What Can Leaseholders Do If Resident Management Company Directors Refuse to Step Down?

Resident Management Companies (RMCs) are intended to give leaseholders greater control over how their development is managed. In many buildings, that works exactly as intended. Leaseholders have a say in the company, directors oversee the management of the building and a professional managing agent is appointed to handle the day-to-day work.

But what happens when the directors have been in place for years and other leaseholders believe it is time for a change?

Perhaps service charges have increased without clear explanation. Maybe maintenance standards have deteriorated, communication has become difficult or major works are being handled poorly. There may also be concerns about how money is being spent, the performance of the managing agent or whether the directors are still acting in the best interests of the wider membership. A particularly difficult situation arises when those directors refuse to step down.

The good news is that being a director of an RMC does not normally give someone a permanent right to remain in office. An RMC is a company, and its directors are subject to the company’s Articles of Association and the relevant provisions of the Companies Act 2006. For leaseholders, the starting point is understanding how their particular RMC is structured and what rights the company’s members have.

Start With the Articles of Association

Before trying to remove or replace RMC directors, obtain a copy of the company’s Articles of Association. Think of the Articles as the company’s rulebook. They govern how the company operates and can contain provisions dealing with matters such as:

• how directors are appointed;
• how directors retire or are replaced;
• the number of directors permitted;
• how general meetings are called;
• voting rights;
• quorum requirements;
• appointment of replacement directors; and
• circumstances in which a director must vacate office.

This step should not be skipped.

Older RMCs can have Articles that differ significantly from the Model Articles used by newer companies. The fact that another residential development follows a particular procedure does not mean your RMC does too. The company’s Articles, together with its lease and company records, should be reviewed before members begin a formal process.

Who Actually Has the Right to Vote?

This is another point that is often misunderstood. Owning a leasehold flat does not necessarily mean that you automatically have a particular voting right in the RMC.

The important question is:

Who are the members or shareholders of the RMC, and what voting rights do they have?

The Articles and company records should help establish this. Before organising a meeting, leaseholders should establish:

• who the members are;
• how many voting members there are;
• how votes are allocated;
• whether shares affect voting rights;
• whether there are restrictions on membership; and
• what percentage of support is required for the proposed resolution.

This matters because the relevant percentage is generally determined by the company’s voting rights, rather than simply counting the number of flats in the development.

Try the Democratic Route First

If the directors are willing to engage, a negotiated change is usually the simplest option. Leaseholders could write to the board and request:

• a general meeting;
• an explanation of current management arrangements;
• greater financial transparency;
• the appointment of additional directors;
• an orderly election; or
• a planned change of board responsibilities.

Sometimes directors will cooperate when they understand that a significant proportion of the membership wants a different approach. A negotiated transition can be quicker, cheaper and less divisive than a contested removal. But if directors refuse to engage, company law provides mechanisms that may allow qualifying members to require a general meeting.

Can Members Require an RMC General Meeting?

Yes, potentially.

Section 303 of the Companies Act 2006 gives qualifying members a statutory mechanism to require directors to call a general meeting.

For many private companies, members representing at least 5% of the voting rights can require the directors to call a general meeting, although the precise position should always be checked against the company’s circumstances, Articles and the current legislation.

This can be particularly important where directors refuse to call a meeting themselves. The members’ request should be properly prepared and clearly state the business that they want considered. If the purpose is to change the board, the proposed resolutions should be clearly identified rather than simply asking for a general discussion about dissatisfaction with the directors.

What If the Directors Ignore the Request?

Directors cannot necessarily prevent qualifying members from exercising their statutory rights simply by refusing to cooperate. Sections 303 to 305 of the Companies Act 2006 contain mechanisms dealing with requests for general meetings and circumstances in which members can ultimately take steps to call the meeting themselves where directors fail to comply.

There are also provisions dealing with the company’s responsibility for relevant expenses in certain circumstances. This is important because otherwise directors who knew they were likely to lose a vote could potentially frustrate the process by simply refusing to convene a meeting.

However, the procedure needs to be followed carefully. A defective request or incorrectly convened meeting can create unnecessary complications, particularly if the outcome is later challenged.

Can Leaseholders Remove an RMC Director?

Potentially, yes.

Section 168 of the Companies Act 2006 provides that a company may remove a director before the end of their period of office by ordinary resolution at a meeting. An ordinary resolution will generally require a simple majority of the votes cast. However, removing a director is not as simple as holding an informal vote between neighbours.

There are important procedural requirements. For example, special notice is required for a resolution to remove a director. The director concerned also has statutory rights in relation to the proposed removal, including rights to make representations and be heard at the meeting. This means that leaseholders should not attempt to shortcut the process. If a group of members has enough support to remove a director, the objective should be to carry out the process correctly from the beginning.

For a contested removal, specialist company law advice can be worthwhile.

