How To take Over

We have been contacted by a Residents’ Group who have successfully taken over management of their estate. They thought their experience would help others, and so do we! We are very grateful for the sharing.

We would like to say again that there is huge variation in how the developers set up each estate, so not all will have the advantages in company structure that this example benefits from. In spite of having the required company structure the builder and their appointed managing agent strongly resisted the residents’ taking over. We have heard similar stories from others.

Also remember that it is developers who drive this model, whilst councils may have reduced landscaping and road mending costs, the community loose out when estates are retained privately because other potential section 106 benefits are lost. The estate in this example is not built up to adoption standards and we believe this also is a prime cost saver for the builders.

That said, if you want to know what worked for one group of residents, read on ….

In April 2019 we’d just moved into our new home in Shepton Mallet when Eve, a friendly neighbour, tapped me on the shoulder and asked if I knew about the ‘Chamonix’ problem. Apparently, all the owners in our part of the estate were being charged too much by the company looking after our common areas, and the standard of maintenance was awful.  She wanted to do something about it, and would I come to a meeting?  It was the first I’d heard of ‘Fleecehold’. 

Two years later, and we’ve just gained control of our Estate Management Company (EMC), got rid of the Bloor Homes appointed director, elected five new directors who are resident on the estate, solved the Fleecehold issue, and have started work on putting things right. 

So how did we do it? 

The first step was to organise. We set up a brand-new residents’ association specifically for those households in the fleecehold trap.  There were 97 properties with a mix of home owners and tenants, and we soon had a working group of residents keen to support us, a constitution,  and a functioning committee.  

Step two was to understand the root cause of the problem. 

A Section 106 agreement in 2014 between the local council and the developer, put in to reduce Council Tax costs,  required property owners to be members of an Estate Management Company, and pay a sum twice a year for maintenance.  

So we went to the Companies House website, looked up the company, and downloaded all the information about it, including its Articles of Association. All companies are governed by a set of rules called ‘Memorandum and Articles of Association’, and they are freely available from the Companies House website. 

The Articles for our own company gave us the following key information: 

• The company was limited by guarantee, not shares. 
  This was very important, because it meant that all the funds raised by the company had to be used for the company purposes – maintaining our common areas; no individual could ‘profit’ as a shareholder.   
• All property owners were required to be members.
  This meant that as home owners, we actually owned the company.  It wasn’t owned by some distant group of shareholders or some shell company. As members, we could take control. 
• Three months after the sale of the final property, a date called the ‘End Date’, resident directors could be appointed by an ordinary resolution.
  This was even better news, because it meant that the director appointed by the developer should have stood down at, or after, the End Date which must have been several years ago, and residents should have been given the power to manage the Agent.  We checked this informally with a friendly solicitor, and were told we were right.
  

The company structure was actually very good.  It gave power to residents to manage their own common areas and employ local people.  But it wasn’t working, and we were caught in the fleecehold trap. It didn’t take much digging to find out why. 

Our inflated bills were coming from a company called ‘Chamonix Estates’, not our EMC.  Chamonix was very closely linked to the developer, Bloor Homes. It would seem that Chamonix had not only been appointed by the Bloor director as our company’s Agent but was effectively running our company. We asked the Chamonix rep about appointing resident directors, but got a polite brush off.  It wasn’t possible, and we should take this up with the developer if we disagreed.  We asked Chamonix for a copy of the register of members, but were ignored.   

Part of the problem was that very few people properly understood the relationship between our Estate Management Company and Chamonix.  Chamonix was the Agent, and should be managed by the EMC.  But the tail was wagging the dog. Chamonix appeared to be running the company, and residents felt powerless. 

So we approached our local councillors for help; after all, it was the local authority who had set up the section 106 agreement.  We had fine words, promises of support, and nice meetings.  This actually delayed us for many months – we were expecting a solution from the local council, but communication petered out and we were getting nowhere.   

It was at this point that I got completely fed up with the Council. I had run a company in the past, and told our small committee that if we wanted to solve the issue, we had to use the Companies Act and get a solicitor ourselves.  They were understandably nervous about the cost implication. 

We asked the local council for help with costs, but were told: ‘To fund legal action for a small residents association’ doesn’t fit our policy’. Apparently, it was policy for the council to reduce the burden of Council Tax by shifting the cost of maintenance onto residents, but not policy to help them when their section 106 went wrong.  

So we approached a local firm of solicitors.  To limit costs, we didn’t want them to do the work – we were perfectly capable of reading the Companies Act for ourselves and writing the necessary letters.  What we needed was a backstop and occasional advice.  One of our members guaranteed a small sum for potential costs, which soothed some nerves. 

This proved to be the best decision we had made.  The solicitor was friendly, helpful, and on the three occasions we asked for advice, it came with clarity and precision.  

At the same time, a casual conversation with a local estate agent gave us the one key fact we were missing:  the precise date of the sale of the final property.  We now had a clear ‘End Date’ – it had passed two years ago. 

Our plan then fell neatly into place.  Firstly, we wrote to the Company Secretary requiring a copy of the register of members – something a company has to provide to members by law if asked. Next, we wrote to all of the members inviting them to two open meetings to gain support for a resolution to appoint resident directors, and seeking volunteers. 

Five people, all with useful expertise, stepped forward as volunteers, and with advice from our solicitor, we wrote formally to the director of our Estate Management Company quoting both the Companies Act and the End Date, and requiring him to call an Extraordinary General Meeting to put a resolution to members to appoint our volunteers as directors.  We also took advantage of section 314 of the Companies Act, which requires the company to circulate a statement at the company’s cost to all members explaining our action. 

Next, we canvassed for proxy votes, just in case we lost on a show of hands, but they weren’t necessary. Chamonix’ successor, FirstPort, chaired the EGM which was held by Zoom, and many of our residents showed up.  On September 15^th, the vote was passed with no one voting against. 

Now that we have control, standards can be properly monitored, local contractors can be appointed, and best value contracts can be put in place. Bye bye fleecehold. 

What advice do we have for others facing a similar issue? 

1. Understand the legal framework that allows someone to maintain the fleecehold trap. Companies House is your friend, and information is freely available. 
2. Read the Articles of Association, to find out if you have any power under the Companies Act to take action. 
3. Find a friendly local solicitor to help you.  Solicitors are human – they are not always out to take you to the cleaners, and may well help you if they recognise that you’re working for the common good, not for your own profit. 

Richard Thomas 

Chair, Shepton Mallet (Phase 7) Residents Association 

SM7RA.com