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Joshua
Joshua, Lawyer
Category: Law
Satisfied Customers: 25425
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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There's a covenant in my lease that floors need to be carpeted,

Resolved Question:

There's a covenant in my lease that floors need to be carpeted, however at least 1/3 of the leaseholders and even 3 out of 7 directors of the Freehold Company have replaced the carpets with wooden floors, without having written consent by the Freehold Company. The Freehold Company can also waive this rule at its sole discretion, but have never done this in writing. I have installed wooden floors after effectively receiving a implied approval by the management company, however I don't have this in writing. Now the Chair of the Freehold Company is pursuing legal action against me, and only against me, for breach of this covenant, despite the fact that leaseholders have laid wooden floors for many years, many flats with wooden floors have been bought and sold and leases reassigned without a problem, and the Chair even holds Board meetings in flats with wooden floors. I insist that I was led to believe that I was allowed to have wooden floors and that there was never a reason to doubt this is not the case given the overwhelming evidence that this has been allowed. Can they treat me differently from other leaseholders (and directors)? I would have thought a director cannot be unfair to a member of a company and that they would be relieved from a claim for breach of duty (e.g. enforcing covenants) where they act so as to ensure equal and fair treatment of the company's members? Can they discriminate against us but not others? Is there a law (Companies Act?) that would protect us against abusive behavior of a director?
Submitted: 2 years ago.
Category: Law
Expert:  Joshua replied 2 years ago.
Joshua :

Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.

Joshua :

Is this a situation where you own a share in the freehold company please?

Joshua :

If not do you otherwise own a share in the freehold by other means - e.g. you are a member of the company which is limited by guarantee?

Customer:

I purchased a property which is a share of freehold so I get a lease for 125 yrs and should have a freehold certificate in the "Landlord" or the Freehold Company, i.e. own a share of the Freehold Company. However, the current chairman of the freehold company is refusing to issue the freehold certificate, even though I am entitled to it, because of the wooden floor. The conveyancing firm on the purchase is still chasing them for the certificate, but the freehold company refuse to answer their queries. i purchased the property in May 2014, in June i told them i plan to replace the carpet with wooden floors, among other works (e.g. kitchen/bathroom refurbishment) and received no response from them until 6 weeks later when the wooden floors were installed, telling me i can't do that.

Joshua :

Thank you. How many flats are there in the block? Have you discussed the matter with other resident owners?

Customer:

There are 72 flats I believe. We have discussed this with one of the board members of the freehold company (and owner of a flat) who also has wooden floors. That director is shocked that is has gone that far as she or anyone else has not been asked to put back carpets or being pursued in any way. In fact the board meets at her flat and the chair has never said anything about the wooden floors. Another board member came to see my floor and asked where we sourced the wood as they want to do the same. the chair however has decided to pursue us. we received a letter in November saying we're in breach and need to fix it or may be sued. I called the management company immediately and they told me to ignore the letter as they sent it only because they were asked to by the chair, but they disagree with it and there will be no lawsuit. they also said that the freehold company is getting a legal opinion on the matter as this covenant has been breached by so many for so many years. i received another letter with similar threat in January. now i received a letter from a law firm saying if i don't accept that i have broken the lease and agree to remedy it, they will take me to court. If I was the only offender, I would agree, but given that I have been receiving misleading information by the Management Company and others peacefully enjoy their wooden floors, I see no reason why they should discriminate against me.

Joshua :

THanks

Joshua :

The position is based on what you say that you are in breach of covenant under your lease and accordingly the "freeholder" is entitled to pursue you fo breach of lease. That much you already know...

Joshua :

However as you say in the assumption all leases in the book contain a similar covenant, if the freehold company decides to pursue you, they have to pursue everyone. This is because, there will almost certainly be provision in your lease that provides that on request from you, the landlord will pursue other tenants for breach of covenant.

Joshua :

Therefore the landlord is potentially putting itself in a precarious position if it does not wish to do this.

Joshua :

Of course the landlord is not a person but a company and therefore is answerable to its shareholders. From what you say the individual director appears to be acting in somwhat a rogue capacity and if this is the case a simple way to resolve the matter may be raise the issue at the next general meeting or call a special meeting (likely overkill) to raise the issue of 1) the refusal of the landlord to issue you a share certificate and 2) the question of the letter you have received and seek a vote from the shareholders on both issues. The director is bound by the decision of that meeting. In the assumption that most individuals will be sensible on both matters that may resolve the matter simply and finally.

Joshua :

If the director in question is acting to the detriment of the shareholders generally it is also possible to remove him by vote providing the proper procedure is followed.

Joshua :

Alternatiely you could ask your contact to raise the issue at the next board meeting of directors and that they take a vote on the matter then. This may be quicker than waiting for the next shareholder meeting which may only be held once a year.

Joshua :

Failing all that you could formally ask the landlord to enforce the breach of covenant agaisnt all tenants if he intends to enforce against you and force the landlords hand, and seek a court application for the issue of your share certificate assuming you have a right to the same under your lease, but my view would be the former approaches would be the better ones as they do not involve cost nor particular administrative time on your part.

