Money: When freehold partners fall out

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Eric Garcia

Washington Bureau Chief

If you have a neighbour or landlord from hell, the lawful procedure for handling them can prove time-consuming and requires a deep search within yourself for a "yes" to action. This can be a fearful step and it is wise to prepare yourself for the journey.

Many readers have written to The Independent asking for information about their rights as a shareholder in or member of a freehold company. When a group of leaseholders collectively buy the freehold of their property, they usually set up a management company and divide it into share-holdings. For example, each leaseholder in a block of five flats will hold one share in the management company, the total number of shares being five, equivalent to the number of flats. This system is designed to give equal power to all leaseholders in the block, but the theory does not always work out in practice.

For example, a certain leaseholder is now the proud owner of one share in the freehold company that owns the small block of five flats he lives in, giving him rights as a shareholder under company law. He also owns one flat in the block, which gives him further rights as a leaseholder. Four out of the five flats in the block are represented on the board of directors; he is the exception.

The directors are failing to distribute information freely and have failed to comply with disclosure rules in line with both company and leasehold laws. They are failing to consult the fifth flat-owner, who is both a shareholder and leaseholder, about issues relating to the property when this is required by legislation. In fact, the directors are allegedly inventing their own laws and harassing the fifth flat-owner in an attempt to force their unlawful rules on him.

If you have one share of five in the freehold management company, for example, then you have at least a 20 per cent stake or 20 per cent of the vote, giving you the right to call a Extraordinary General Meeting of the company. You can then set the objectives and order of the agenda and send the written details along with your call for an EGM to the company secretary. The directors will be obliged to call an EGM, and should not change or delete anything on your agenda.

Read your company memorandum and articles of association before you do anything, and decide whether the points on the EGM agenda are for discussion alone or whether you wish to propose them as resolutions. If you wish to propose resolutions, you need to ascertain what type they are, special or ordinary; each requires a different percentage of votes to be passed. Companies House has pamphlets on the details.

The solicitor Ian Adamson, a partner at Bircham & Co, suggests that each flat-owner or shareholder in a small block should be a director. So you may want to recommend your appointment to the board at the EGM to ensure equitable treatment, the free flow of information and good practice. After all, collective ownership of the freehold was designed to give equal power to all leaseholders. Mr Adamson says: "If you feel you are being prejudiced, then you can ask for an adjournment of the meeting."

He points out that under company law, if any of the directors are unfairly prejudiced towards a minority shareholder and are co-operating to deprive that shareholder of benefit, action can be taken through the courts.

Calling an EGM is one way in which minority shareholders or company members can tackle grievances against directors such as failing to inform all leaseholders equally, not disclosing information or providing proper accounts, over-charging tenants, and much more.

Nigel Cox, senior partner at Alsters Solicitors in Bath, urges flat-owners not to forget that they have the contractual rights of their lease to fall back upon in addition to rights under company law.

But to embark on this kind of action, you need the courage to step forward and say: "This is enough. I won't take this any more. I intend to find out what my rights are and to enforce them."

Karen Woolfson welcomes letters from readers for her monthly column on leasehold and freehold matters. Her address is Homebattles (care of Nic Cicutti), personal finance section, `The Independent', 1 Canada Square, Canary Wharf, London E14 5DL. Karen regrets she is unable to reply personally to all letters.