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Despite being governed by the same laws and legislation that govern commercial companies, RMC Directors are not only usually unpaid volunteers but they are also subjected to the same penalties for failure to adhere to their legal and fiduciary duties under common law, which have legal force. Fiduciary duties are those which involve trust and the precedence created is that directors ‘are bound to use fair and reasonable diligence in the management of their company’s affairs and ‘to act honestly and implicitly to the benefit of the company’s shareholders, creditors and employees’.
In other words, the directors will act in the best interest of all concerned parties.

These fiduciary duties include:

  1. Prohibiting loans to directors;
  2. Restricting other credit to directors;
  3. Disclosing details of loans and other transactions in which a director has an interest in the accounts.

Additionally they also have to be familiar with the following:

  1. Legislation specific to block management;
  2. The leases, (which ideally should be reasonably uniform throughout the bloc. They should also be familiar with
  3. the RICS Service Charge Residential Management Code and Additional Advice to Landlords, Leaseholders and Agent;
  4. The ICAEW Tech 03/11 Residential Service Charge Accounts  as they will be responsible for signing off both the service charge accounts (monies paid by leaseholders and held in trust) and the statutory accounts of the company. This is also a ‘best practice’ guide.

Managing Agents

In addition, most RMC Directors (and definitely Right to Manage Company Directors) use the services of a managing agent, due to the logistics of self-managing anything larger than 4 flats or so but even unpaid volunteer Directors must resist the temptation to sit back and let them get on with it. Why? Because they actually employ them! They must therefore be prepared to act as any other commercial employer would, which includes questioning any action taken on their behalf by the agent that they do not understand.

SUMMARY

Something else to bear in mind is that RMC’s can be prosecuted under both criminal law and health and safety law such as under the Corporate Manslaughter Act of 2007, and the Health & Safety Offences Act 2008 which raised the maximum fine for offences in the lower courts from £5,000 to £20,000! It also increased the number of offences for which an individual can be imprisoned! It is therefore vitally important for RMC Directors to be aware that it is they who keep overall responsibility for the health and safety of their block, regardless of whether they delegate to others or not.

 

So whilst adherence to the codes are necessary they are not legally binding. This makes breaching them a) not a criminal offence and b) doesn’t create any civil liability. There also doesn’t appear to be any routine checks made on managing agents to ensure they are even abiding by them!

The contents of the code can be used as evidence in court and tribunal proceedings where freeholders or agents have failed to comply with them but in essence the codes are little more than best practice guides.

So how can RMC Directors protect themselves against someone making a claim against them? The answer is that of having Directors and Officers Liability Insurance and more on this can be read here in the excellent overview of the subject by Laura Severn, of award-winning Brady Solicitors

 

 

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