The Roles and Responsibilities of a Resident Director
QUARTER 4, 2023
It’s important to understand the Roles and Responsibilities of a Resident Director when you’re a Director of a Residents’ Freehold Company - or any similar leaseholder-controlled company - with the responsibility for the management of your building. It’s essential if you want to be a successful Resident Director and a crucial starting point is recognising that you have three different “hats” in this role. You are simultaneously:
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A Leaseholder.
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A Shareholder or Member of the Company.
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A Director.
You’ll have to balance the responsibilities and duties that each role entails, and sometimes situations may arise in which you’ll be faced with a conflict of interest. In these instances, you’ll need to know what to do or say and this blog’s designed to guide you in that decision making process.
The Leaseholder “Hat”
As most people learn best through analogies, let’s use the example of a request to keep a pet.
When wearing your leaseholder “hat”, you’re considering your personal viewpoint, your individual pros and cons as the leaseholder of the flat, bound by the terms of the lease and its rights and obligations. If considering the request to keep a pet whilst wearing your leaseholder “hat”, you’d consider the circumstances of the Building, the individual leaseholder, the leaseholders as a whole, and any other factors. It’s quite possible that whilst wearing your leaseholder “hat”, you wouldn’t have a problem with this request and would be in favour of granting permission.
However, you may have a conflict of interest. Perhaps you live next door to the leaseholder who’s made the request and are especially concerned about noise, or perhaps you don’t particularly get along with them. Perhaps you’re the leaseholder making the request. If there’s any reason at all that you couldn’t make an objective decision, or you have a vested interest in the outcome of the decision, then you can’t take part in the Board discussions on this matter. You may put forward your personal argument, wearing your leaseholder “hat” but then take no further part in the decision-making process.
The Shareholder “Hat”
You must then consider this request wearing your shareholder/member “hat”. The shareholder role requires you to consider things from the Company viewpoint and your personal interests in the Company (rather than the building):
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What’s good for the Company?
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Are there financial benefits for the Company?
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Are there financial costs for the Company?
In considering the request with your shareholder/member “hat” on, you’d ask all of the above questions and may conclude that you want to grant a license. However, due to the possibility that the pet may cause a nuisance and prompt other leaseholders to make a complaint against the Company, you’d want to include in the license that it “can be revoked at any time, should the pet cause a nuisance or a complaint be made”. The Company may also charge a small administration fee for this license, which would be income to the Company.
The Director “Hat”
Your third and final “hat” to don is your Director “hat” which requires you to consider both the Company as a whole and the building as a whole. You’d consider all of the above questions that the shareholders will be asking, plus:
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What do the leases say the company should do?
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What does the law of the land say the company should do?
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What do the managing agents advise from a professional viewpoint?
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What other factors affect the company decision?
So, when considering the request for a pet whilst wearing your Director “hat”, you’d consider all of the above questions, all of the opinions of the leaseholders and all of the opinions of the shareholders/members. Your Director role requires you to look at all the ‘evidence’ objectively and professionally, with all your legal responsibilities as a Director of a company. Perhaps you’ll grant a license because the lease requires you to. But you may also consider whether granting permission will set a precedent, making it difficult to refuse if a different leaseholder requests permission in the future. Considering this particular request with the future in mind is always worthwhile.
A More Complex Analogy
This might all sound simple enough, but what if the request was a more complex one such as a request from a top floor flat to build a loft extension. Firstly, just as before, you must remove yourself from the decision making if there is any reason that you feel you cannot be objective. Wearing your leaseholder “hat”, it’s unlikely that you’re going to have an issue with this request unless you’re personally affected. You may even be strongly in favour of it due to the likelihood of it increasing the value of all flats in the building.
However, wearing your shareholder/member “hat” there’s a lot more to consider. The new extension will be utilising space which is currently a communal part of the building structure. The Company must be careful not to breach the terms of other leases if permission is granted and the demised premises of one flat is changed. In your shareholder role, you may recommend that the Company obtains formal legal advice before permission is granted or denied because as a shareholder, you wouldn’t want the Company to get into a costly legal position that would devalue your shares.
On the flip side, there may well be a financial benefit to granting permission, as you’ll be selling part of the communal structure and airspace. This would need to be quantified by professional advisors but would bring income into the company which would increase the value of your shares.
Finally, wearing your Director “hat”, there are serious legal questions, building structure questions, and financial questions to consider. You as a Board of Directors will need professional legal advice from a specialist leasehold solicitor. You’ll also need professional valuation advice, and you’ll need a qualified surveyor to assess whether the existing structure can take the weight of an extension, and to ensure that planning permissions and building control requirements are adhered to. You’ll also need to ensure that those professional fees and costs will be reimbursed by the person requesting permission, as those company costs cannot be recovered via service charges.
In addition to the positive financial benefit of the company receiving a premium by selling some of the airspace, there may also be a benefit in terms of utilising the scaffolding which will be erected for the build. Not having to pay for separate scaffolding may reduce service charge costs on external major works considerably, with no downside for the leaseholder building the loft extension.
A Successful Director
As you can see, your three roles are interwoven and will inevitably have some crossover. But it’s so important when making any Board decisions that you wear each of your three hats before voting, so your discussions can be objective and professional.
As a Director, you’ll need to ensure that you understand the wording of the leases, and the wording of the Memorandum and Articles of Association – your Company “rule book”. But most importantly, you need to understand when to obtain professional advice if you’re unsure (you can always contact us here).
When you and your fellow Directors carry out your duties successfully, there will be happy smiling faces around you. But no matter how wonderfully you do the job, one day somebody will be unhappy and a dispute will arise. The old saying “You Can’t Please All Of The People All Of The Time” is definitely true for leasehold property management and Residents’ Freehold Companies. Therefore, you need to strive for the best-case scenario, but be prepared for the worst. And you need to keep thorough written records, whether you’re dealing with a pet license or a license to alter the structure of the building.
There are an ever-changing set of rules, roles and responsibilities in property management which are hard to keep abreast of. Therefore, we’re here to support you. We’re more than happy to discuss any changes in legislation with you, or to guide you on balancing your three “hats”. It’s a voluntary role, but a formal and professional one, all the same, and we love to see you succeed at it. And as I said earlier, if you ever feel the need for a little help or support, you can always get in touch here.
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