A management company is a company formed to manage communal areas and services, including unadopted roads, accessways and green spaces, and hold the title to residual freehold land on a new build development.
What are management companies used for?
A management company can be used to manage various types of developments formed of houses or flats that are freehold, leasehold, social, or affordable housing.
Typically, each unitholder (resident) becomes a member of the company and, depending on how the company is run, could also be appointed as a director. Like all companies, a management company must be registered at Companies House.
Why would I need a management company?
Below are some key reasons a management company is useful to a developer:
It can take responsibility for holding and maintaining communal land and shared areas
A management company can collect the service charge or other charges related to maintenance works as well as taking responsibility for the delivery of management and maintenance services for a development.
It can take control and ownership of any residual land and will be responsible for dealing with the maintenance of shared areas such as footpaths, landscaping, green areas and open spaces.
These obligations can vary for each development and will be specified in the property documents and bespoke Articles of Association.
It is easy to handover to residents
On incorporation of the management company, you can decide how and when the management company will move from your ownership into the ownership of the residents. Often, handover takes place once the last unit has been sold. However, you may prefer to begin handover once the first unit has sold but retain overall control until completion of the last unit. With the right structure and bespoke Articles of Association, the management company can be as flexible as you would like it to be on handover provisions.
It can be set up to meet the specific needs of the development
Each development is different, and the management company can be formed with bespoke Articles of Association tailored for the specific needs of each site.
You may want to include certain powers for collecting charges, adding and removing members, and determining the board of directors. There may also be bespoke provisions to deal with handover depending on the type of units in the development. It is useful to ensure there is clarity on when the developer obligations end and the residents' obligations begin.
Summary
Working with your advisors to set up a management company at the right time which is tailored to your development can prevent future issues with residents.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.