PROPERTY CLINIC: We’re buying the freehold for our building but I’m selling my flat, how can I make sure my sale doesn’t get held up?
- Directors and the secretary of a company have important duties to shareholders
- Carelessly holding up a flat sale may be a breach of their duty of care
I’ve accepted an offer on my flat, which was conditional on the ongoing purchase of the freehold due to the uncapped ground rent clause.
The purchase of the freehold has been delayed but I’m hoping the sale will still go ahead.
What responsibilities do the company director (also a shareholder in the company set up to buy the freehold) and the company secretary (not a shareholder) have to ensure the sale of my flat is not affected by any delays in the purchase of the freehold?
What responsibilities do company directors have to ensure aflat sale is not affected by any delays in the purchase of the freehold?
MailOnline’s Property expert Myra Butterworth replies: Buying a freehold can be a complex issue, not made any less stressful if there is a team creating unnecessary delays.
Unfortunately, in this case the sale of the flat is dependent on the purchase of the freehold.
This is becoming increasing common as lenders are now refusing to lend on flats with doubling or uncapped ground rent clauses in their leases.
A professional team of experts and solicitors will help you and move quickly to get this resolved.
They will know that deliberately or carelessly holding up the sale may be a breach of their duty of care as the directors to manage the company diligently.
You are entitled to ask questions about how the directors are progressing things forward so that all the shareholders can benefit from the purchase of the freehold as soon as possible.
Liam Spender, of law firm Velitor Law, replies: This area is complicated and highly dependent on the facts of each case. Anyone in this situation should always take fact-specific legal advice.
The simple answer is that a company owes no direct duty to its shareholders to process documents enabling a sale quickly.
That said, directors and the secretary of a company do have important duties to the shareholders of a company.
The most important of these duties is to act in the best interests of all of the company’s shareholders.
Directors also owe duties to perform their work diligently and with reasonable care and skill.
The directors owe a duty to do everything in their power to achieve the goal of purchasing the freehold of a building in which the shareholders live at reasonable speed
In a case such as this, where the company is not being run for profit but to achieve the goal of purchasing the freehold of a building in which the shareholders live, the directors owe a duty to do everything in their power to achieve that objective at reasonable speed and cost on behalf of the company’s shareholders.
Once the purchase of the freehold is completed, the directors duties will be to ensure the freehold is managed efficiently and in the interests of all shareholders.
That includes taking steps to ensure that sales by shareholders take place as quickly as reasonably possible.
Where the directors know about a sale and that the grant of an extended lease is a critical aspect of the sale, the directors must have a good reason for not progressing the extension quickly.
Where actions by the company are essential to enabling the sale to go ahead, the company may owe a duty of care to a seller who is also a shareholder trying to sell.
Deliberately or carelessly holding up the sale may be a breach of that duty of care and, in turn, a breach of the directors’ duties to manage the company diligently.
These duties are hard to enforce in practice because they are owed by the directors to the company, so can only be enforced indirectly, often with difficulty, by the shareholders.
The questioner in this case is entitled to ask why things are being held up and what the directors are doing, in line with their duties, to speed up the process so all shareholders can benefit from the freehold purchase as soon as possible.