Leaseholder or Member? Does it really matter?

The purpose of resident owned management companies is generally to provide services to a block for the benefit of the leaseholders.

Occupational leaseholders are *normally* required, by the terms of their leases, to become members of the management company.

The responsibilities of the company are set down by the provisions of the occupational leases and landlord and tenant legislation, whilst corporate affairs are governed by the company’s Articles of Association and company legislation.

Interestingly, people often fail to make a distinction between the role of a leaseholder and their rights and obligations under the terms of their leases, as against their rights as a member of the corporate entity (ie the RMC). Given that these rights are held by the same person, does it really make a difference?

This very issue was considered in a recent case that I was instructed on before the High Court, Pandongate House Management Company Ltd v Barton.

 

The facts

Pandongate House is a block of residential flats in Newcastle all let on long leases. There are three parties to each of the leases: the landlord, Pandongate House Management Company Limited (“the Management Company”) and the leaseholder.

Membership of the Management Company is made up of the leaseholders, including the Defendant, Mr Barton.

Mr Barton made a request to the Management Company under section 116 of the Companies Act 2006 to inspect the register of the company’s members. The register is essentially a list of all the leaseholder members along with their contact details.

Under Section 117 of the Companies Act 2006, where a company receives a request under section 116 it has to either comply with the request or apply to the High Court.

I was instructed by the Management Company to issue an application to the High Court for a declaration that the Management Company need not comply with the request as it was not made for a proper purpose.

 

The decision

For the purposes of section 116, a proper purpose must relate to the affairs of the Management Company. Mr Barton’s reason for wanting to contact his fellow leaseholders was to invite them to challenge service charges and remove the managing agent.

We argued that his reasons related to the management of the building (and therefore relevant to his capacity as leaseholder) rather than company related affairs (which would be relevant to his capacity as a member of the Management Company).

The High Court agreed and held that Mr Barton did not have a proper purpose to inspect the register of members. The real purpose of his request related to the management of the block, which was not relevant for the purposes of section 116.

 

Commentary

This case highlights that a person can wear two “hats”; one as leaseholder and a separate “hat” as member of a management company.

These two capacities can co-exist, but it is important to understand that they give rise to different obligations and rights.

For the purposes of section 116, a request must relate to a management company’s affairs as a company, which are separate from its obligations to manage the development under the terms of an occupational lease.

So, in answer to my question above, in this scenario it does make a difference which capacity a person is acting in.

 

 

17 June 2019

Asia Munir

Asia is an experienced litigation solicitor in the PM Legal team, with a passion for property management.

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