Do Not Just Remove Directors Without Planning the Replacement

Changing directors is only half the job. If several directors are removed but nobody is prepared to take their place, the RMC could end up with a new governance problem. Leaseholders considering a change should therefore identify credible replacement directors before the meeting. Potential directors should understand that joining an RMC board is a serious responsibility. The role may involve overseeing:

• building maintenance;
• service charge budgets;
• reserve funds;
• building insurance;
• health and safety;
• fire safety;
• major works;
• contractors;
• lease compliance;
• company administration; and
• the appointment and supervision of the managing agent.

The aim should not simply be to replace one group of people with another. The objective should be better governance and better management of the building.

If the board is also considering replacing the managing agent, it is worth understanding the difference between the two decisions. An RMC director can be changed without automatically changing the managing agent, and the managing agent can potentially be replaced without changing the company’s directors.

YHPM provides block management services for RMCs and residential developments, including management of maintenance, contractors, finances and resident communication.

Proxy Votes Can Make a Big Difference

One of the biggest practical problems with RMC meetings is attendance. A development might contain 50 or 100 flats, but only a small proportion of members may attend a meeting in person. That is why understanding proxy voting can be crucial.

Members may have statutory rights to appoint proxies, subject to the relevant requirements. The meeting notice should also explain the applicable arrangements. Before organising a contested meeting, establish:

• who is entitled to vote;
• how many votes each member has;
• whether voting rights are attached to shares;
• how proxy forms must be completed;
• when proxies must be received;
• who can act as a proxy; and
• how votes will be counted and recorded.

Good records matter. If the vote is close, poor record keeping can make the result much harder to defend.

The Managing Agent Does Not Normally Decide Who the Directors Are

This distinction is important. An RMC’s managing agent works for the company under a management agreement. The managing agent does not normally own the RMC and does not decide who sits on its board.

If members lawfully change the directors, the managing agent would ordinarily take instructions from the newly constituted board, subject to the terms of the management agreement and the company’s legal structure. The board can then separately review whether the existing managing agent is still appropriate.

This is particularly relevant where leaseholders are unhappy with both the directors and the managing agent. The two problems should be separated.

Who runs the RMC?

And:

Who manages the building on behalf of the RMC? 

They are not necessarily the same question. If the new board decides that the current agent is no longer suitable, it should review the existing management agreement before attempting to terminate it.

YHPM’s Block Management Performance page is also useful when assessing what measurable standards should be expected from a managing agent, including resident satisfaction, response times, repairs and communication.

What If There Are Serious Concerns About the Directors?

A disagreement over how the building should be managed is not automatically evidence of misconduct.

If leaseholders believe there have been serious financial irregularities, misuse of company money, breaches of directors’ duties or other significant governance failures, the appropriate response will depend on the evidence and circumstances.

This is where professional legal or accounting advice may be necessary. Leaseholders should avoid making accusations without evidence. Instead, document concerns carefully and gather relevant material such as:

• company accounts;
• service charge accounts;
• invoices;
• contracts;
• meeting minutes;
• correspondence;
• bank information where legitimately available; and
• records of decisions made by the board.

A factual evidence trail is much more useful than allegations made in a residents’ WhatsApp group.

What If the Problem Is Actually the Managing Agent?

Sometimes the directors are not the main problem. The RMC board may be functioning properly, but the managing agent may be slow to respond, failing to inspect the property regularly or providing poor financial information.

In that situation, changing the directors may not solve the underlying issue. The RMC should first establish what the management agreement requires and how the agent is performing against those obligations. If the board has the authority to appoint the agent, it may be able to change managing agent without changing the directors.

YHPM’s Fees page sets out its current block management pricing and explains how its management service compares with existing arrangements. The page also gives an example of savings achieved after YHPM took over management of a London block.

For an RMC considering a new agent, however, price should only be one part of the comparison. Site presence, communication, financial management, maintenance and contractor oversight are equally important.

What If There Is No Effective RMC Board?

If leaseholders cannot achieve effective control through their existing RMC structure, they may need to consider whether another legal route is available. One option can be Right to Manage, provided the building and participating leaseholders satisfy the statutory requirements. RTM allows qualifying leaseholders to take over certain management functions from their landlord without having to prove that the landlord or managing agent has been guilty of poor management.

YHPM’s Right to Manage service helps leaseholders establish an RTM company and take greater control over the management of their building.

This can be particularly relevant where leaseholders are frustrated with a landlord-controlled management structure.

It is important, however, not to confuse an RMC with an RTM company. They are different legal structures and the route available to leaseholders depends on the circumstances of the development.

What If Leaseholders Want Even Greater Control?

Another possible route is collective freehold purchase, commonly referred to as collective enfranchisement. Buying the freehold can give qualifying leaseholders greater control over the building and remove the relationship with the existing freeholder, subject to the legal process and eligibility requirements.

YHPM provides Freehold Purchase guidance for leaseholders considering this route.

