© 2025 News On The Block. All rights reserved.
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.
It is almost always worthwhile for leaseholders to buy the freehold of their block, since they can grant themselves 999-year leases, increase the value of their flats and secure ownership and control of the building. A growing number of leaseholders are learning that they have the right to compel the landlord (or freeholder) to sell to them the freehold and to do so at a fair market price within statutory deadlines, in a process known as collective enfranchisement, as long as a minimum of half of all flats in the building participate.
But many leaseholders are finding themselves with a worse landlord than they had before – themselves! If owners of flats are not careful to put in place structures, processes and policies to ensure their building is well run, their block can descend into acrimonious anarchy.
This piece provides a 10-step survival guide for leaseholders that have bought their freehold and want to enjoy the fruits of their labour.
It is best practice for leaseholders to set up a company limited by shares, when they set out to buy their freehold. From the start, it is essential to build a board of directors to run the company efficiently and in compliance with Companies Act. It is ideal to have a board with a diversity of skills and experience, including corporate, legal, accountancy, engineering and architectural experience. Two must-have characteristics for board members are integrity and the ability to get things done. One common mistake made in large buildings is to appoint all shareholders of the company as directors. This results in organisational paralysis, since the board is too large and unwieldy to take and implement decisions. Remember, it is the shareholders who own the company, who appoint the board of directors to run the company and who can remove directors from the board.
It is a huge accomplishment to buy the freehold of one’s building. This ambitious task takes years within some buildings. Once enfranchisers have crossed the finish line and the building belongs to their jointly-owned resident management company, they should outsource non-strategic functions in order to create a sustainable company structure. One function that should be outsourced to a professional is the role of company secretary. Every limited company in England and Wales must have at least one director and a company secretary, and the two people cannot be the same. There are several specialist companies that serve as company secretary for resident management companies for an annual fee.
I am always surprised when leaseholders boast about saving money by managing their building themselves rather than outsourcing this work to a professional firm, known as a managing agent. This is a false economy, particularly in large buildings. What is really happening is that one or two people are subsidising everyone else in the building by acting as a managing agent on an unpaid basis. A very unhappy situation can arise if this unpaid building manager moves from the building and no-one volunteers to fill this demanding role. It is preferable to outsource the running of the building to a managing agent company. A reputable managing agent will have experience and expertise in maintenance and repairs that most owners of flats do not have.
Leaseholders sometimes get confused after they have bought their freehold regarding who does what in the building. While most freehold purchase projects are initiated by a residents’ association, there should be a resident management company in place by the time the process is concluded and it is this company that owns the freehold. Residents need to decide whether they wish to keep the residents’ association or to shut it down. Arguments can be made either way. All leaseholders in the building continue to be leaseholders after they have bought the freehold. But those that have participated in the enfranchisement project will also be shareholders of the freehold company, the resident management company, which now owns the building.
If leaseholders want to avoid unpleasant chaos after they buy their freehold, they must put in a place a system to ensure that all leases in the building continue to be enforced. Many owners of flats make the mistake of believing that the leases become irrelevant after they have bought their freehold. This is a dangerous misconception. I have encountered buildings in which bitter rows have broken out amongst neighbours because some incorrectly believed that a show-of-hands vote was sufficient to override the responsibilities of the freeholder or leaseholder that were contained in the lease.
Residents might be lucky to have an accountant in the building who is willing to prepare the annual profit and loss statement, and balance sheet for the resident management company, either for free or for a reduced fee. The temptation to hire someone in the building, however, should be resisted. It is essential for the resident management company to have an accountant, whether an individual or a company, that will be accountable, that will have no conflict of interest and that is unlikely to move away in the near future.
It is often the freeholds of the most ‘troubled buildings’ that are bought by residents, and there can be a major clean-up act to carry out in the two or three years after the enfranchisement has been concluded. One of the biggest problems is the culture of non-payment of service charges that develops in many troubled buildings. Leaseholders who feel frustrated by poor building management at the hands of the former absentee landlord sometimes refuse to pay their service charges. The resident management company that buys the freehold must stamp out this corrosive culture of non-compliance by ensuring that all leaseholders pay their service charges on time. A failure to do so means that one leaseholder is forcing his or her neighbours to finance his stay in the building.
Volunteer directors of the resident management company should normally keep the number of board meetings down to four a year. These meetings should be properly minuted immediately afterwards, with all actions, action owners and deadline dates for delivery identified. The annual general meeting represents an important opportunity for all shareholders to meet with the directors and express their views on company issues. The Memorandum and Articles of Association of the company should identify the minimum number of days by which documentation for the AGM must be sent to all shareholders. Proxy forms that enable shareholders to vote in absentee should always be included, along with the company profit and loss account, balance sheet and directors’ report on important issues.
It is best practice for directors of a limited company to secure directors’ insurance and for the company to pay for this. This insurance protects against the possibility of the director being sued in connection with his or her role as director. Directors of resident management companies should always insist on getting directors’ insurance.
Sometimes RMC directors are contacted by leaseholders in the building who were invited, but declined, to participate in the freehold purchase years earlier – and then decide, once all the work has been done, that they want to join! The board should remember that a freeholder must agree to sell a 90-year lease extension to a leaseholder, but there is no legal obligation for a resident management company to sell a share in the freehold or a 999-year lease to a leaseholder that chose previously not to participate in an enfranchisement. Directors can save themselves time and effort by providing template wording to the building’s managing agent regarding queries from non-shareholders about buying a share in the freehold.