Introduction – If you own the freehold to a block of leasehold properties, or let out a leasehold property within such a block, then you will likely have some familiarity with Flat Management Companies. These are companies that are established to collect any service charge, manage & repair the building and assume the responsibility of ensuring compliance with the requirements of the lease.
Flat Management Companies are run by the leaseholders of the properties within the building so your perspective on their features and usefulness will shift depending on your position.
If you are the owner of the freehold of the building and have granted leases on the properties then you will look on a Flat Management Company as the delegation of your responsibilities to the leaseholders, whereas if you are a leaseholder subletting your property to a tenant then a Flat Management Company may be a means for you to have a little more control over how your service charge is spent for the benefit of the building and its residents.
When to Form a Flat Management Company
As the freeholder of a building comprising leasehold units you may manage the building yourself or you may appoint a Managing Agent to maintain the property on your behalf. In the case of the latter the Managing Agent will take instructions from you, rather than the leaseholders.
Unfortunately there can be discontent from the leaseholders on the way the building is managed; a recent CMA study found that 42% of leaseholders asked had reason in the past for dissatisfaction with their property manager and 28% disagreed that their property manager provides value for money.
If you find that your leaseholders are unhappy then you may consider offering them the opportunity to take control themselves by forming a Flat Management Company.
As a leaseholder, the two most likely circumstances where you would want to form a Flat Management Company are:
1) if you are about to collectively purchase the freehold of the block with the other leaseholders; or
2) You are unhappy with the way the property is currently being managed by the freeholder and wish to take the Right to Manage under the Commonhold and Leasehold Reform Act 2002. (note this is only available to self-contained blocks of flats, and other conditions will need to be met. See the Leasehold Advisory Service for more information.)
How to Form a Flat Management Company
A Flat Management Company needs to have specialist Articles of Association that have been drafted for the particular property that it will manage and include specific procedures for changes in membership.
For complicated situations you may wish to seek legal advice on how your company should be structured, but for standard situations you can form a Flat Management Company yourself inexpensively by using a company formation agent such as Company Formations 24.7
Drawbacks of a Flat Management Company
For freeholders, relinquishing management of the property means giving up some control of your asset, which may not be your preference.
For leaseholders considering taking over the management of the property, a Flat Management Company will give you more control, but it will also give you more responsibilities. You should give serious consideration to appointing a Managing Agent as trying to manage the property yourself will be hard, time-consuming work, and you will have obligations to the shareholders, the flat owners and to the landlord.
See also: Freehold, Shared Freehold or Leasehold?