One of the defining factors of UK company law is that it is very flexible. An individual company’s articles of association can be written to tailor the company to specific purposes. An example of this is the various forms of companies available to people who live in flats and other developments to help them manage leaseholds and freeholds.
There are a couple of basic types of these companies but they all originate from the differences between freehold and leasehold. It is fairly common in the UK for one legal entity to own the ground that a building stands on and then to charge an annual ground rent to the people who own the building. Where flats are concerned it is common for individuals to own the flats within a building while a third party owns and manages the building itself (either on a freehold or leasehold basis). In some cases the people who own and live in the flats within a building may decide that they would prefer to be responsible for the management of the building rather than relying on a third party. There are three basic types of company structure that can help them to do this the first is a “Flat Management Company”.
Flat Management Companies
In reality a “Flat Management Company” is normally a Private Company Limited by Shares. How it works is that the owners of the flats within a building will form a company to buy the freehold (or lease) of the entire building. Each flat owner will have shares in the company to represent their share of the freehold. It will normally be written into the articles of association that if an individual sells their flat they have to sell their shares in the company which owns the freehold along with it. This allows the people who live in the flats within a building to own and manage their own freehold (or leasehold) and any issues which arise from it.
Right to Manage Companies
The second type of these arrangements is a Right to Manage Company. In many blocks of flats the landlord will impose a management fee on an annual basis. This is to cover the general upkeep of the buildings structure and public areas. The Right to Manage introduced in The Commonhold and Leasehold Reform Act 2002 gives the owners of the flats within a building the right to take over the management of the building for themselves. The flat owners would therefore become responsible for repairs and maintenance of the building. Where applicable they may also become responsible for any common heating, lighting or water infrastructure and bills. In order for the flat owners to gain the Right to Manage they have to set up a Private Company Limited by Guarantee using the RTM model articles. They then need to follow a set procedure of making a claim on the landlord.
The third type of company structure is a Commonhold Association. These were introduced in 2002 as part of The Commonhold and Leasehold Reform Act. The Commonhold Association offers an alternative ownership model for new blocks of flats. Under a Commonhold Association the owners of individual flats own the freehold to their flat. They are also automatically made a member of the Commonhold Association which owns the building, the land it stands on and any common areas. It would then be up to the Commonhold Association to manage the building and its common areas. This is similar to a Flat Management Company and a Right to Manage Company but is designed mainly for new flats rather than for people buying the freehold of existing blocks.
The Leasehold Advisory Service offers extensive advice on the different procedures involved in purchasing lease and freeholds. Fundamentally all of these ownership types are standard Private Companies Limited by Shares or Private Limited Companies by Guarantee with specialist articles of association. Once a consensus has been established within a block of flats that some kind of joint ownership is desirable the next step is normally to form the company structure which will buy the freehold or lease. Our legal team can advise you on how to carry out one of these specialist company formations.