Lessee owned and controlled companies are common, and include:
- residents’ management companies enshrined in tripartite leases (where each lessee is a member);
- right to manage companies who have acquired the right to manage in accordance with the provisions of the Commonhold and Leasehold Reform Act 2002; and
- enfranchisement vehicles where lessees have purchased the freehold interest in their block.
So it’s not uncommon for leaseholders to live in a block of flats where there is a Residents’ Management Company who’s responsible for providing services for the benefit of that block. A Residents’ Management Company (or RMC for short) is generally a party to the occupational leases.
Many lessees are also taking the step of acquiring the right to manage their block. In those circumstances, a right to manage company (RTM Co) takes on responsibility for the management of the block by acquiring the management functions.
Lessees might also wear a hat as freeholder, because they’re a member of the freehold owning company.
In all of the above cases, lessees may choose to become directors of either their company. But being a director is not a job to be taken lightly. What are the duties and obligations of being a director of an RMC or RTC Co?
We’ve provided some information below to help leaseholders understand their duties and obligations as a director.
What is a Residents’ Management Company?
An RMC is a particular type of company which holds certain responsibilities relating to blocks of flats.
What does an RMC do?
Under the terms of a lease, an RMC is usually required to perform certain management functions. These are functions with regards to services, repairs, maintenance, improvements, insurance and management.
An RMC is entitled to recover payment of service charges from the lessees so that it is able to provide those services and perform those management functions.
How are all these obligations fulfilled?
All companies (including RMCs and RTM Cos) have directors.
A board of directors governs a company.
The board represents the interests of the members of the company, and it’s the board that has overall authority for decisions made by the company.
What are the duties and obligations of a director?
Because directors look after the affairs of a company, the law imposes a number of duties, burdens and responsibilities on them. For example, directors must act in good faith in what they genuinely believe to be the best interests of the company.
In broad terms, the general duties under the Companies Act 2006 which apply to all directors are:
- To act within their powers;
- To promote the success of the company;
- To exercise independent judgment;
- To exercise reasonable care, skill and diligence;
- To avoid conflicts of interest;
- Not to accept benefits from third parties;
- To declare an interest in a proposed transaction or agreement.
These duties are owed to the company, and if directors breach these duties, the company can enforce them. It’s important to note that this can be initiated by the members of the company if they feel that the directors are in breach of their duties.
It is also important to check the company’s Memorandum and Articles of Association (often abbreviated to Mem&Arts) as the Mem&Arts can impose further requirements on company directors.
It’s not uncommon for the directors of an RMC to employ the services of a managing agent to assist with the performance of their management functions under the occupational leases.
A managing agent may also provide company secretarial services and oversee matters of corporate governance.
When do director’s duties commence and end?
The director’s duties to the company commence when they become a director. Certain aspects of the duties directors hold continue even after resignation.
Legislation and the Mem&Arts dictate who can be a director, and when disqualification may occur. The Courts also have certain powers to disqualify a person from becoming a director.