The decision between remaining within the existing structure, pursuing RTM or buying the freehold is not purely a management decision. It can involve significant legal, financial and valuation considerations. Professional advice should therefore be obtained before committing to a particular route.

Communication Is Often the Key to Successful Change

In practice, the biggest obstacle is sometimes not company law. It is getting leaseholders to engage. In a larger development, some leaseholders may:

• live elsewhere;
• rent their property out;
• rarely attend meetings;
• not know other members;
• ignore RMC correspondence; or
• assume that directors cannot be changed.

A small group seeking change therefore needs to communicate clearly with the wider membership.

Instead of simply saying:

“We want to remove the directors.”

It is usually much more effective to explain:

“Here are the problems we have identified, here is what we propose to change, and here are the people willing to take responsibility for delivering that change.”

That gives other members something concrete to vote for. It also demonstrates that the objective is not simply to remove people.

It is to improve the way the development is run.

A Sensible Route for Leaseholders

Where there is genuine dissatisfaction with an RMC board, a sensible process is generally:

1. Obtain the Articles

Get the current Articles of Association and understand the company’s governance rules.

2. Establish the Membership

Find out exactly who the voting members are and what voting rights they have.

3. Identify the Problems

Separate genuine management or governance issues from personal disagreements.

4. Build Support

Speak to other members and explain what you want to change.

5. Identify Replacement Directors

Make sure suitable people are willing to take responsibility before attempting to remove existing directors.

6. Request a General Meeting

Ask the existing board to convene the meeting where appropriate.

7. Use the Statutory Procedure if Necessary

If qualifying members have the required support and the directors refuse to cooperate, consider the statutory procedure for requiring or calling a general meeting.

8. Follow the Removal Procedure Correctly

Where a director removal resolution is proposed, ensure special notice and the other statutory requirements are properly dealt with.

9. Organise Proxy Votes

Make sure members understand how to vote and that proxy arrangements are completed correctly.

10. Complete the Handover

If the resolutions pass, make sure the company’s records, bank arrangements, contracts, managing agent instructions and Companies House information are updated as required.

What Happens After the Directors Change?

A new board should resist the temptation to change everything immediately. The first priority should be understanding the current position of the building.

Review:

• Current service charge budgets
• Annual accounts
• Reserve fund position
• Insurance
• Contractor agreements
• Major works
• Outstanding repairs
• Compliance records
• Managing agent agreement
• Current arrears
• Existing disputes

Then establish what needs immediate attention and what can be addressed through longer-term planning. This is also the point at which a board may decide to benchmark its current managing agent against alternative providers.

YHPM works with Resident Management Companies and leaseholders across London, Kent and Essex and provides property management, Right to Manage and freehold purchase services. Its approach focuses on transparent communication, local expertise and customer service.

Does Changing Directors Automatically Change the Managing Agent?

No. These are separate decisions. The RMC is the company responsible for the relevant management arrangements, while the managing agent is appointed to provide professional services to the company. A new board can review the existing management agreement and decide whether the agent should remain.

If the board decides to appoint a new agent, it should first establish:

• the contract term;
• termination provisions;
• notice requirements;
• outstanding financial matters;
• handover requirements; and
• transfer of records and ongoing projects.

YHPM’s About Us page provides further information about its team, approach and work with residential developments. The company operates across London, Kent and Essex.

Directors Do Not Own the Management Company

Perhaps the most important message for leaseholders is this:

An RMC should not be confused with the individuals who happen to be its directors.

Directors are appointed to run the company on behalf of its members. Where the members genuinely believe that a different board would better serve the company, company law provides mechanisms through which change can potentially be achieved.

Existing directors may disagree. They are entitled to put their case to the members and, where a formal removal process is used, they have statutory protections and the right to respond. But simply refusing to step down does not necessarily give a director a permanent right to remain in office.

The crucial factors are:

• The Articles of Association.
• The Companies Act 2006.
• The voting rights of the members.
• And whether the correct procedure has been followed.

​​Final Thoughts

An RMC is ultimately there to represent the interests of its members and oversee the management of the development. That does not mean every director has to agree with every leaseholder. Nor does dissatisfaction with a director automatically mean that they have done anything wrong.

But where a significant proportion of members genuinely believes that the board should change, there are established company-law mechanisms that may allow that change to happen.

The safest approach is to avoid turning the dispute into a personal battle.

• Understand the Articles.
• Establish the voting rights.
• Build support.
• Identify credible replacement directors.
• Follow the Companies Act procedure carefully.

And keep a clear record of every step.

If the underlying problem is actually poor property management, the new board can then separately review the managing agent and decide whether a change is necessary.

For an RMC that wants a more responsive, transparent and proactive approach to building management, Your Home Property Management’s block management service provides support across London, Kent and Essex. If your RMC is reviewing its current management arrangements, you can contact YHPM to discuss your building and arrange a free, no-obligation management review.

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