Freehold Directorship: What you should know

If you own a share of freehold in your residential building, you may be offered the opportunity to become a director of the freehold company. Before deciding, you should know what the role entails.

About a freehold company

Owning “a share of freehold” means owning a share in the company that owns the freehold.

When flat owners come together to purchase the freehold of their residential building, they almost always do so by incorporating a private limited company. A company bank account is then opened, shares are issued to each participating leaseholder and directors are appointed to the board.

If this sounds more like a business arrangement, that is because it is! However, unlike a company that trades for profit, a residential freehold company is simply a convenient vehicle that provides many advantages, but with low running costs. The company has a Memorandum and Articles of Association that provide a clear and fair framework for decision-making, defines the responsibilities of the company and limits the liabilities of shareholders.

The role of a Director

Directors of a freehold company are most often flat owners and therefore shareholders. However, as a director, you are volunteering to take on an important role without any pay or benefits. Along with your co-directors, you are responsible to all shareholders for the company’s good operation and to all leaseholders for managing the block on their behalf. You have a duty to act above board at all times, in accordance with the Articles.

Typically you will instruct an accountant to manage the company accounts, a company secretary to handle shareholdings, company documents and meetings, a solicitor for advice on legal matters and of course a managing agent to manage the building.

Day to day

There should be little to do in any given week. The role should not impact your work life balance.

However, every building is different. Like any organisation, a well-run freehold company involves little effort and delivers tangible benefits to its leaseholders whereas a fractious one leads to endless time wasted for little gain.

Typical duties are:

• Reviewing the annual budgets and ongoing expenditure
• Handling requests and complaints from leaseholders
• Dealing with freehold matters such as party wall requirements, licenses to assign and licences to alter

Tips!

• You wear a different hat acting as a director rather than a leaseholder. As a leaseholder you may hold onto different views from your neighbour but as a director, you must make decisions in everyone’s best interest, including those you disagree with.
• One mistake directors often make is to listen to the “majority” or those that speak the loudest.
• Few people will thank you, but everyone will hold you to account!
• Always make sure your Directors & Officers insurance policy is up to date.
• Rotation of directors from time to time is often a good thing, when done with unanimous consent.