You may well come across references to ‘management companies’ within property management, particularly with multi-use properties where this middle-entity can often crop up.
Now, one thing they are not is a ‘managing agent’, which can cause confusion. A managing agent is a separate agent that is simply instructed to carry out a service for a property interest, which might happen to be a management company (often abbreviated to a ‘man co’).
On the other hand, a management company has a legal interest in a property, maybe holding the freehold of the land or long leasehold interests.
An Example to Help Explain
So, imagine you have a block of six flats, or six office units if you’re dealing with commercial property. At this level it’s more the principle that counts.
Each of the six units may be sold off through long leasehold interests, and therefore you’re left with a freehold of just the left-over bits of the property like the main structure and communal areas, both inside and outside the property.
The freeholder may not be bothered with this anymore, as they’ve made some money selling the six units, and with no ground-rental income coming in, the remaining property can be more of a hassle than an asset.
So, they create a new company called ABC Management Company who ends up owning the freehold. Each of the six-unit owners then become linked to this company not only via leases but company matters such as shareholding, membership and officer appointment.
Therefore, the idea is that this little company becomes self-managing in that it’s run by the six unit-owners, and the sole purpose of this company is just to hold and therefore look after the communal land for their benefit of everyone.
This will of course involve work, and so this management company may decide to instruct a managing agent called XYZ Managing Agents who deal with day-to-day property-management and company issues on their behalf.
The Property Management Perspective
Without getting too much further into the details, let’s look at seven key issues that a property manager needs to be aware of here. Any extra information on the technicalities of the company or each of these issues can then be delved into afterwards
1. Shares and Memberships
The two main ways in which people have an interest in the company itself is by shareholding and membership. This is the way that people legally have a say in matters through procedures like AGMs and votes if necessary.
From a property-management perspective, memberships tend to be easier to manage because share transfers can be more involved with issuing new share certificates, and noting stock transfer forms.
It’s this sort of administration task that ideally an accountant deals with, although often a management contact will end up getting involved with.
2. Meetings & Minutes
The main meeting is often the Annual General Meeting (AGM) once a year. Every connected party is invited and has their say to decide upon matters, although the reality of how these run will vary.
So often they’re not that well attended, although saying that, various key people will come along and take a strong interest and lead.
It may also be worth inviting others not strictly linked to the management company but more property matters, such as current occupiers who have good experience of what’s happening at grass-roots level.
It terms of documentation, check the nature of these meetings, how frequent they need to be, and even a minimum number of people needed to attend. Plus, you may need additional meetings as needed, maybe with just certain parties like Directors.
Issuing an Agenda before the meeting and Minutes afterwards is also helpful, along with any official information such as company and service-charge accounts.
3. Legal Documentation & Set-up
The main pieces of legal information are the Articles of Association or Memorandums, which state the legal basis of the companies. They may refer to generic documents or have unique terms, and hopefully detail the nitty-gritty, like who does what and when.
There may be other information such as initial company set-up documents - do make sure the correct correspondence address is noted so you receive any notices and updates.
4. Separate Property Interests
This is key, and often so easily missed.
All this talk of company involvement is often completely separate to lease or property title involvement. So a party may have a long lease interest and landlord-tenant relationship, but there may be a separate obligations of company involvement.
Therefore a property interest may sell on one hand and need things like Land Registry registration, however changes to company membership or shareholding being separate.
Ideally all these should be referred to within documentation, however of course not always the case in reality.
5. Two Types of Accounts
There are also two different types of accounts which again people get confused with.
So on one hand there are statutory company accounts which will need submitting to companies house just like any other company, however for a lot of non-active management companies these are very basic dormant accounts showing no net profit or activity.
However, because most management companies in this context will be managing service charges and general running costs, a separate income and expenditure set of accounts is often needed to show this level of detail and assets through a balance sheet.
6. Officer Appointments
You will have Directors and Secretaries appointed to help steer the company, therefore make sure these are all correctly appointed and resigned where necessary.
This is an additional task to any share or membership transfer, and will need further detail regarding the individual.
Just watch out for unusual people being nominated here, including actual managing agents if there are not enough people interested in these posts.
Although there is a responsibility as an appointed officer, you can also arrange separate Directors & Officers insurance to cover this for them.
Making the Most of Management Companies
Having these unique management companies at a property can be a clever way of managing and controlling all the various interests here, even though at face value it all seems all so complicated.
The idea is to legally mop up the shared use and control of land and property, particularly with multiple uses but also with single uses and completely different land owners.
Whilst there will be a host of information on these from, say, a good solicitor on how they legally tick and have property interests, or an accountant on how to set them up and liaise with Companies House afterwards, it’s the skill of a property manager that helps tie all this together in reality.
Therefore, no matter what role you have, whether a direct officer or part of such a management company, or an external advisor and managing agent, these above pointers will help provide that bigger picture to begin liaising with all other interests.
And then you’ll start seeing the effective use of a management company for property interests.
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