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Law for Business

Knowhow - guidance - precedents

06 SEP 2012

Why you should always check your articles - a cautionary tale

 Jordans Ltd

Kathleen O'Reilly highlights why checking the articles of association is an absolute must before purchasing property run by a property management company.

There was once a lady who bought three flats out of the four in a residential block.  At the time, she was told "you have 3 flats, 3 shares and 3 votes so you have control."  There were two shareholders in the property management company running the freehold and the lady, who believed what she had been told but had not read the articles herself, was very happy.

Soon the lady realised that in fact this was not the case.  By this time though, it was too late to get consent to change the articles to protect her position.

The other flat owner (they were both directors and shareholders) had failed to pay his part of the service charges to run the freehold.  He was also refusing to attend meetings.  The lady attempted to sue him in the name of the company for unpaid charges.  He wrote to her solicitors explaining that she had no authority from the directors to do so.  This was true as he had not agreed to her action.

In addition, she was unable to hold general meetings of the shareholders as the articles required (as there are two shareholders) a quorum of two shareholders and only she would turn up.  According to the articles in question she only had one vote (on a show of hands) and so the lady was in considerable difficulty.

Sadly, there is no happy ending here either.  Probably her only option is to apply to the court to enable her to hold meetings and proceed to sue the other flat owner.  This will take considerable time and expense on her part.

So the moral of our tale is clear - make sure you read the articles of association and check anything you are unsure of.

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