Sale of Freehold without Freeholders approval?

by Readers Question

17:04 PM, 29th June 2017
About A year ago

Sale of Freehold without Freeholders approval?

Make Text Bigger
Sale of Freehold without Freeholders approval?

I would appreciate your assistance on helping resolve the following issue. I do believe we will need to take professional legal advice and would welcome recommendations on who could help.

A management Company was set up to buy the freehold of a block of 6 flats in 1999. Four owners of the flats purchased 100% of the Freehold, each owning 25%. The other two owners declined.

A company was incorporated to set up the ownership and shareholding. The day to day Facilities Management of the block of flats was assigned at their request to one of the Shareholders (Shareholder A) . They were responsible for producing accounts settling bills and ensuring all legal compliance was taken care of.

To cut a long story short, shareholder A decided to sell a 1/6 share of the freehold when one of the two flats that did not buy the original shareholding was sold.

The agreement to sell a share of the freehold was not discussed or approved with all of the other shareholders. A consideration was paid which was considerably lower than what would be considered market value. A board meeting to seek approval or authority for the sale was never called.

Hence My question is what is the legal standing of the sale, a share certificate has been issued again signed by Shareholder A the monies have been paid to Shareholder A who claims the money has been used in paying for Facilities management services. Which could be true but as they have never kept proper records its very difficult to tell.

Can Shareholder A act on behalf of all the other shareholders without their consent or have they merely sold a portion of their shareholding and the others are intact?

Many thanks

Neil



Comments

Neil Patterson

17:09 PM, 29th June 2017
About A year ago

Hi Neil,

I have done an article search on the left of "selling Freehold" and "Freehold" and I am struggling to find an example the same to help and this is not really my specialty.

You could try the Leasehold advisory service >> http://www.lease-advice.org/

Sam Addison

12:19 PM, 30th June 2017
About A year ago

have a close look at whatever document the company made to give shareholder A power to run the facilities management. If it does not give sweeping powers to act for the company then he has probably acted outwith his powers (ultra vires?). In that case I would contact the solicitor who acted for the company and ask them what the h*ll they were playing at?
If, unfortunately, you have given this person unrestricted powers to act for the company then you may be stuck with whatever the legal position is.
Whatever the outcome I would call an extraordinary general meeting as soon as possible and get this person removed from their role. It is sufficient justification that they are not keeping adequate records!

Ian Narbeth

15:38 PM, 30th June 2017
About A year ago

You are right that you need legal advice. You say: "... shareholder A decided to sell a 1/6 share of the freehold." Do you mean that he sold an interest in property or some shares? I would imagine the latter but that is not obvious from your post. Do you mean some new shares were issued to the new buyer? They are completely different things legally. A good solicitor can help you through the morass.

Colin Dartnell

16:55 PM, 30th June 2017
About A year ago

I may be wrong here, but I thought that if a freehold was sold it had to be offered to the tenants (leaseholders) first, under a right of first refusal? It sounds as though it was not offered so it may have been an unlawful transaction.

It is not made clear whether the other freeholders knew about it, if they did surely they would have stopped a cheap sale. Otherwise it reduces the value of their share of the freehold.

Ian Narbeth

17:03 PM, 30th June 2017
About A year ago

Reply to the comment left by "Colin Dartnell" at "30/06/2017 - 16:55":

Colin
You are right about a sale of the freehold but I don't think that is what has happened.

Puzzler

19:13 PM, 5th July 2017
About A year ago

Sorry but the above does not really make sense. First, yes they can sell part of their shareholding but it should have been discussed. I don't know whether it counts as transfer of the freehold. I don't understand how they can have sold 1/6 without leaving themselves with only 1/12 which would be daft. Ownership of the freehold would ideally be in sixths so I can see their logic but the numbers you give don't add up. Unless it has been taken from the other shares by being issued as a new share in which case it affects the value of yours so of course you would need to know? A resolution should have been passed. It is usual to rectify this sort of thing nowadays on sale of a flat with the new owner paying for the outstanding share. It sounds like "A" means well but is not sufficiently knowledgeable to be doing this properly. In which case what about the last owner?

How much did the freehold cost and how long are the leases? Since you own the freehold it doesn't really have a market value as such. You should ask for an audit, I wouldn't pay for an accountant audit just a knowledgeable professional. If you wish to email me on rannd@hotmail.co.uk I can suggest an approach. Others may have better ideas though...

Whereabouts are you?

Puzzler

19:18 PM, 5th July 2017
About A year ago

Reply to the comment left by "Puzzler " at "05/07/2017 - 19:13":

I mean the remaining owner with no share not the previous owner when I said the last owner

Neil Patel

14:47 PM, 14th July 2017
About A year ago

Reply to the comment left by "Puzzler " at "05/07/2017 - 19:13":

My apologies for the delay in replying I have been away for medical reasons. I'll try and respond with the clarifications. When the company was formed to buyout out the freehold 2 out of the 6 Leaseholders declined to purchase their share hence the remaining 4 purchased the freehold each owning 25%.

The management company has no sweeping authority or any authority to sell the freehold without bringing the issue for approval to the board.

Each of the new freeholders were issued a new 125 year lease and the remaining 2 continued with their exiting lease term.

My gut feeling is Shareholder A has coluded for some reason to sell 16.5% of the freehold.

Seeing as though this was not agreed buy the board or any of the other shareholders, then the sale is either null and void, or shareholder A has diluted his own shareholding by selling 16.5% of his 25%.

I am in Dorking Surrey property In is in Northwest London.

Colin McNulty

7:11 AM, 17th July 2017
About A year ago

Reply to the comment left by "Neil Patel" at "14/07/2017 - 14:47":

> "My gut feeling is Shareholder A has coluded for some reason to sell 16.5% of the freehold. ... the sale is either null and void, or shareholder A has diluted his own shareholding by selling 16.5% of his 25%."

When you say: "sell 16.5% of the freehold" do you mean, "sell 16.5% of the shares of the company that owns the freehold"?

What does the sale documentation say? If it's a transfer of shares it should be detailed on a J30 Stock Transfer Form? If so, who does it say is the "name of the registered holder" who is transferring the stock?

Furthermore, it's a duty of the Company to hold a register of shareholders, which is required to file the company's Confirmation Statement (annual return) at Companies House detailing who the shareholders are each year. So what does the register of shareholders say?

Basically you need more information before you can determine exactly what's happened here.

Neil Patel

10:24 AM, 25th July 2017
About A year ago

Thank you all for the responses they have been very helpful in navigating a way forward. A final question which I hope is an easier one.

4 of the 6 of the original leaseholders purchased the freehold under a collective Enfranchisement back in 2001. The 4 flat owners who purchased 100% of the freehold i.e. Each purchaser was assigned 25% of the shares issued which was formed to purchase the freehold and each of the 4 flats was granted a new 99 year lease extension.

Does the remaining leaseholders have the right to force a sale from the shareholders to acquire a share of the freehold?

Reading the guidance it states at least 50% of the of the flats, who are qualifying tenants must participate. Hence it would seem there is at best only 2/6 which is less than 50%?

Many thanks

1 2

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Patrick Collinson has got it wrong yet again!

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More