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Share in Freehold. Can the majority make minority pay for imporvements?

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  • Share in Freehold. Can the majority make minority pay for imporvements?

    Hi I live in flat I own and I have share in freehold. Freehold is on the name of limited company and all have 1 share in it (5 shares in total).

    We just had and AGM. I was told that I cannot refuse to pay my share of expenses done on the outside of the property (which belongs to the freehold) if it was agreed by majority on AGM.

    However I must first establish is that - have the company rights to operate outside the lease (considering that the purpose of the company creation was to provide vehicle of shared freehold and not for general business)?

    I currently believe that the majority wants to spend money of the company (which I obliged to provide too although I do not agree) for the improvements on the property which are not in the Lease. Can I not to pay? In case the company sue me do I have good chance to win providing I can demonstrate that those extra payment demands were outside the Lease?

    Thank you.

    P.S. just to explain - we have perfect Victorian house converted into 5 flats. The majority now is an arabian couple moved in a year ago from Dubai and they want to spend the company money (and hence my money) to make and Arabian palace beauty... In first I do not want to live in Arabian palace, in second I do not want to pay for that, in third I lost my job 12 months ago and it is tough to pay usual service charge not to say for palaces. What are my options?

  • #2
    As leaseholder, you cannot be forced to make any payments that are not required by the lease

    As freehold owner, the company can only spend money collected from leaseholders by way of service charge for purposes permitted under the lease - usually maintenance, rather than improvements. It cannot "hijack" the money for other purposes. If the money it is proposing to use was collected as rent, there is no real restriction on what that can be used for.

    I suspect you will need to write, as leaseholder, to the freeholder company to object to its planned use of service charge contributions. The following website may be of help: The Leasehold Advisory Service - Homepage
    This is based on my experience as a conveyancing solicitor in England, but I do not accept liability for information I give in this forum


    • #3
      Thank you very much Justin. You answered my question exactly.

      The situation we have is - newcomers want to raise more money to make improvements rather than hijack the funds. They are not malicious people. Our managing agent encourage them to spend more and told that everything they get majority vote for - will be paid. When I said that I cant afford improvements this and may be next year the agent told me that he is going to issue a letter under "article 20" and if I dont pay then it will be collected through court including court expenses and interest....

      This is where I started to worry...

      So short question, Justin - I supose that if charge demand is unlawful (for some works which are outside the lease and not agreed by me as we said before), the letter under this magic "article 20" will be unlawful as well? In case if the agent is reckless enough - and will send this letter - can I sue him for that? [I am not going to but I'd like to have something to defend myself when they start another round of bullying].

      Thanks again


      • #4
        I don't think you (as leaseholder) could sue the agent for wrongly issuing a demand - though the freeholder company might be able to sue him for negligence, I suppose. Your underlying feeling is correct: if the original demand is unlawful, that cannot be corrected by making a formal dermand.

        However, I would not rely on that. I would take pre-emptive action. I suggest you write to the agent (with a copy to the other directors of the freeholder company), pointing out (by reference to the wording in the lease) what can be collected by way of service charge, and pointing out how their proposed plans exceed the provisions in the lease. Explain (nicely) that you cannot afford to pay more than you are obliged to pay, that you will pay what you are obliged to pay and that you will not pay any more.

        That way, if they do keep trying to bully, you have a clear, early letter that you can show to a judge, setting the scene and showing that you are willing to fulfill your obligations, but not willing to be forced into doing more

        I hope this helps
        This is based on my experience as a conveyancing solicitor in England, but I do not accept liability for information I give in this forum


        • #5
          Thank you very much Justin, I was thinking about the same...


          • #6
            You need to read the small print of the Memo and Articles, to find out how specific they are to the letting of the property. The memo and arts are rules that the company needs to operate in, so you need to find out if the majority/directors are operating inside or outside of their powers.

            If there is no seperate agent/management company, and everything is just done by the shareholders then it looks as if it's going to be a company law issue, and under company law minority shareholders have some protection & rights.


            • #7
              We have management agency doing everything for us. The agent is encouraging majority to spend more and firmly on their side.

              The limited company has pretty vague articles. I am not really sure but it seems that the articles give the company a lot of power. The Lease is not mentioned anywhere... It also seems that the company can engage in a normal business as well, so if the majority decide to get 100 mil loan and then runaway I will be the one who is holding the bag.. I am confused now...

              Can they sue me as a shareholder not leasholder, to get the money by force?


              • #8
                I think the company law point is a bit of a red herring. My point is that the company is your landlord, but can only demand money from you as provided for in the lease and subject to overriding legal restrictions

                Though minority shareholders can apply to the court for relief against "unfair prejudice", this applies to the way they are treated *as shareholders*, while you are objecting to the way you are about to be treated *as a leaseholder*. Also applying to the court is expensive, and the normal outcvome is for the court to order the majority shareholders (or the company) to buy the minority shareholder's shares - that would be at a very low price and would not solve your problem

                Your problem is that the freeholder (which just happens to be a company) is threatening to force you to pay for work that you as leaseholder should not have to pay for against your will
                This is based on my experience as a conveyancing solicitor in England, but I do not accept liability for information I give in this forum


                • #9
                  Majority decision - improvements

                  This is a complicated matter and it can be difficult for those drafting leases to hit the right balance

                  While leases do not generally allow landlords to recharge for improvements this is becoming more common and there is usually a requirement that leaseholders have to contribute to the costs of matters required under statute.

                  This is mainly due to a desire for energy efficiency. It would not be fair for a resident to take the advantage of an energy saving bulb in the common parts but refuse to pay towards it.

                  Remember that, since 2006, building regulations require improved insulation when a 'thermal element' (such as a roof) is repaired.