Q&A - Misuse of drugs and eviction in flats 

ANSWER

First, I presume that each of the leaseholders of the 3 flats in the building owns one or more share in a company that owns the freehold and I shall proceed on this basis.

In this instance, I suspect you wear multiple hats, by which I imagine you are a leaseholder and a shareholder in the freeholder company. It is possible that you are also a director of the freeholder and in each capacity there are different options available to you, so I shall look at each in turn:

Leaseholder

As a leaseholder, you have no privity of contract with your fellow leaseholders and this might persuade you to reconsider the merits of your claim against the defaulting leaseholder for breach of his / her lease covenant(s). Your lease binds you to the freeholder and affords you certain rights and I would expect one of those rights to be the freeholder's covenant to compel any defaulting leaseholder to comply with the terms of his / her lease. Your lease should tell you how to notify the freeholder of the need to step-in and may make you liable for any of the freeholder's costs of enforcement.  

There are two ways that you can serve notice on the freeholder: (a) pursuant to the terms of your lease; or (b) pursuant to Section 22 of the Landlord and Tenant Act 1987 ("the 1987 Act") that tells the freeholder failure to comply with the terms of the notice will result in an application to the First-tier Tribunal for a manager to be appointed under Section 24 of the 1987 Act. The latter is a draconian measure and may not sit well with you, if you are a shareholder in (and may be even a director of) the freeholder company but it is still a route open to you and any management order made would only be for a fixed term.

Insofar as any claim relates to Section 8 of the Misuse of Drugs Act 1971 (as amended) ("the 1971 Act"), this is matter for the Crown Prosecution Service and not one that should concern the civil courts, certainly not in the course of any claim brought by you as a leaseholder but I shall return to the 1971 Act later.

Shareholder

As a shareholder of the freeholder company, your interests are different because you are concerned about your interest in the freehold of the building; unfortunately, the real power is at board-level. If you are not a director of the freeholder company, you should consider how to get yourself appointed to the board but if the defaulting leaseholder is a director, you should look to remove him from that post immediately.

Subject to the freeholder company's articles of association, you may be entitled to call a general meeting to deal with the appointment / removal of directors and perhaps, to vote on a resolution that compels the company, acting by its directors, to compel the defaulting leaseholder to comply with the covenants in his / her lease, possibly by serving a Section 146 notice on the leaseholder for forfeiture of the flat.

Finally, as a shareholder, you might consider the defaulting leaseholder's conduct is unfairly prejudicial and you might be tempted to stray into the arena of shareholder disputes but while this might be applicable under a strict interpretation of the law, it is an expensive process and I suspect there is no practical remedy that would warrant you exploring this cost-prohibitive avenue further.

Director

As a director, you should be concerned with any exposure the freeholder company and/or its officers might have (a) for failing to enforce covenants against the defaulting leaseholder, and (b) under the 1971 Act, in the event that the freeholder company fails to take appropriate steps against the defaulting leaseholder to enforce the relevant covenants.

Your fiduciary duties require you to act in the company's best interests and therefore, you must act swiftly, to bring an end to this situation, including removing the bad director who must be in breach of his fiduciary duties, if he is knowingly failing to prevent the production, supply, attempts to supply and offers to supply controlled drugs and/or the preparation of opium for smoking and/or smoking cannabis and repared opium in his flat.

If all three leaseholders are shareholders in and directors of the freeholder company and if the company's articles of association allow, the directors should meet and resolve to enforce the lease against the defaulting leaseholder and call a general meeting to remove the director, unless the defaulting leaseholder can be persuaded to resign with immediate effect.

Shmuli Simon, Head of Legal Integrity Property Management Ltd