Joshua :

Finally in the event you feel you are being discriminated against by a majority of the shareholders (which is not the case based on what you say) there is an action you can bring as a minority shareholder under s260 COmpanies Act as a derivative action but this would be a sledgehammer to crack a nut and would be at best a last resort as there should be far better avenues for you to resolve the dispute much more simply as above.

Joshua :

Does the above answer all your questions or is there anything I can clarify or help you with any further?

Customer:

In the lease there is a procedure set out on how the management company can enforce covenants - "on the reasonable written request of the Tenant and subject to the Tenant indemnifying the Management Company against all costs and expenses and providing in advance such security in respect of such costs and expenses as the Management Company may reasonably require to enforce any covenants entered into with the Management Company by a Flat Owner..."

Customer:

In the lease there is a procedure set out on how the managment company can enforce covenants - "on the reasonalbe written request of the Tenant and subject to the Tenant indemnifying the Management Company against all costs and expenses and providing in advance such security in respect of such costs and expenses as the Management Company may reasonably require to enforce any covenants entered into with the Management Company by a Flat Owner..."

Customer:

In the lease there is a procedure set out on how the managment company can enforce covenants - "on the reasonalbe written request of the Tenant and subject to the Tenant indemnifying the Management Company against all costs and expenses and providing in advance such security in respect of such costs and expenses as the Management Company may reasonably require to enforce any covenants entered into with the Management Company by a Flat Owner..." this makes me think

Customer:

sorry sent to early... I was saying that this makes me think that it will be too expensive if I asked them to enforce covenants against all properties that have breached this clause in the lease. I would like to make 2 points in my defence 1) I received a verbal consent and hence I have not breached the lease. given evidence that wooden floors are allowed, I had no reason to suspect that the verbal consent was not genuine and that it's not as good as a written contract, and 2) I have been treated unfairly and with prejudice. I doubt a Director can treat a member/shareholder in the Company differently from other shareholders. Am I right on these 2 points?

Joshua :

Sorry for the delay in reverting to you.

Joshua :

It is true that you are required to give an indemnity regarding legal costs though remember that the lease will also typically provide that legal costs can be recovered from the breaching party so it does not follow that you would be liable to pay legal costs, rather only indemnify in the event these were not recoverable from the breaching tenant but you are correct that it is not ideal hence my suggestion that you initially look to resolve the issue through a directors or shareholders meeting.

Joshua :

If you can evidence that you were advised that there would be no issue with hard floors you can rely on estoppel as a defence - that landlord made a promise or representation to you and you relied upon that promise or representation to your detriment. Estoppel can be used in law to prevent the landlord going back on what was said. However, it would be for you to prove on the balance of probability the representation you claim which is a potential weakness if the landlord subsequently denies having made the promise.

Joshua :

Furthermore a director owes duties to its shareholders and must not discriminate against one in favour of a majority. There is the option of a derivative action as above but the costs of such a claim would mean it was a last ditch scenario and I would be reasonably confident you can resolve the matter with the minimum of cost and fuss through directors or shareholders meeting as above without the need to look at any of these more challenging options

Joshua :

Has the above answered your questions satisfactorily?

Customer:

Thank you. This has been helpful. One last question. I am sure they will deny making a promise so it will be their word vs. my world. However if there is overwhelming evidence that they have allowed others to install wooden floors, they acknowledge them in the residents guide (to say we know you have them so be careful not to make noise for the neighbours below)

Joshua :

That would certainly be helpful in resepct of any defence you made using estoppel. It is not absolutely conclusive but it is certainly very supportive.

Joshua :

My hope would be this is a cavalier director who is acting without general support from others and you will be able to rein him in with the assistance of another director at their next meeting without the need for any of the above however. Consider asking your contact to add it to the agenda of their next board meeting as a startig point?

Joshua :

Is there anything else I can help you with?

Joshua :

Do you have any other questions on this or does the above answer everything you needed to know for the moment?

Customer:

Very helpful. thanks again. I promise a last one - you say "able to rein him in with the assistance of another director" ...there are 7 directors. wouldn't we need the support of 4?

Joshua :

No problem. It would normally be a simple majority vote on all matters unless they have agreed to alter the voting requirements but assuming they have not then the matter would need the support of a majority in attendance at the meeting, so if all 7 attend, then as you say it would need 4 to vote in favour. However in the assumption that only a small minority for some reasons have chosen to single you out, or perhaps just the one sole director, it seems reasonable to believe that this is achievable. From what you say the director you spoke to was sympathetic, and you could speak to some others to canvass their opinion

Joshua :

If for some reason you find that there are a majority of directors "against you" then you can look to have the matter included on the next share holder agenda for a general vote of all the shareholders. The shareholders vote will overide any decision of the directors, though there is no reason to think the worst at this point. If the directors are generally reasonable people there is no reason to think that the issue could not be cleared up quickly at the next directors meeting.

Joshua :

I hope that has been of help

Customer:

Thank you Joshua. This has been helpful.

Joshua :

If I can assist any further as the situation develops please do not hesitate to revert to me

Joshua :

If you have no further questions for now I should be very grateful if you would kindly take a moment to rate my service to you today. Your feedback is important to me. If there is anything else I can help with please reply back to me though

Joshua and 2 other Law Specialists are ready to help you

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