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Joshua
Joshua, Lawyer
Category: Property Law
Satisfied Customers: 25957
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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I live in a complex of 18 flats. I am a trustee of 4 and the

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I live in a complex of 18 flats. I am a trustee of 4 and the beneficiaries are the 18 flat owners, including myself. The rules of the trust deed set up in 1983 is that all 4 trustees should sign to agree any business changes, such as change of flat ownership etc. Unfortunately the principal trustee is now incapable of looking after himself and is now in a home therefore is not capable of understanding business matters. The local authority are applying for Power of Attorney so that they can transact business on behalf of the trust. When the PA is granted it has been suggested that instead of a trust the 18 owners should set up a limited liability company with the flat owners holding equal shares in the company and the freehold would be transferred from the trust to the LLC. Please could you advise what the advantages and pitfalls there could be?
Submitted: 2 years ago.
Category: Property Law
Expert:  Joshua replied 2 years ago.
Hello and thank you for your question. I will be very pleased to assist you. I'm a practising lawyer in England with over 10 years experience. May I ask are you proposing to remove the trustee on the grounds of lack of capacity please?
Customer: replied 2 years ago.

Yes

Expert:  Joshua replied 2 years ago.
Thank you. Both structures (Trust and nominee company) essentially perform the same job an both can be potentially used. However trust structures are generally in practice only suitable for small blocks of flats because the level of administration involved in amending trust documentation each time someone sells can be cumbersome if it is done properly as it should and it is more difficult to provide a formal forum for beneficiaries under the trust to have a democratic say in decisions of the trustees. One can of course provide for these things by way of a committee but there is less scope for formal structure than is possible under a nominee company. However it is fair to say that both stuctures are capable of achieving the same ends albeit the trust structure with more strain. The main difference crucially is that using the nominee company approach has three main advantages. The first and arguably most important is that it is the structure provided for by the Commonhold and Leasehold Reform Act which makes it a familiar and readily understood strucutre that will be readily understood by conveyancers. Trust structures whilst legally valid will be less familiar particularly to firms that offer basic conveyancing services and so may in certain cases make a flat more difficult to sell because a conveyancer may give their client largely undue cause for concern about the structure not because it is wrong but because it is not readily understood by the conveyancer. The second is that a limited company structure allows a simpler process for involvement of the individual flat owners by way of holding annual general meetings and such further meetings as may be required where each owner can vote as a shareholder in the company. Company structures have much more developed and straightorwad processes for managing multiple member interests than do trusts Third the company provides a more effective indemnity to the directors (as they would be rather than trustees) in respect of mistakes that may be made. Trustees have liability to the beneficiaries for any mistakes they make where as directors have much more limited liability save for fraud and gorss negligence and so on. Also the company strucutre affords much better limits on liability to third parties - e.g. in respect of claims from contractors that may arise. So generally a company structure has a number of advantages to a trust structure and the burden of adminstration and reporting is much tehs ame between a trust and company in that annual accounts must be prepared and so on so there is not great difference in terms of administration. I hope the above is of assistance? If you have no further questions for now I should be very grateful if you would kindly take a moment to click to rate my service to you today or just reply back to let me know if the above is helpful. Your feedback is important to me. If there is anything else I can help with please reply back to me I'd be very grateful
Customer: replied 2 years ago.

Joshua

Thank you for the comprehensive reply. So there appears to be no negatives in terms of legal or financial liabilities over and above the trust work we have been doing currently. Is that a fair assessment?

Expert:  Joshua replied 2 years ago.
I cannot see that there are any additional legal liablities of a company structure over a trust structure. With a company there is the requirement to submit audited accounts to companies house every year but you are supposed to have audited accounts for a trust as well (though some people don't bother though this can be a breach of trust) so this should be no different. The only obvious disadvantage is the cost of transferring the freehold from the trust to the company which is going to cost £1000 or more but if it can be shared between all the flat owners the cost will be relatively small and the advantage is that all of your flats should be more marketable going forward and there will be a better forum for the flat owners voices to be heard at AGMs than there may be now. I hope the above is helpful? Can I help you with anything else or has the above answered your questions satisfactorily? If you could drop me a quick message to let me know I'd be very grateful.
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