Management companies are routinely used to allow a developer to divest itself of on-going management responsibilities, but a recent case has highlighted the importance of ensuring that the management company is set up appropriately to avoid on-going difficulties between individual householders or tenants.
A dispute arose between the tenant members of the management company as to whether they were entitled to just one vote per member (even though one single member owned 66 of the 104 flats), or one vote per share or dwelling. The court held that each member was entitled to just one vote, regardless of how many flats they owned. As a consequence, the majority shareholder could be outvoted by the other members and had very little control over the running of the management company.
Matt Ashley, who regularly designs and incorporates management companies for developers, comments: “This is a rather curious decision where the court has taken the literal meaning of the drafting of the articles of association rather than the common sense approach taken by the judge at first instance. The vast majority of residents’ management companies are set up to allow one vote for each dwelling owner or household. Allocation of votes on any other basis is generally considered inequitable. This case highlights the need to draft the articles of association of residents’ management companies carefully to make sure that each dwelling owner gets a vote for each of their dwellings”.
Matt Ashley is a senior associate at Osborne Clarke who has particular expertise in Property Management and is a member of the Institute of Residential Property Management.