Responsibilities of a Director of a Freehold Management Company: Lease and Landlord and Tenant Law vs. Company Law in the UK


24/11/2023

Author : Mary-Anne Bowring


A management company director must act in accordance with the Lease Terms:

When self-managing a block of flats and serving as a director of the freehold management company, residents Management Company, or right-to-manage company, it is essential to understand the legal responsibilities that come with the roles. Directors when acting as the competent landlord or the party responsible for managing the block of flats, have obligations under both contract law, i.e., the lease, under landlord and tenant law, as well as UK company law. We will explore the key responsibilities and duties that directors must fulfill under these legal frameworks.

Responsibilities under Lease, Landlord, and Tenant Law:

A management company director must act in accordance with the Lease Terms:
- Directors must ensure compliance with the landlord's covenants which effectively set out the services that the landlord must provide and the obligations he or she has to protect the right to quiet enjoyment of the leaseholders. The lease is king and includes abiding by the provisions related to service charges, repairs and maintenance, insurance, and leaseholder rights.

Procedures for collection and management of Service Charges

- Directors of resident-controlled management entities in charge of managing blocks of flats are responsible for collecting service charges from leaseholders and managing the funds by lease provisions and company legislation. The management company director's role includes setting budgets, maintaining accurate financial records, and providing the year-end service charge accounts to leaseholders.

Leasehold property maintenance and repairs: a block manager's responsibility

- when managing the service charge, management company Directors must ensure that the block of flats is well maintained and in a habitable condition. This involves organising routine maintenance, addressing repairs promptly, and complying with relevant health and safety regulations, see No. 4.

Health and Safety Compliance: a RTM Company director's duty

- management company Directors must keep the property and its inhabitants safe and comply with health and safety requirements. Ensuring that appropriate measures are in place to protect residents and visitors from potential hazards is not a responsibility that should be taken lightly. Health and safety regulations are wide-ranging, and the HSE (Health and Safety Executive) website is a useful resource. Some key pieces of legislation to get up to speed with are The Fire Safety (Regulatory Reform) Regulations 2005, The Fire Safety Act 2021, and The Building Safety Act 2022.

Leaseholder Communication and Dispute Resolution:  a management company or RTM company director role

- Management Company Directors are responsible for maintaining effective communication with leaseholders, addressing their concerns, and resolving any disputes that may arise. This includes adhering to the statutory consultation process known as section 20 consultation for major works or qualifying long-term agreements. Section 20 consultation comes from the Landlord and Tenant Act 1985 and is designed to give leaseholders and opportunity to put forward contractors to tender and observations on proposed works where the contribution of any leaseholder will exceed the statutory threshold of 250.

Leaseholder Rights and Obligations:
- management company Directors must ensure that the rights and obligations of leaseholders are respected. This includes the right to quiet enjoyment of their demised property as well as providing access to information, granting leaseholders the right to manage, and obtaining their consent for decisions that may affect them.

Fiduciary Duties: what a management company director needs to know

1. Fiduciary Duties: what a management company director needs to know
- Management Company Directors have a fiduciary duty to act in the best interests of the company. This includes exercising reasonable care, skill, and diligence, avoiding conflicts of interest, and acting within the powers conferred by the company's constitution.
2. Company Governance and Compliance:
- management company Directors must ensure that the management company operates in compliance with company law requirements. This includes maintaining accurate company records, filing annual accounts and the annual confirmation statement with Companies House, and convening annual general meetings. Companies formed post-1985 can conduct company business by electronic means.
3. Financial Management:
- management company Directors are responsible for the financial management of the company, including budgeting, financial reporting, and ensuring proper accounting practices are in place. They must act prudently to safeguard the company's assets and financial stability. Further, the Landlord and Tenant Act requires service charge funds to be held in trust for the service charge payers and separate from landlord company money or other business or personal monies.
4. Directors' Meetings and Decision-Making:
- management company Directors must attend board meetings, actively participate in discussions, and contribute to the decision-making processes. They must act collectively and make informed decisions in the best interests of the company. For example, if there is a request to grant a lease extension, or sell the roof space to an owner, then the consideration paid should be the market value.
5. Risk Management and Insurance:
- management company Directors should identify and manage potential risks to the company, including obtaining appropriate insurance coverage. This means not only building insurance but also public liability insurance for visiting persons, occupiers liability insurance for occupiers, employers' liability insurance for workmen attending or concierge or other site staff employed, and LOLER or engineering inspection insurance to cover statutory inspections for lifts and man safe systems, etc... Management Company Directors must exercise judgment in assessing risks and taking steps to mitigate them.
6. Compliance with Other Legal Obligations:
- management company Directors must ensure compliance with other relevant legal obligations, such as data protection regulations, employment laws, and anti-money laundering requirements.

ServiceChargeSorted.co.uk offers a hybrid solution whereby we undertake the financial and legal administration leaving you to run the block. Our experts are on call on a pay-as-you-go basis should you need extra support, but because most of the time things can run smoothly under resident-controlled management what we charge, you is almost 5 times less than the cost of a managing agent. For all ServiceChargeSorted.co.uk Clients, the support network on hand when needed is that of a professional managing agent, The Ringley Group.

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