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How does a flat management company work?

If you own a flat, you and your fellow leaseholders may want to set up a flat management company to take on ownership of the freehold or take over the management of the property.

Should you and some of the other flat owners decide to exercise the right to purchase your freehold or the right to manage the property, one of the first steps will be to set up a flat management company. We look at why this is necessary and the tasks that you will need to carry out once you are responsible for looking after your block.

When is a flat management company needed?

If you live in a flat, the freeholder or landlord is generally responsible for looking after the building and the land on which the property stands. As the leaseholder, you will pay them a regular service charge. This will pay for the landlord’s expenses, including items such as buildings insurance, repairs and maintenance.

It is sometimes the case that leaseholders feel they could do a better job of running matters themselves. Benefits can include:

  • Shopping around for the best quotes for insurance and building work
  • Deciding what repairs to have carried out and when
  • Deciding how much service charge to collect
  • Deciding how much to put into a sinking fund each month for future large items of expenditure
  • Making your property more attractive to purchasers, if you can show that an active and efficient management company is in place

Purchasing the freehold

Many leaseholders have the right to work with the other flat owners to purchase the freehold. Generally speaking, a freehold can be purchased if half of the flat owners want to join in with the process.

A solicitor will draw up a participation agreement for the participating leaseholders to sign and the next step is usually to create a flat management company with the leaseholders as members. The company will be the owner of the freehold once the purchase is completed, and the members will then be responsible for running the property.

Taking on the right to manage

If flat owners do not want to purchase the freehold, they will still usually have the right to manage the property if they wish. Again, half of the flat owners will need to join in the process.

A management company will be set up to take on the management once it is transferred from the freeholder.

For both freehold purchase and right to manage, there is a set procedure to follow. A solicitor can guide you through this, ensuring that the correct notices are served on the freeholder and that your rights are preserved.

What does a flat management company do?

Before you take over management of the freehold, you need to understand what this entails and ensure that you are prepared.

The main tasks include:

  • Arranging buildings insurance
  • Dealing with repairs and maintenance
  • Setting and collecting service charges, to include chasing arrears
  • Deciding how much to collect to invest in a sinking fund
  • Preparing, distributing and filing annual accounts
  • Filing duties with Companies House, for example, when a director leaves or is appointed
  • Resolving disputes between leaseholders and between leaseholders and the management company
  • Enforcing the terms of the lease where these have been breached
  • Ensuring the building complies with health and safety legislation

You and your fellow leaseholders will need to agree on who will be responsible for the various jobs. If you wish, you can appoint a managing agent to deal with matters on your behalf, although these can be expensive.

Similarly, you can use an accountant to prepare the accounts and a solicitor to deal with Companies House filings.

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