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Shareholders and Leaseholders- Different Obligations

In Morehead Mansions Ltd v Di Marco the Court of Appeal has held that there is a difference between a tenants obligation to pay service charges and an arrangment made by a shareholder to pay into a company fund by seperate agreement.

The Defendant in the case was a shareholder in a company which owned the lease of a series of flats. Simultaneously, the Defendant held one of those leases. The shareholders had agreed to pay into a new ‘recovery fund’ in two tranches in a sum which varied according to their respective shareholdings.

The Court held that the payment was not related to the Defendants role as a tenant and so was not governed by the limitations imposed by the Landlord & Tenant Act 1985. Equally, failure to make such a payment, as it was not a lease-related matter, was enforceable as a normal breach of contract and did not give rise to the normal forms of enforcement and recovery used by a landlord against a tenant such as forfeiture of the lease.

It is important therefore where a company is set up to run a block and is, in effect, owned by the block residents whether payments into that company are being levied by way of service charges, in which case all the normal requirements of consultation and the like must be carried through, or whether they are to be levied by way of contractual agreement with shareholders, avoiding consultation but giving up the more powerful enforcement options.

2 Comments

  • Nearly Legal 29th December 2008 at 9:19 pm

    Off topic, but it is lovely to see more housing/landlord & tenant solicitors blogging. Welcome.

    We covered Di Marco when it came out (http://nearlylegal.co.uk/blog/2008/12/what-is-a-service-charge/) but it is good to see another, and admirably clear, take on it.

    Any chance of a link? (http://nearlylegal.co.uk/blog/) – we’ve been around for a couple of years now and we cover most housing/residential landlord & tenant cases and statute. I have, of course, added this blog to our housing resources links, as the more landlord & tenant law blogs the better…

  • Francis Davey 30th December 2008 at 4:03 pm

    The moral I take from Di Marco is one for people involved in buying and selling leasehold property: look carefully at the freehold company’s articles. If there is a clause like this – think hard before buying.

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