What is a Residents Management Company (‘RMC’)?
Historically, a RMC is a private company limited by shares, and its main objective is to manage and maintain the common parts (entrances, lifts, carparks, 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 RMCs Constitution otherwise known as the Memorandum and Articles of Association as well as being contained in the leases themselves. The majority of RMCs are limited by shares, although some blocks favour a 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 managed by these Directors.
Advantage of an RMC
A formal RMC is very different from an informal residents association as it has legal status being an independent legal ‘person’ in its own right. A RMC also offers greater protections for example, a member of an RMC will be entitled to take part in general meetings of the company and have their say accordingly. 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 at law. 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 a RMC is not a straightforward matter. Directors of RMCs are usually unpaid however the obligations the directors are obligated to adhere to at law they take on are extensive not to mention the statutory duties. For example, during the course of running a 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 their so called ‘fiduciary duties’ under the Companies Act 2006 or Trustees Act 2000 (in relation to service charge funds which are held on trust for the lessees). Running a RMC can be a complex task. The directors will need to comply with the Company Law formalities imposed by Companies House. For example, the Directors of the RMC will, among other things, need to ensure that the RMCs Memorandum and Articles of Association are properly used and adhered to, make the appropriate filings on time, keep up-todate 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 Companies House requirements 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. JPC Law Landlord and Tenant Team can assist your RMC with all the aspects of property, litigation, employment and company law that specifically affect RMCs. Our team can also ensure that you are aware of the documentation, procedures and insurance you need to run your RMC.
Andrew Morgan is a company/commercial partner and Yashmin Mistry is a partner and head of the property practice group at JPC Law.
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice.