Property management companies
What is a Property Management Company?
A property management company in England and Wales, Scotland or Northern Ireland is a particular type of company: one set up to hold an interest in a property which is divided into units, each unit being owned separately. A typical example is a large house which has been divided into a number of flats (sometimes called a flat management company), each flat being owned by one or two people. Such a company can also be used for large blocks of flats, housing estates and commercial properties divided into units.
Why are they used?
Where a property is divided into separate units (such as a house divided into flats) there is usually a need for somebody to own the building as a whole, including common parts such as stairways, gardens, access paths, etc. Unless there is a landlord of the property retaining this interest, the simplest legal device is for a company to be set up to own the freehold (or head lease) of the property, and for each owner of a flat (or other unit) to have an interest in the company.
The company may also be a mechanism for management of the common parts and general condition of the property, though this may not always be the best arrangement for smaller companies (see below).
What does a property management company do?
This varies from company to company. In many cases the the most important use of the company is to hold the title to overall property and some do no more than that.
The active property management company
Many property management companies take on the maintenance and repair of the fabric of the property and its common parts. Typically this may include the costs of cleaning and decorating halls and stairways, maintaining grounds and gardens, security and caretaking services, repairs to roofs, gutters, etc. Such a company will usually proceed by electing a board of directors at a first general meeting once the company is set up, and subsequently at each annual general meeting. The directors, who are accountable to the shareholders, will take responsibility for the company's various activities and its finances. The company should have its own bank account, and records must be kept of all expenditure and receipts. The company raises funds by levying subscription or other charges on the members. Like any other company, a property management company must register accounts and an annual return each year at Companies House.
The dormant property management company
With a small property with little or no routine maintenance, it is often simpler for such matters to be arranged between the owners of the flats without involving the company at all. The advantage is that the company may then be maintained as a dormant company under the Companies Acts, allowing pro forma dormant company accounts to be registered at Companies House and keeping the administration of the company to a minimum.
Property management company - limited by shares or guarantee?
A property management company will always be a private limited company. It may be limited by shares or limited by guarantee. People who deal with property management companies professionally tend to have their preferences. It is one of those circumstances where either type of company will work perfectly well. The only significant difference between them is that a company limited by shares has a share capital, owned by its shareholders and a company limited by guarantee does not, but is controlled by its shareholders. If the company is to own the freehold, some people prefer it to be a company limited by shares as this gives a form of ownership between the shareholders (who own the company) and the property (which is owned by the company). On the other hand, with a company limited by guarantee, there is no need to transfer a share when the flat is sold. Incorporation Services Limited can register a property management company limited by shares or by guarantee.
Property management company articles of association
It is essential that the company has articles which have been drawn up specifically for a property management company. The articles of a standard trading company are not suitable. The company's articles will be based on the Model Articles but with a number of very important modifications. These will vary according to the circumstances, but will include:
Property management company objects
The objects of a property management company should be to hold the property (identified by its address). There should also be provision for the acquisition of other property in case, for example, it is decided at some later date to acquire an adjoining piece of land as a garden, car park, etc. Further objects cover such things as repairing and maintaining the property, raising the funds to do so, etc.
Share capital of a property management company
If a property management company is limited by shares, the share capital should be limited to one share for each unit in the property. For example, if a property is divided into four flats the company should have a share capital of just four shares, one for the owner of each flat. Where a unit is held in joint names, so will the share in the company. The company's articles provide that shares may be held only by someone who owns a unit in the property and that anyone selling their unit must transfer their share to the person buying it. No other shares may be issued.
Directors of a property management company
The company must have at least one director. In a small company, where there are only a few shareholders, it is usual for each shareholder to be a director. Where a unit is held in joint names, the director for that flat should be entitled to nominate the other joint owner as an alternate director, so that they may attend board meetings if the person appointed as the director for that unit cannot do so.
An arrangement more suitable for larger companies is for the shareholders to elect a board of directors, usually at the Annual General Meeting. The articles should provide that only a shareholder may be a director of the company.
Liability to contribute to the costs of a property management company
There must be a provision in the articles of a property management company for the members to be liable to pay the costs of maintaining the property. This should be included even if the company is intended to be kept dormant.
Companies Acts requirements of a property management company
Though not a trading company, a property management company must meet all the requirements of the Companies Acts, including maintaining statutory registers and filing an annual return and accounts at Companies House.If the company does not keep its records up to date, it runs the risk of being struck off the register. This can be disastrous if the company owns the freehold of the property. It will have to be restored to the register (and expensive and costly procedure) and often flats in the property cannot be sold because the purchaser's solicitors will not accept the transfer until the company has been restored.
Incorporation Services Limited provides an expert service for the registration of property management companies limited by shares or guarantee. We also provide a continuing company law compliance service for such companies, as often the directors prefer to outsource the responsibilities keeping the company in full compliance with its legal requirements.