Property Management Companies: The ‘dos and don’ts’

1. Background

Property management companies (or PMCs) are frequently used by residential developers as a mechanism to maintain control of the common parts of a building during development and sale, while enabling the developer to step away entirely once the last unit is sold. PMCs can be equally appealing to purchasers, enabling them to take control of decisions affecting the common parts.

PMCs are not unique entities. They are simply private limited companies with articles of association tailored to provide that only residents (and, for a limited period, the developer) can own a share.

2. How do they work?

On incorporation, the developer will typically own a ‘golden share’ which carries with it all voting rights until such time as the last flat in the property is sold. As the developer controls all shareholder votes, it also controls of the board of the PMC.
Each time a flat in the new development is sold, the buyer will acquire a share in the PMC, but (in contrast to the golden share) that share has no voting rights until such time as the last flat is sold.

Once the last flat is sold, the voting rights attaching to the golden share cease and pass to the shares owned by the residents. At the same time, the developer will expect to resign its nominated directors from the board and for new directors nominated by the residents to be appointed.

3. Common issues

Sounds simple? In practice, however, PMCs cause numerous difficulties, attributable either to poor structuring or poor management. These difficulties can impact on the ability of a flat owner to sell his property, and result in significant legal fees in trying to resolve. So what are these difficulties and how are they best avoided?

Get the structuring right

One size does not fit all… Don’t be tempted to cut down on legal fees by simply replicating the articles of a PMC you have stumbled across before. While the skeleton structure may be the same, each PMC is unique and has been tailored to the property in question.

How many shares… Decide whether shares should be allotted on the basis of one share per unit, or dependent on floor space.

Allotment v transfer… We recommend that all shares are allotted to the developer at the outset and subsequently transferred, rather than new shares being issued each time a unit is sold. This minimises the administrative burden on the developer, who can pre-sign all the necessary stock transfer forms and certificates, and does away with the need to file an SH01 with Companies House each time a new share is issued. If there is a funder, the shares may need to be allotted to them whilst the loan is in place

Ensure control passes effectively

Divesting the developer’s share… To ensure the developer can step out cleanly on the sale of the last unit, we recommend the articles provide that the golden share automatically converts to an ordinary share, and is then transferred to the buyer of the last unit (rather than the golden share simply losing its voting rights but remaining as a moribund interest held in perpetuity by the developer).

Changing the board… Developers often have difficulty in convincing residents to join the board when control transfers. To avoid this problem, consider inserting an obligation in the lease agreeing that the lessee will become a director on demand, and back this up by requiring the lessee to deliver a signed but undated AP01.

Don’t forget the registered address… When control passes to the residents, the registered office (which to that point is typically the developer’s address) will need to be changed. Don’t be tempted to use the generic property address, when paperwork can often go array. Provide the address of a unit at the property, or perhaps use the property manager’s address.

Looking forward

Keeping up to date… Make sure that the statutory books are kept up to date, so that the share register is updated and a new share certificate issued each time a flat is sold. Trying to track down former owners to cooperate at a later date can be a real head ache and can be a stumbling block for a sale.

Use a big stick… Consider a provision in the articles that disenfranchises a member’s shares while it is in breach under the terms of its lease.

Keep everyone informed… Make sure directors of the PMC are aware of their statutory obligations and that notice of all meetings is given to all interested parties. Failing to give notice just because someone has ‘never shown interest before’ is not an excuse.

If you have any questions or would like to discuss any of the issues further, please contact Victoria Symons:


Latest Issue

BDC 303 Apr 2023