Property management companies

What is a Property Management Company?
A property management company 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, 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 such a company actually 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 company
Many of these 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 board, which is 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. It has to file accounts each year at Companies House.

The dormant 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.

What type of company should be used?
A property management company will always be a private limited company. It may be limited by shares or limited by guarantee. Our recommendation is that it should be a company limited by shares, and these notes are prepared on that basis. Please contact us if you wish to discuss the formation of a company limited by guarantee.

A property management company is set up so that it is always controlled by the owners of the units in the property. They will all be members of the company and will also elect a board of directors to run it.

It is essential that the company has memorandum and articles which have been drawn up for this particular company. A standard trading company is not suitable.

The Articles of association
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:

Objects
The property management company should have objects which are to hold that particular property (identified by its address). There should, however, 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
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
The company must have at least one director. In a small company, where there are only a few shareholders, our recommendation is that there should be one director for each unit. 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.

Subscriptions
There must be a provision for the company to raise subscriptions or levies on the members from time to time to pay for the activities of the company. This should be included even if the company is intended to be kept dormant.

Companies Acts Requirements
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.