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Tenants at War Over Management Company Voting Rights

Published: 24 September 2014, in categories: Landlord and Tenant Updates | Legal Updates | News and Updates

Tenants at War Over Management Company Voting Rights

In a warning to flat dwellers that a stake in a management company is not always a panacea, lengthy litigation and a Court of Appeal ruling were necessary to break a deadlock which set tenant against tenant in a dispute over corporate voting rights.

The case concerned a newly-built development of 104 flats which were held on 125-year leases. Most of the leases were held by a company (the corporate tenant) with all but one of the others held by private individuals. Each flat was held on the basis that its tenant owned one share in the company which managed the development.

Meetings of the company were held with a view to appointing directors. However, a fraught question arose as to whether votes should be cast on the basis of one vote per share in the company or one vote per member. The issue was of vital importance because, if the latter interpretation prevailed, the corporate tenant would only have one vote, despite holding 66 of the flats, and could be routinely out-voted by the private tenants.

A judge initially accepted the corporate tenant’s argument that it should wield 66 votes, giving it effective control over the company. However, in upholding the private tenants’ challenge to that decision, the Court ruled that the judge had misinterpreted the voting provisions in the company’s articles of association.

The Court rejected the corporate tenant’s arguments that a mechanism whereby it had only one vote amounted to a ‘commercial absurdity’. A system based on 'one member, one vote' was far from irrational in that it ensured the right of each member to participate in the management of the flats, whilst at the same time ensuring that, on a change of ownership, a new tenant acquired voting rights.

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