Injunction hearing failed

[i.dan]

I went to court to obtain an Injunction to prevent a neighbour in our block of five flats from breaching the Lease. The claim was that a pre-emption clause in the Lease meant that in the event of a flat being offered for sale, it should first be offered it to the Company, meaning the Leaseholders. In our block (which is a large isolated house) each Leaseholders also owns a single share in the five shares of Company managing the Freehold. The Company, owned by shares is Dormant and just serves as the entity owning the Freehold. However the sellers wanted to take the wording of the Lease literally to say it only had to be offered to 'The Company' as an entity, not necessarily The Leaseholders. That meant the decision to decline the offer and avoid passing the offer onto the neighbours could be passed by a majority of The Directors of that Company. In the event as only two of the five directors voted at that meeting it was passed and the sellers could avoid the pre-emption clause and market it immediately on the open market. The Judge agreed, because the Articles of The Company gives The Directors all the powers to make all the decisions of and for The Company, without having to put the issue to the shareholders / leaseholders (except in specific events). The fact that this had never been the case here before (sales had always been first offered to the other Leaseholders), was deemed irrelevant. as was the fact that I had an email from the Directors at the tine of my buying, confirming this right. The Judge only had to consider the wording literally. Is there any reasonable case to dispute this outcome?

[atticus]

Who brought the case?

I have to say that I agree with the would be seller's analysis, which you have described as follows:

"However the sellers wanted to take the wording of the Lease literally to say it only had to be offered to 'The Company' as an entity, not necessarily The Leaseholders. That meant the decision to decline the offer and avoid passing the offer onto the neighbours could be passed by a majority of The Directors of that Company. In the event as only two of the five directors voted at that meeting it was passed and the sellers could avoid the pre-emption clause and market it immediately on the open market."

[i.dan]

Who brought the case?

I have to say that I agree with the would be seller's analysis, which you have described as follows:

"However the sellers wanted to take the wording of the Lease literally to say it only had to be offered to 'The Company' as an entity, not necessarily The Leaseholders. That meant the decision to decline the offer and avoid passing the offer onto the neighbours could be passed by a majority of The Directors of that Company. In the event as only two of the five directors voted at that meeting it was passed and the sellers could avoid the pre-emption clause and market it immediately on the open market."

To Decline an offer is surely not in the best interest of a Company, if any shareholder wants that offer.
In a Freehold Company, A Director has only one purpose, to manage the covenants of the Lease.
The clause allowed for six months for the Company to consider the offer for themselves or to nominate another person to have that offer.
To Decline it without using those grants is a lost opportunity for shareholders of the Company.
Directors have a Duty to act in the best interests of the Company and its members as a whole. (Companies Act 2006)
The grant of pre-emption is in every lease within the block. to waive one, would surely amount to waiving all, otherwise it is bias toward one over the others. Directors must serve the long term best interests of the company, not themselves or one member.

By taking the wording literally, they are finding loopholes to avoid the duties and grants which are written into the Act, but conveniently not in the articles.
It all a bit iffy..

[atticus]

Thank you, I am aware of the Companies Act 2006.

If the lease says that an owner who wishes to sell must first offer it to the Company, well that is precisely what happened. Nothing questionable there.

The directors are appointed to manage the affairs of the Company and take decisions on its behalf. You may have grounds to complain against the directors.

[i.dan]

Thank you, I am aware of the Companies Act 2006.

If the lease says that an owner who wishes to sell must first offer it to the Company, well that is precisely what happened. Nothing questionable there.

The directors are appointed to manage the affairs of the Company and take decisions on its behalf. You may have grounds to complain against the directors.

The Lease, to be honest is badly drafted. It says "The Offer must be made to The Managers" (pleural). And on the first page of the Lease,' The Manager' is defined as 'The Company' "...".
Yet, like many Freehold Companies like ours, The Company is Dormant and doesn't trade, it has no account, it has no purpose but to serve as the entity representing The Freehold on behalf of the Shareholders. However, the Memorandum does say the companies objects include "acquiring by purchase.. any freehold or leasehold.." Though it never has, nor ever will.

The precedence has always been to offer any sale to the other owners.
In this case my ex partner was the Director representing our Joint Tenancy. And remained being the Director until I bought out her share a couple of weeks after that Director meeting. We also had a written (informal) agreement between us that we would agree on our single vote at meetings.

What kind of claim would I make against the Directors, after having failed with the Injunction?

[atticus]

You may wish to consider a "derivative claim" under ss 260 et seq Companies Act 2006.

Do consult good lawyers before embarking on another ill-conceived bout of litigation. Were you yourself even a shareholder at the time of the events that you complain of?

[i.dan]

The Lease, to be honest is badly drafted. It says "The Offer must be made to The Managers" (pleural). And on the first page of the Lease,' The Manager' is defined as 'The Company' "...".
Yet, like many Freehold Companies like ours, The Company is Dormant and doesn't trade, it has no account, it has no purpose but to serve as the entity representing The Freehold on behalf of the Shareholders. However, the Memorandum does say the companies objects include "acquiring by purchase.. any freehold or leasehold.." Though it never has, nor ever will.

The precedence has always been to offer any sale to the other owners.
In this case my ex partner was the Director representing our Joint Tenancy. And remained being the Director until I bought out her share a couple of weeks after that Director meeting. We also had a written (informal) agreement between us that we would agree on our single vote at meetings.

What kind of claim would I make against the Directors, after having failed with the Injunction?

At the time of the offer meeting I would have been a Joint Shareholder. Entitled to attend meetings etc and speak, with the vote being with my ex-partner as the registered Director. My ex partner had already agreed by CCJ to sell her share to me and I became the sole shareholder 2 weeks later.

[atticus]

You should take professional advice. Make sure to show the lease and all other relevant documents.

I do not think that I can take this any further for you.