How Do Management Companies Make Decisions and Manage Disputes?
Our previous blog post outlined how you can become a director of a management company as well as the legal responsibilities you can face.
This post will now guide you through how your management company should go about making decisions and managing disputes.
How to make decisions in a management company
Let's start off by looking into how a management company makes decisions about day-to-day business.
Making Board Decisions
The board of directors should make any decisions collectively, most commonly during meetings. Records should be kept of any board meetings, the same as with any company. The best way of keeping these records is by keeping minutes of all board meetings.
Making Members' Decisions
Unless there is a requirement by law, or any other agreement, the members will not usually be consulted by the board on most day-to-day decisions. If a decision is needed by the members, this is usually done either at a general meeting, or by circulating a written resolution.
Making a Leaseholders' Decision
Leaseholders who are not members or directors of the management company have no right to participate in the decision-making process.
How to Manage Disputes in Management Companies
Even if you follow the best practice for decision making and are familiar with the lease provisions, there will still inevitably be disputes.
We will now look at some of the common disputes that management companies might come across, and how they might be resolved.
What if the directors can't come to an agreement?
Often, when talking about expenditure, directors may disagree about what repair work is necessary and how it should be prioritised.
Remember: if your management company has Model Articles of Association, only a majority vote is needed, so you don't need to have a unanimous approval.
If you find that you're in a deadlock position, check if your chair has a casting vote which they can use to break it.
If you believe that a director is putting their own interests ahead of the company (for example, by suggesting improvement work that disproportionately benefits their own property), you can remind them of their overall duties as a director.
If you're stuck at a board-level deadlock, and are unable to reach an agreement, you can consider getting independent advice, or asking an expert on the best way forward.
Beware of any solution that leads to the removal of a director to break the deadlock, this can cause a lot of negative tension and make it difficult to get anything done in the future.
What are the directors' responsibilities if a leaseholder reports a leak in the roof?
The best practice is for the directors to hold a board meeting where the leaseholder's complaint can be properly investigated and considered.
When looking at repairs, the first thing to consider is the lease, as this will set out the legal obligations of the management company. In most cases the roof, and exterior of the building, will be the responsibility of the management company.
If you find that it is the responsibility of the management company to carry out the work, you should promptly arrange for an inspection so that any work can be carried out.
Any delay in the work is likely to increase the bill and may leave the management company liable for additional costs if the leaseholder suffers damage to their property as a result.
Do the directors get involved with noisy neighbour complaints?
This requires checking the lease for the obligations or each leaseholder about nuisance noise. In most instances there will be a covenant from each leaseholder to not cause a disturbance.
You need to read the terms carefully to ensure that you understand the extent of it, and whether the management company will be obliged to enforce any breach. If you're unsure on what to do, or need help interpreting the lease, speak to a professional.
If it falls onto the management company to enforce the terms of the lease, you need to make sure that the lease has been breached. This can be done through a board meeting where the noise complaint can be properly considered and recorded.
If you feel it necessary, you can consult with other occupants of the building to confirm whether there is any merit to the noise complaint and/or ask the leaseholder for any evidence to back up the complaint.
If you feel as though the complaint is genuine, seek professional advice on the next steps to take in enforcing the lease. At every stage, you should try and encourage the leaseholders to reach an amicable solution.
Finding a solution through negotiation or mediation involving a third party can be helpful. Noise complaints are common and can be dealt more promptly and appropriately through private action rather than involving the management company.
What should the directors do if a leaseholder fails to pay their service charge?
Check the lease to say what it says about the service charge.
If the service charge is due under the lease, simply remind the leaseholder of their obligation to pay. Sometimes it can be forgotten about, or they simply need more time to pay.
There may be an occasion when a leaseholder withholds their service charge in circumstances where they believe there has been a breach of the lease by the management company. However, there are only limited reasons where a leaseholder is legally allowed to withhold the charge.
It is always best to seek professional advice before making any formal demands for a service charge, or take more drastic action. This is due to the strict legal rules about levying service charges.
What if members disagree with a decision of the board?
This is a difficult situation to get into as generally members have no right to be involved in the day-to-day running of the management company. However, if there is a disagreement, the member should write to the board clearly setting out the reasons. The board then has a duty to consider any valid points that are raised.
If a member feels that they would like to be more involved in the day-to-day running of the management company, they should consider asking to join the board of directors. Management company directors aren't usually paid and often welcome people with relevant experience to join them.
If the member still isn't happy with the decision, there are various legal claims that might be made against the company. There could also be attempts made to remove directors from their post.
However, you should always seek professional advice before embarking on any of these courses of action.
- 06 Jan 2021 - Planning for Shareholder Exits
- 17 Dec 2020 - How Do Management Companies Make Decisions and Manage Disputes?
- 10 Dec 2020 - Becoming a director of a management company
- 24 Nov 2020 - Are Directors and Shareholders Liable for Company Debt?
- 06 Nov 2020 - Can My Company Make Contributions Towards My Pension?