Question 1

Lease Extensions

Accepted Answer

I am company secretary of both management company and freeholding company for our estate. There are forty five properties on the estate, the owners of forty two of which are shareholders of the freeholding company. One of the three non-shareholding owners wishes to extend their lease. It has been agreed by the shareholders that all future sales of shares/lease extensions would be at full market value of a new 999 year lease. I would like to know how to deal with the potential capital gain which will arise and how to distribute the sale proceeds to the right people given that there was no participation agreement at the time of the purchase of the freehold. Non-participators have been allowed to buy in in the past at a premium to reflect inflation. As the company was then overcapitalised there was a return of capital to all shareholders. I think that matters have been mishandled in the past and I would like to ensure that they are on the correct footing going forward. The FPRA responds: The grantor of the new lease here must of course be Foxcrest Ltd, and that company will receive the premium for the new lease. I wanted to see the Memorandum and Articles of Association of Foxcrest Ltd, because many Residents’ Management Companies (some of which will themselves own the freehold, and some will not) include some provision in their Articles which prohibit the payment of dividends or (I think) the return of capital to members. I cannot see any such restriction in your Articles. Remember of course that your Articles are only your company’s specific amendments to Table A to the Companies Act 1985. It used to be difficult to track these down, unless the solicitor involved with the setting up of the company placed a copy of them with the articles, but now it is simple to check or to download a copy from the Companies Registry website. They have them all available – just make sure that you refer to the version made under the 1985 Act. I have known RMCs to return such premiums to members by payment of a dividend and by resolving to make a repayment of capital. The tax implications of each will be different both for the company and for the members. You should seek guidance from the Companies’ Accountant on this. Dividends or repayment of capital should always be in proportion to the number of shares held in Foxcrest Ltd, if some flatowners own different numbers of shares. It follows from this that it would be incorrect to credit any receipt against the service charge fund: though (a) this would be held by Vixen Grove Management Ltd, not Foxcrest Ltd; and (b) in any event, the service charge funds – both current and reserve funds – do not strictly belong to Vixen Grove Management Ltd but are held by it as trustee on the trusts provided for by the Landlord and Tenant Act 1987, s.42.

Question 2

Lease Extensions

Accepted Answer

I am company secretary of both management company and freeholding company for our estate. There are forty five properties on the estate, the owners of forty two of which are shareholders of the freeholding company. One of the three non-shareholding owners wishes to extend their lease. It has been agreed by the shareholders that all future sales of shares/lease extensions would be at full market value of a new 999 year lease. I would like to know how to deal with the potential capital gain which will arise and how to distribute the sale proceeds to the right people given that there was no participation agreement at the time of the purchase of the freehold. Non-participators have been allowed to buy in in the past at a premium to reflect inflation. As the company was then overcapitalised there was a return of capital to all shareholders. I think that matters have been mishandled in the past and I would like to ensure that they are on the correct footing going forward. The FPRA responds: The grantor of the new lease here must of course be Foxcrest Ltd, and that company will receive the premium for the new lease. I wanted to see the Memorandum and Articles of Association of Foxcrest Ltd, because many Residents’ Management Companies (some of which will themselves own the freehold, and some will not) include some provision in their Articles which prohibit the payment of dividends or (I think) the return of capital to members. I cannot see any such restriction in your Articles. Remember of course that your Articles are only your company’s specific amendments to Table A to the Companies Act 1985. It used to be difficult to track these down, unless the solicitor involved with the setting up of the company placed a copy of them with the articles, but now it is simple to check or to download a copy from the Companies Registry website. They have them all available – just make sure that you refer to the version made under the 1985 Act. I have known RMCs to return such premiums to members by payment of a dividend and by resolving to make a repayment of capital. The tax implications of each will be different both for the company and for the members. You should seek guidance from the Companies’ Accountant on this. Dividends or repayment of capital should always be in proportion to the number of shares held in Foxcrest Ltd, if some flatowners own different numbers of shares. It follows from this that it would be incorrect to credit any receipt against the service charge fund: though (a) this would be held by Vixen Grove Management Ltd, not Foxcrest Ltd; and (b) in any event, the service charge funds – both current and reserve funds – do not strictly belong to Vixen Grove Management Ltd but are held by it as trustee on the trusts provided for by the Landlord and Tenant Act 1987, s.42.

Lease Extensions

Search

Articles Archive