Are your articles watertight?

Brady Solicitors highlight how obscurities in your RMC’s constitution can hamper effective service charge arrears recovery.

As we all know, residents management companies (or RMCs for short) are governed by company law, which means that they have to have formal articles of association that clearly set out the internal regulations and operations of the RMC on a day to day basis – including in relation to general meetings.

Equally, we all know that cash-flow is essential for RMCs and that prompt payment of service charge demands helps the RMC directors to keep maintenance and development works on track.

At Brady Solicitors however we are regularly seeing leaseholders withholding payment of their service charge monies on the basis of obscurities in their RMC’s articles of association.

As a minimum, we recommend you review the following areas within your articles to ensure you don’t get tripped up:

  • Check who can chair your meetings. Some articles state that the Chairman must be a leaseholder or even an ‘original subscriber’ – ie: someone who was involved with the RMC when it was set up. A managing agent chairing the meeting in such a circumstance would provide a loophole for a leaseholder seeking an excuse for non-payment.
  • Do you know who can be a director? It can be tempting for a managing agent at an underperforming RMC to step into a director role but check what the articles say – they may forbid a managing agent being a director.
  • Understand who can appoint directors. If a managing agent appoints a director without the locus to do so it could lead to problems down the line.
  • Know your quorums. For shareholder meetings most articles would suggest a requirement for a quorum of two directors to be present, yet we have seen articles requiring four and even five to be present at each meeting. This type of rule can be almost unworkable in practise.
  • Clarify your voting rights. For new developments there can be situations where no one has voting rights until the ‘transfer’ is transacted from the developer to the RMC. This can cause issues when leaseholders move in before the development completes and the transfer is made.
  • Are defaulting leaseholders allowed to resign? ‘Strategic’ resignations at Companies House by leaseholders in arrears can leave your RMC without directors and therefore without the capacity to initiate proceedings against them.

Articles of association can vary quite widely from RMC to RMC, so don’t assume that they will be standard.

If you have a leaseholder defending non-payment on the basis that their RMC has fallen foul of its articles, Brady Solicitors’ property management experts can help you to resolve the situation in the county court and at the FTT/LVT.

We recommend instead that RMCs take a more proactive approach to ensure that their articles of association are a) watertight and b) known and understood by all directors. This will help to close the loopholes for persistent defaulters.

It’s a straightforward process to amend your articles of association by a special resolution.

Contact Brady Solicitors by email or on 0115 985 3450 to get the ball rolling.