Developers form a Flat management or property management company for residents willing to manage and jointly run a property. Residents or leaseholders of a building with several units, like flats or blocks, typically use this structure. It provides financial protection and equal rights to say for members and leaseholders.
This guide will discuss everything about the flat management company, its registration process, and its legal obligations.
Table of contents
● Definition of a flat management company
● Functions of a flat management company
● How to establish a flat management company?
● How does the flat management company work?
● When can a flat management company remain dormant?
Definition of a flat management company
A flat management company is a limited company set up under the Companies Act to operate for the benefit of residents or leaseholders of a building rather than serving as a profit-making business that sells goods and services.
It is also known as a Residents Management Company or “Right to Manage” Company. However, RTMs have strict standards and are limited to England and Wales, not Scotland or Northern Ireland.
Functions of a flat management company
The functions of a flat management company vary. Some companies are set up for holding freeholds of the property and its surrounding areas. However, these companies deal with various aspects of running a property.
It includes the following:
● Maintenance and repair of the building structure
● Cleaning and decorating of communal and staircases, window cleaning
● Ensuring security by checking gates, door entry systems, and building security measures
● Manage car parking spaces and garages, grounds, and gardens
● Concierge facilities
● Ensuring recycling systems and refusing discharge of unwanted wastes everywhere
● Managing fire alarms and sprinkler systems
● Collecting and handling leaseholder’s service charges
● Obtaining works and service quotes and paying communal bills
● Managing and paying communal building and public liability insurance
● Enforcing lease conditions and handling any breaches.
The director of the company is responsible for statutory filing obligations that include
● preparing accounts and confirmation statements for Companies House
● Filing accounts and tax returns with HMRC
How to establish a flat management company?
To set up an FMC, you must meet the following requirements
● The building must have divided units (flats)
● A chosen company name
● Registration of the company
Now, to register the company, you must have one director. However, it is good to have at least two directors to manage all the operations efficiently.
Mostly, the building developer will be the director while registering. But, a new tenant, either a freeholder or leaseholder of the building, can be a director. It is selected either by a director’s appointment or through resolution. They are responsible to the members of the company and the property.
You can set up a flat management company in the UK as “Limited by shares” or “Limited by guarantee”. Both structures offer limited liability protection to the company members or shareholders, which means they are not held personally responsible for any company financial liabilities above the nominal value of their shares or guarantees.
1. Limited by shares
These are companies that trade to make a profit. Limited by share companies are:
● Legally separate from people who run it
● Separate finances from personal funds
● Has shares and shareholders
● Keeps any profit earned after paying taxes
2. Limited by guarantee
These are “not for profit” organisations which mean they are
● Legally separate from people who run it
● Has separate finances from personal funds
● Has guarantors and a guaranteed amount
● Invest all profits made from the company back into it
Usually, profit-making organisations are limited by share companies, but flat management companies operating in a non-profit capacity can ideally use the structure. However, they need appropriately drafted Articles of Association.
Limited by guarantee is the simplest form of ownership, but these companies usually prefer the limited by shares model to have the freehold of a property.
How does the flat management company work?
Let us understand how the flat management company works.
1. When the company is set up as “Limited by shares.”
Each building leaseholder will be a company shareholder, holding one share and having equal voting rights on company affairs. If the lease is jointly owned, the share will also be owned jointly. The rule says one lease will get one share of the company, and not one leaseholder gets one share. It ensures every unit has an equal say in the company.
When a leaseholder sells a property, they are responsible for
● Transferring the shares to the new owner via a stock transfer form.
● Pay a nominal value of the share for transferring it, and no Stamp Duty liability is applicable.
The company is responsible for
● Issuing a share certificate to the new owner,
● Updating the statutory register of company members, and
● Reporting the change of shareholders to Companies House on the following confirmation statement.
2. When the company is set up as “Limited by guarantee.”
Each company shareholder will be a guarantor and have equal rights to vote on company affairs.
While selling a unit, the membership of a leaseholder automatically terminates with the new owner taking their place in the company. You don’t need to worry about share transfers. The company adds the leaseholder’s name to the member register.
When can a flat management company remain dormant?
Some flat management companies can remain dormant if the property is small and has little maintenance requirement regularly or if the only function of the company is to hold freehold titles of the property.
If your company is dormant, immediately inform HMRC. They will agree only when the company isn’t
● Allowing the apartment of directors who were not residents or leaseholders under its Articles of Association.
● Doing anything other than managing the property in the member’s interest
● Making a profit
● Owing more than £100 in corporation tax for a year
● Receiving income from land
● Being dividends or making other payments from shareholder’s profit
● Owning assets that can rise to a chargeable gain when sold
● Making taxable payments
When the company satisfies all these conditions, HMRC registers your trading status as “dormant”, and you get a notification by post at your registered office address.
Dormant companies don’t have to file accounts or company Tax returns with HMRC. However, they must prepare dormant accounts yearly, submit an annual confirmation statement and report any changes in the company’s registered details to Companies House.
If you are unsure about how to set up a flat management company after reading this guide, ask an expert for assistance.