Wearing different hats

Pandongate House Management Co Ltd v Barton, High Ct (Newcastle District Registry), January 2019

(with thanks to Alice Richardson for a copy of the judgment)

Lessee-owned companies are now pretty common. They generally come about in one of three ways. The first (and generally best) is as freehold owner of a block of flats (usually following enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993). The second is as a party to the tri-partite lease (where the lessee-owned company takes responsibility for the management of the building and receives the service charges, but the freehold ownership and ground rents go to a third party). The third is through a Right to Manage company under the Commonhold and Leasehold Reform Act 2002.

One of the problems common to all three forms of company is that the leaseholder members often don’t properly distinguish between their rights and duties as leaseholders and as members of the company. Often times this comes up in service charge litigation (e.g. Wilson v Lesley Place RTM Co Ltd or the first Morshead Mansions case), but this is another example of where the problem might arise.

Pandongate House is a building containing a number of residential flats, each of which is let on a long lease. The leases are tri-partite agreements and Pandongate House Management Co Ltd is a party as the management company. The leaseholders are all members of the company. Mr Barton was dissatisfied with the management of the building (performance of managing agents, high service charges, etc). He wanted to raise these matters with his fellow leaseholders and possibly persuade some or all of them to join with him in an FTT case against the management company.

In order to do this, he needed the contact details of all the leaseholders. So he made a request under s.116, Companies Act 2006. In simple terms, s.116 provides that a company has to keep a register of its members and their contact details and make it available on request. If such a request is made then it must be complied with unless the High Court directs otherwise. The High Court has power to direct otherwise if it is satisfied that the request is not made for a proper purpose.

Pandongate House Management Co Ltd considered that the request was not for a proper purpose. It contended that there is a distinction between the affairs of the company as a company and the affairs of the company as a manager of the building. Section 116 was directed to enabling people to raise matters relating to the former, not the latter. Given that Mr Baron wanted to use the details to bring service charge litigation, that was not a proper purpose.

The High Court agreed. Whilst the leaseholders and members were, in practice, the same people, they were acting in different capacities. The power under s.116 was to enable members to raise matters about the management of the company. Litigation against the company for its management of the building was outside of the scope of management of the company. Hence the request was not for a proper purpose.

About J

J is a barrister in London. He loves service charges and all things leasehold law related. He also likes beating rogue landlords and mortgage companies.
Posted in Housing law - All.

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