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Joshua
Joshua, Lawyer
Category: Property Law
Satisfied Customers: 25408
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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I am one of 5 flat owners who has a share of the building freehold.

Resolved Question:

I am one of 5 flat owners who has a share of the building freehold. The ground floor flat owner (P) has been at war with the basement flat owner (S) for 2 years. Previously myself and the remaining two freeholders have declined to get involved (though at one point I gave them the number for a mediation service as a gesture of goodwill). P has now had a solicitor write a letter to the other 3 of us, claiming that S is in breach of our shared freehold agreement and that it is our responsibility to get involved in the argument and 'enforce' the contract. Both P and S have behaved in ways that make me suspect drama like this is not new to either of them.
I am the company secretary and after meeting with S, I've asked her to show me proof that she isn't in breach. When I've finally got it, I plan on responding to the solicitor's letter, saying that I have sight of this proof, that we don't think S is in breach and consider the matter closed.
As long as I've responded to this solicitor saying we have considered the problem and don't think it's an issue (best case scenario); can P force us to do anything more? Do I have to show P the proof I've accepted? If she is in breach, how could we really enforce anything? These are 5 separate flats, nobody has keys to anybody else's home.
And if she takes S to court, surely any judge would address P and S when trying to resolve the issue, rather than the other 3 people named on the shared agreement?
Submitted: 2 years ago.
Category: Property 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 :

May I clarify that the freehold is owned by a limited company in which each of you have shares or are members please?

Customer:

Hi.. yes, that's right.

Joshua :

If so are all of you directors?

Customer:

yes.

Joshua :

Thanks. on that basis, the solicitors letter is little better than a bid to try to get the rest of you involved. It is true that you have various fiduciary duties to the company and shareholders to act in their overall best interests how you do not have specific duties to look after the interests of one shareholder over and above the interests of others

Customer:

so I'm doing a good thing talking to S and responding to the letter - what if P isn't happy with my response?

Joshua :

in order to demonstrate that as directors you are all carry out your fiduciary duties towards the company it would be sensible to consider holding a formal or informal board meeting and minuting the meeting decisions so you can evidence you have considered the issue exactly as you suggest; from there, one of you as director could consider replying to the solicitor explaining that a meeting was held and the outcome.

Customer:

we don't tend to meet in person because of geography and timings - I assume an email conversation would be enough?

Joshua :

If P is not happy with your response than the only action available to launch a derivative action minority shareholder which in practice will not happen because of the cost of bringing such a claim. In any event, to bring such a claim, they would need to demonstrate that directors or majority shareholders are acting in a manner contrary to the interests of the minority shareholder and to their own benefit which presumably could not be shown

Joshua :

if you cannot meet in person, you can consider the matter phone or by email and then having a set of agreed minutes signed by the various directors to agree they are inaccurate records of your decision. You don't have to be this formal but it is best pracice.

Customer:

what is the cost of such a claim then? could she claim that by refusing to engage further with her dispute, we were acting in our own benefit?

Joshua :

It would typically be more then £10-15K to bring such a claim. They are designed for commercial disputes and would not be at all practical here. Apart from the cost, the test applied by the court to such a claim is high

Customer:

test?

Joshua :

Permission must be sought from the court to bring derivative action before it even gets off the ground and the criteria the court applies for granting permission is strict and high and is unlikely to be satisfied to any extent here. I cannot see such a claim would be on the radar

Customer:

I see, OK. so this letter is pretty much P's only hope of getting the issue resolved, and I'm being co-operative by investigating and responding. How does the law expect us to 'enforce' breaches of this contract?

Joshua :

in order to enforce a breach of covenant, a company resolution would be required in accordance with the articles of association which unless they have been change would normally provide for a majority vote.

Customer:

sorry, you've lost me.

Joshua :

In other words, subject to any changes you may have made to the articles of association, it is likely that a majority vote of the shareholders would be required in favour to enforce a breach of covenant

Customer:

and if we had a majority vote? How could we enforce it?

Joshua :

No problem. The only way a company whether it is a small nominee companies such as yours solely intended to hold an asset or a large multinational company, can make a decision is by a resolution. resolutions are made by typically simple majority voting of the board or shareholders. If a resolution is achieved by a majority vote then one or more of the directors of the company can implement that resolution - here by serving notice on the tenant found to be in breach setting out the details of the alleged breach and providing 21 days for that tenant to remedy the position

Customer:

so enforcing simply means serving a notice. what if S simply says 'I don't have any money, I can't do it'?

Joshua :

if a tenant ignores such a notice, the company can then take further steps by one of its directors such as issuing court proceedings seeking a court order together with costs or ultimately issuing a notice to forfeit the lease - though such notices are normally set aside by a court in favour of payment of compensation or damages

Customer:

which would mean paying for the court proceedings out of the shared bank account, which nobody would agree to either

Customer:

OK, last question - S doesn't want me to show P the proof, she only wants me to see it. am I under any obligation to share the proof with the solicitor or with P?

Joshua :

In the first instance yes but leases will almost certainly provide for recovery of legal fees from an offending tenant.

Joshua :

you may need to be a little cautious with this. It is a question of hats. If you are shown the proof as a director of the company then you owe a duty to the other directors in relation to the information you are aware of. On a practical level, if she does indeed have proof that she is not in breach than it does her no good to insist that that proof is kept hidden. However if this is her position if she is only prepared to disclose the proof on condition of silence,it may be better to decline rather than put yourself in the potentially difficult position of knowing but not disclosing which could be a breach of your fiduciary duties as a director

Joshua :

is there anything further I can assist you with on the above?

Customer:

the reason she's asked for it to be kept from P is because she's afraid P will simply argue against it.

Customer:

they're both barking mad

Joshua :

from what you say, you are probably right not to get involved other than as in most basic level as above and for this reason, it would seem sensible not to expose yourself to information or evidence given on condition of secrecy for the above reason and also so as not to be seen to be taking sides.

Customer:

I can't reply to the solicitor's letter without seeing this proof though. and I've told them to expect my response.

Joshua :

In order to be able to respond, you would need to have sight of such proof without condition of secrecy. Accordingly you may say to S that unless she is willing for you to disclose the evidence to P or at least allow you to tell your other directors what you have seen, there is no point in her showing it to you and that it potentially puts her in a more exposed position because you will not be able to respond that you have seen information that satisfies you that she is not in breach.

Customer:

OK. what if she says she won't show me then?

Joshua :

Then as above all you can say to her is there is no point in her showing it to you and that it potentially puts her in a more exposed position because you will not be able to respond that you have seen information that satisfies you that she is not in breach. This in turn means that the company may at some point however unlikely potentially be forced to take action against her if it seems apparent that there is a breach of covenant and she cannot show otherwise.

Customer:

OK. I think I've got it straight. thank you so much for your help, I really appreciate it.

Joshua :

A pleasure. I hope you manage to side step most of the storm.

Customer:

can't wait til I can buy a whole freehold all to myself :-/

Joshua :

Quite so. Leasehold can be more trouble than its worth sometimes when tenants fall out. 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

Customer:

absolutely. thanks again

Joshua and 3 other Property Law Specialists are ready to help you

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