Q&A- Do I have no right of redress?

QUESTION

I own one flat in a three-block development of 30 flats, each owner holding one share in the management company, neither of the two directors living on the premises and only one, the son, being a shareholder. The directors have proposed imminent major and costly roof repairs relying on the “experience” of one of the directors, the father and a 5 year old survey. I contend that it would be appropriate to obtain an up to date surveyor’s report to confirm that the substantial proposed works are necessary. The directors have rejected my suggestion on cost grounds and sought and allegedly received approval to proceed with the proposed works from the majority of shareholders at the recent Annual General Meeting, which I didn’t attend. If I am a minority dissenting shareholder do I have no right of redress? H. Summer¯eldANSWERYour dilemma straddles your status as a leaseholder and a shareholder of the company that owns the freehold interest in which your flat is located. It is important therefore to distinguish between a shareholder’s and that of a leaseholder’s right of redress.I shall assume that your lease and that of the others contains an obligation upon the landlord to carry out those works that the landlord is proposing to undertake. A landlord is by law (Landlord and Tenant Act 1985) obliged to comply with a consultation procedure where they propose to carry out major works. If the works are urgent then procedure may by the permission of the specialist Land Valuation Tribunal (LVT) be dispensed with. Correct ProceduresIt is not clear from your query if whether or not this procedure has been complied with.  Subject to the relevant criteria being met, the landlord is obliged to serve appropriate notices for the proposed works with corresponding quotes setting out estimated costs.  You have the opportunity to make observations to the proposals and even nominate an alternative contractor to carry out such works.  I do not propose to go through the intricacies of the entire procedure but do wish to point out that if the legislation is not complied with then generally the Landlord can only reclaim a maximum of £250 per tenant.  Dissenting ShareholderBased on the facts presented and assuming that the above procedure has or will be carried out, as a shareholder certain actions can potentially be brought under the Companies Act 2009. Option one is to bring a statutory derivative action under Part 11 of the Companies Act 2006.  This cause of action allows a member of a company to launch action on behalf of the company against any of its directors in relation to negligence. It should be noted that this involves a two stage procedure and permission to bring the claim can be refused at either stage. In relation to the query in question as it stands the majority of shareholders seem to be in agreement that the works are necessary. As such the potential of negligence claim succeeding is slim.Option two is a derivative claim that can be brought under section 994 of the Companies Act 2006 on the grounds that the companies affairs are or have been conducted in a way that is unfairly prejudicial to the interests of the members in general. The test for unfairness is objective and as such there is no need to prove that anybody acted in bad faith or with the intention of causing prejudice.Another option which may be available under section 168 of the act is to remove a director from office. This however can only be achieved through a majority vote of all members and there are specific notice periods and requirements which need to be adhered to.In ConclusionBased on the information currently available it is not possible to provide the author with a definitive cause of action available to take. What is certain however is that the legal options briefly described above will all incur high legal expenses that the claimant will need to initially underwrite. A more practical and cost effective solution in the first instance may be to divide the cost of a survey between the other shareholders. After which the individual will know whether the proposed action is required or not. <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0cm; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman"; mso-ansi-language:EN-GB; mso-fareast-language:EN-GB;} @page Section1 {size:612.0pt 792.0pt; margin:72.0pt 90.0pt 72.0pt 90.0pt; mso-header-margin:36.0pt; mso-footer-margin:36.0pt; mso-paper-source:0;} div.Section1 {page:Section1;} -->

Hema Anand, Partner at Colman Coyle Solicitors

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