How to avoid Legal Headaches of Running a RMC

Brian Auld, company commercial partner and Yashmin Mistry a specialist property enfranchisement solicitor with Brethertons LLP, unveil some of the mysteries of the Residents Management Company (RMC), how they operate and how RMC Directors can avoid the legal headaches that RMC Directorships can bring…

What is a Residents Management Company (‘RMC’)?

Historically, a RMC is a company limited by shares and its main objective is to manage and maintain the common parts (entrances, lifts, car-parks, gardens as well as the main structure of the block itself) for the general benefit of the lessees. The full responsibilities of any RMC will be set out in the RMC’s Memorandum and Articles of Association as well as being contained in the leases themselves.

The majority of RMC’s are limited by shares, although some blocks favour an RMC limited by guarantee. Typically however, each flat owner will be a member or shareholder in the RMC and members will be appointed from amongst their number to become Directors. RMC’s are in turn run by these Directors.

Advantage of an RMC:

A formalised RMC is very different from an informal residents association as it has legal status. An RMC also offers greater protections for example, a member of an RMC will be entitled to take part in company meetings and have their say. Further, if a member thinks the Board of the RMC has wrongfully exceeded its powers, then there are different protections and rights of action afforded to them under the Companies Acts. A member may also take the RMC to the First-tier Tribunal or County Court for breach of its obligations under the lease and they can do this irrespective of membership.

Disadvantage of an RMC:

There are many advantages of having an RMC; however, running an RMC is not a straightforward matter. Directors of RMC’s are usually unpaid however the obligations they take on are extensive. For example, during the course of running an RMC, directors will invariably employ a variety of contractors such as caretakers, porters or gardeners. Directors will need to be familiar with the distinction between a contract for services (self-employed) and a contract of service (employee) and the different rights and duties that are attached to each form of contract.
Directors may also become personally liable for breaches of the Companies Acts or Trustees Act (in relation to service charge funds which are held on trust for the lessess).

Running an RMC can be a fairly complex task. The directors will need to comply with the formalities required by Companies House for example: the Directors of the RMC will, amongst other things, need to ensure that the RMC’s Memorandum and Articles of Association are properly used and adhered too, file Annual Returns on time, keep up-to-date the RMC’s statutory books and registers and keep Companies House updated on membership of the RMC, deal with Change of Name formalities and filing of certain Resolutions.

Health Warning!

The consequences of failing to comply with these Company House formalities can be potentially disastrous and could lead to the RMC being struck off the Companies Register – the management reverting back to the Landlord and Directors becoming liable for breaches, personally.

Specialist legal advice should always be obtained. Brethertons Landlord and Tenant Team can assist your RMC with all the aspects of property, litigation, employment and company law that specifically affect RMC’s. Our team also offers RMC’s a tailored-made Company Secretarial Service (B-Sec) to best suit the needs of your RMC which includes:

  • A Company Administration Package: our team will import all your RMC records directly from Companies House to our Company Secretarial system and will maintain your RMC books electronically with remote access for you
  • Company Health Check Service: providing your RMC will a review of the company books to ensure the records are accurate and up-to-date;
  • Archiving of Company Documentation: All your principal documents eg. leases, employment contracts etc, can be stored by us and accessed by you electronically.

Our team can also ensure that you are aware of the documentation, procedures and insurance you need to run your RMC.

For further information about our Property Management and Company Secretarial services contact:

Brian Auld
Brian Auld Partner Tel: (01295) 661 436
Email: brianauld@brethertons.co.uk

 

Yashmin Mistry

Yashmin Mistry Solicitor Tel: (01295) 661 453
Email: yashminministry@brethertons.co.uk