What is a Flat Management Company?
Posted on 21st February 2023 at 14:35
A firm formed under the Companies Act to operate for the benefit of inhabitants or tenants rather than as an "enterprise for profit" is sometimes referred to as a "not-for-profit corporation", flat management" or "property management" company. Flat management companies are mainly used to store the freehold interest in a property and provide facilities to the residents in the common areas of the building. Certain leases and transfer papers include a Management Company as a party. Some property management businesses also operate as leasing agents, which means you'll be responsible for locating and vetting tenants and drafting tenancy agreements.
The company's responsibilities include managing the service charge and providing management and maintenance services. The directors can oversee the business of arranging facilities for the shared building spaces, which is an advantage of this structure. If one or more residents want to sell the home, they have to give the buyers their share of the flat management company. Every resident doesn't need to be a director though they will hold one share. By setting up a flat management company, the expenses incurred for the upkeep of the common areas and how suppliers and services are bought in would be governed by the residents themselves, ensuring a degree of accountability and efforts to reduce the costs associated with their provision. Multi-occupancy residential buildings need such a company where an arrangement needs to be made to deal with the running, maintenance and repair of the common parts of the building.
A flat management company can be incorporated as a limited-by-shares or limited-by-guarantee corporation. Both companies offer limited liability to their members, provided the company trades properly as per insolvency legislation. Both can collect maintenance charges and ground rents, hold a sinking fund for major repairs, arrange cleaning, decoration, security, insurance, etc.
The real benefit of having a guaranteed firm is that changing members does not require a stamped (or stamp-exempt) transfer (on sale of the related lease). The articles provide for the automatic termination of the outgoing member's membership. There is no need for the person giving up their membership to sign any documents, and the new owner of the lease can be put in place of the exiting member.
The limited by shares structure is typically used by profit-oriented firms, but with adequately prepared articles, it can also be used by flat management corporations. When a property is sold, the relevant share of the leaseholders should be transferred using a stock transfer form and noted in the members' register. This can be done with just a token payment, and no stamp duty is payable. The change is recorded in the register of members.
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