Flat Management Companies

Where there are multiple tenants a Flat Management Company is normally used to protect the interests of the leaseholders. We can either incorporate the flat management company for you as a Limited Liability company or Limited by Guarantee company.

A Flat Management Company has its Memorandum and Articles of Association specially drawn up to allow the company to own, manage and administer a freehold property, which is normally divided into several dwelling units or flats, with each leaseholder owning a share in the company. The leaseholder will be obliged to transfer the ownership of the share to the new leaseholder when disposing of the property.

A limited company explained

When a property is divided into a number of flats, each flat owner usually has a lease of their own flat but they may also hold shares in a management company that owns the freehold (or lease) of the entire building. Normally, the company's constitution will say that shareholders who sell their flats must also transfer their shares to the new owners. This ensures that, at any given time, the limited company represents the interests of all the current flat owners.

Some limited companies do not have shares and are instead 'limited by guarantee'. If your company is limited by guarantee, it means that the members have agreed to contribute to the assets of the company if it is wound up. In this guide, the terms 'shareholder' and 'member' mean the people who own the company.

Reasons for a limited company

One reason why residents of a block of flats would have a company is to own the freehold or 'head lease'. Freehold gives outright ownership of the property to the company. A 'head lease' is a lease granted directly to the company, who may in turn grant subleases of the property (or parts of it) to the flat owners. The company is also often used for collecting cash for carrying out repairs and maintenance to common parts of the property. Often it is a condition of buying a flat that the buyer becomes a member or shareholder of the company.

Another reason why a company would be set up is so that leaseholders of flats can exercise their right to manage the building they live in. The right to manage must be exercised through a limited company set up for that purpose.

Role of the limited company

Flat management companies typically manage common parts of the building. They may have other responsibilities. Your property probably has parts common to all the flat owners living in it: boundaries, roofs, halls, drives and gardens being examples. These require maintenance, insurance, lighting, etc. These costs are funded by the individual flat owners, who make periodic contributions into a pooled fund.

Many flat management companies choose to account for these transactions within the company.

If your company just pays a few bills, perhaps for repair or maintenance, then your advisor may say that these payments need not go through the company's books. Less formal arrangements, such as collecting the money through a residents association, may be satisfactory. The company could then continue to own the freehold (or head lease) of the property, but all its accounting transactions would be conducted elsewhere - the company would then be 'dormant'.

The main requirements of this Act affecting flat management companies are that they file.

  • an annual report and accounts;
  • an annual return; and
  • other event-driven notifications (typically changes in directorships or registered office address).

Members involvement in company management

Generally a company must hold at least one meeting of its members every year, known as the annual general meeting where the members elect and remove directors, pass various resolutions and consider the company's accounts.

Company Officers

These are the company director(s) and the company secretary. They are responsible for managing the company and for delivering documents to Companies House.

Company Members

A company member is defined as a person who has agreed to become a member and whose name is entered on the company's register of members. For flat management companies, this usually means the leaseholders.

If the company is limited by shares, the members are also shareholders. The information must be updated every year on the annual return, which is send to the company shortly before it becomes due.

A member selling their flat

If the company is limited by shares, the company's Articles of Association will usually require the seller to complete and sign the appropriate section of a 'stock transfer form' when/if they decide to sell. On completion of the sale, the form and the seller's share certificate should be passed to the buyer. The buyer must then complete their section of the form, and pass the form and share certificate to the company. The company secretary must then arrange for the directors to authorise the change to the register of members and issue a share certificate in the name of the new owner.