When new homes are being sold, it is important to ensure that arrangements are put in place for management of common areas of the building or estate affected and that costs of that management work is shared amongst all future owners. The management can either be dealt with by the owner(s) or by a specially formed management company which may also be party to the Transfers/Leases. Management companies can be owned by the developers or ownership can be passed to a professional property management business; or in other cases, passed to the new homeowners who, collectively, become the shareholders and owners of the company.
Where those arrangements require an incoming homeowner to sign a Deed of Covenant, for the benefit of the management company, it is important for owners of those homes to ensure that the management company remains operational and that the directors of the management company comply with all necessary procedures needed to keep the company alive. This includes filing accounts at Companies House and keeping up to date records of registered offices, directors, and persons with significant control.
Failing to keep a management company alive by dealing with its administration in a timely way can be catastrophic for the homeowners who may, if the company is struck off, be unable to sell or mortgage their properties. The costs of sorting out the problems caused by the loss of a management company can be disproportionately high for cash-strapped new homeowners, and can in some cases be impossible to put right, particularly if this requires dozens of homeowners and their lenders to collaborate in finding the best legal solution.
Any restriction imposed on the registers of title to individual homes preventing registration of a sale until the relevant Deed of Covenant has been signed must be worded in a way which allows ongoing sales to take place even if the management company is, for any reason, struck-off or otherwise ceases to operate effectively.
Developers of new housing have an interest in ensuring that their buyers not only complete the purchase of their new homes quickly, but also are reassured that future sales will not be held up as a result of any long-term difficulties in the management of the developments in which their homes sit.
Key messages for new build developers
- Make sure block or estate management structures are properly set up and stay robust. Developers need to pay attention to this at the outset.
- Developers need to have their own arrangements in place to handle the routine administration of the management companies they set up for their developments, and to make sure those companies are not struck off whilst they still have control.
- Developers need to ensure that when control of a management company passes to others (whether it is the residents or a 3rd party) the handover is carried out effectively and all appropriate filings at Companies House are completed.
- Buyers of new homes with a management company running the common parts need to check that the management company is still “alive” and that it is being properly managed. Late filing of accounts, out of date records of directors and late or incomplete service charge records are all red flags.
- Restrictions on disposals appearing on a property’s registers of title must “work” to allow sales and mortgages to be registered, even if the management structures fall apart in the future.
- Developers need to be mindful of the reputational damage that can happen if one of their completed developments finds itself in the news or plastered all over social media because of the collapse of the management arrangements, leading to lost sales or problems with getting a mortgage.