entitled to attend any meetings at which major decisions are made, shareholders or lessees are entitled to a summary of relevant costs in relation to service charges. This makes it easier to see how the charge has been spent and to identify discrepancies. If there are more than four flats in the block, the summary must be certified by an accountant who is not connected in any way to the management company.

You are also entitled to inspect accounts, receipts and other supporting documentation. If the management company fails to comply with your request, then the directors can be prosecuted. Not only will they be violating company law and leasehold regulations in the above case, but they could find the freehold company struck off the register if they continue to breach obligations. This outcome would make it extremely difficult to sell any of the properties in the block and prove an expensive muddle to sort out.

The freehold company is required to file annual accounts, annual returns and details of changes in directors to Companies House. "If they fail to do so, they may be fined individually and end up in court," says Mark Dickson, partner at Kenneth Elliott & Rowe, a firm of solicitors. He emphasises the legal obligations to maintain internal records of payments and receipts, adding that accounts have to be approved at the annual general meeting.

A typical example of what can go wrong comes from a resident at a block in Hertfordshire, who says: "We're worse off now than when we had a single freeholder. The present board doesn't want to listen to other people's views. They don't consult us and there is no consensus of opinion. A small group of people run the company and don't welcome others to participate."

Stephen Compton, senior partner at Comptons, points out that directors are required by law to make minutes of meetings available to everyone and changes of directors can only take place at an annual general meeting or extraordinary general meeting prior to which shareholders must receive notice - if they haven't received notice then it's not a legitimate meeting.

He adds: "All major decisions must be put to the vote. If it affects the interest of a shareholder then it has to be done at an AGM or EGM."

Mark Dickson underlines that the directors of a freehold company are subject to the same rules as those of any other firm and, if they fail to take their responsibilities seriously, they may be prosecuted for fraudulent or wrongful trading. The best way to prevent this is to obey the law in the first placen

Karen Woolfson welcomes letters from readers for her monthly column on leasehold and freehold issues.

Her address is: Home Battles, Personal Finance Section, The Independent, One Canada Square, Canary Wharf, London E14 5DL. Karen regrets that she is unable to reply personally to letters.

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