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News on the Block is a trading name of Premier Property Media Ltd.
© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
All limited companies must have articles of association. These set the rules company officers must follow when running their companies. They also regulate the rights of shareholders and are vitally important, particularly in the absence of a shareholder’s agreement.
However, when the development of a new build block of flats is underway or when tenants launch a collective claim to acquire the freehold, the articles of association of that freehold owning company are unlikely to top the priority list.
As a result, standard default articles known as “model” articles, as prescribed by the Companies Act 2006, are often used. However, these are often not tailored to the specific requirements of a company where tensions may already exist between freeholders, leaseholders, members and directors. Getting the articles right from the outset can prevent unnecessary and costly problems should a dispute arise down the line.
Tailor made
The reasons for bespoke articles are wide ranging and will depend on the circumstances and requirements of the specific company. Here are some key considerations:
Firstly, is the company authorised to collect ground rent and service charges from leaseholders or ultimately tenants? Is it able to provide leaseholders with services, manage and administer common areas, roads, car parks and other common facilities? Can it insure the property or establish cash reserves to carry out the above tasks by asking members to contribute?
Secondly, how are company directors selected and removed, and should non-leaseholders be prevented from becoming directors or members? Crucially, are non-leaseholders prevented from being members of the company? Should members be capable of forcing directors to take specific action or should there be limits on when a member can vote, such as when they owe money to the company?
Also, how are shares transferred to new leaseholders? Have the statutory ‘pre-emption’ rules been disapplied, so that shares can be transferred without requiring the consent of other leaseholders?
Finally, should provisions be made for disputes to be dealt with by an alternative resolution procedure before litigation can take place?
What’s next?
Whether the freehold management company is in the process of being set up or already exists, the best way to avoid future problems is to ensure that everyone is aware of what the articles of association say and that they meet the requirements specific to the property. If they don’t, steps should be taken to change them.
Paul Henson is Senior Associate at Collyer Bristow