The popularity of property management companies (‘PMC’) is high as the buy-to-let market remains buoyant. In this blog we consider the nature, set up and director responsibilities of a PMC.
What is a property management company?
Used to manage all or part of a site or building on behalf of its owners, a property management company is a popular choice for residential flats but can also be used for commercial or industrial premises. Situations where a PMC is typically used include:
1. Managing a property portfolio/housing estates/commercial properties (developers)
This the most usual set up for developers, who use this option to manage numerous properties, owners and tenants.
2. Purchasing freehold
A PMC allows for leaseholders of individual flats in one property to purchase the freehold, collectively manage the building and jointly deal with all due compliance.
Within this structure, each leaseholder becomes a member and is permitted to vote on matters impacting the building. Directors are also appointed for the management of company business.
3. Managing a large property
When residents want to jointly run a large property which has been divided into units (flats – each being owned by at least one person), a property management company can be a sensible option. It can be used to facilitate the maintenance of common amenities such as gardens, stairways and roofs.
To register a property management company several requirements need to be satisfied:
- provide a chosen company name
- have at least two directors (so that control does not rest with one person)
- there needs to be a building with divided units
- incorporation of a private limited company
Property management companies are non-profit organisations and can be limited by shares or by guarantee. Further details can be found in our blog that outlines the differences between these two limitations.
The most important aspects of setting up a property management company are the objects of the company, the responsibility of directors and the assignment of membership/voting rights.
Setting up a property management company: Objects and members
In terms of objects, a property management company will do the following:
- acquire and manage the freehold;
- collect all rents and maintenance fees;
- provide services to maintain or alter the property;
- insure the property against damage as necessary; and
- maintain management funds/capital reserves.
Membership of the company is comprised of the leaseholders or owners. However, the process by which an individual gains membership differs between a company limited by shares and a company limited by guarantee.
When it comes to voting, members each receive votes in proportion to the number of leasehold interests they have (normally one). Any member can call for a vote and decisions need not be unanimous. Polls can be used to determine the running of the property.
Responsibilities as a Director
It is the responsibility of the Directors to act on the results of polls and carry out the business of the property management company, doing whatever is necessary to promote its objects. The company requires at least two directors, differing from a normal private limited company, so that control is divided. It is commonplace for all members to be directors, however this is not universal.
Directors can be appointed by ordinary resolution (common agreement) or by appointment of existing Directors and they must give up time to do their job adequately. This is often in their own interest, as the benefits of an efficiently run property management company mean for more easily settled disputes and greater autonomy for leaseholders.
Directors, just as members, vote in general meetings. However, directors should be aware of potential conflicts of interest. Moreover, there is an obligation on directors to act within the law, whether it be health and safety compliance or the payment of taxes and service fees.
If you would like additional information about property management company formations, please feel free to get in touch with our experts.
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