Good Fences Make Good Neighbours: The Importance of Bespoke Articles of Association for Freehold Management Companies

The articles of association (“articles”) are a set of rules—publicly available via Companies House—that govern the internal affairs of a company. They create a contract between the company and each of its shareholders, regulating key matters such as board and shareholder meetings, share transfers and issuances, and the powers and duties of directors.

When it comes to managing a block of flats via a flat management company (FMC), clear rules and a shared understanding are essential. Whether you're a leaseholder seeking proper building maintenance or a property manager tasked with running operations efficiently, it should come as no surprise that the articles sit at the heart of effective management.

Nonetheless, we frequently encounter FMCs that rely on default (Model) articles that are either inappropriate or outdated—often drafted decades ago under older legislation.

For the reasons outlined below, it’s important for both leaseholders and property managers to consider adopting up-to-date and bespoke articles that suit their FMC’s specific circumstances.

1. Representation in Decision-Making

For a typical FMC, leaseholders benefit when:

Each flat in the building is represented by an equal number of shares (e.g., one Ordinary share of £1.00 per flat).

Voting rights are distributed equally among representatives of each flat.

Each shareholder is entitled to appoint one director to represent their interests at board level.

Only leaseholders are entitled to own shares in the FMC.

Upon sale of a leasehold, there is an automatic mechanism in place to transfer shares from the seller to the buyer, and to update the corresponding director appointments.

For property managers, a key concern is whether they are appointed as a director and whether their rights provide them with sufficient authority to manage the building effectively.

It’s worth noting that if your FMC uses the standard Model Articles for private companies limited by shares, most of these features are not provided for.

2. Transparency and Clarity

There are no strict limits on what procedural rules can be set in the articles. These can be tailored to reflect the needs of leaseholders and shareholders.

Articles can outline procedures for:

Managing communal areas;

Agreeing a budget;

Appointing contractors; and

Authorising legal action.

Key considerations when drafting these rules include: who is responsible, how expenses will be paid, and what level of consent is required to proceed.

3. Tailored Rules for Your Building

Every building is different. Some are small and self-managed; others involve dozens of flats with absentee landlords. Bespoke articles can address practical realities such as:

Weighted voting for larger vs. smaller flats;

Quorum rules for directors’ meetings;

Requirements for periodic director meetings;

Consent thresholds for major works or significant spending; and

Procedures for managing service charge arrears.

Customising the articles ensures decisions reflect the building’s actual needs and community dynamics.

4. Avoiding Disputes

Disagreements between leaseholders—or between directors and residents—are common. Well-drafted, modern articles reduce ambiguity and can include provisions for:

Casting votes (used to break tied decisions);

Managing directors’ conflicts of interest;

Referring matters to experts or mediators; and

Clear channels of communication between directors and shareholders.

5. Compliance with the Law

Many FMCs still operate under articles drafted according to the Companies Act 1985—or even earlier legislation. These provisions may be outdated at best or legally non-compliant at worst.

For example:

Annual general meetings were once mandatory but are no longer required.

Electronic communications weren’t accounted for under pre-2006 articles.

Older companies were restricted by “objects” clauses that limited their powers.

“Table A” articles (pre-2006) have been amended over 15 times, and leaseholders are often unaware of which version applies to their FMC.

Time for Maintenance?

Like a sturdy fence, well-drafted articles help prevent conflict and maintain order. For FMCs, bespoke and up-to-date articles are essential to ensure fair representation, operational efficiency, and legal compliance. It’s a small step that can make a big difference—especially with the right advice.

Robert Fornalski, Corporate & Commercial

If you're considering updating your articles or setting up a new FMC, contact Robert Fornalski at robert.fornalski@healys.com for expert legal guidance tailored to your needs.

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