As the director of a Freehold Company, Residents’ Management Company (RMC) or Right to Manage (RTM) Company you are responsible for a vast range of duties aimed at ensuring the smooth functioning of your residential block of flats. These responsibilities cover financial matters, service charges, insurance requirements, maintenance, inspections, and overseeing major repairs and renovations. Managing such a diverse set of tasks requires careful planning and experience, leaving room for occasional mistakes. Whilst most directors employ the services of a managing agent, the directors and officers of the associated management company remain ultimately responsible, as they are held responsible for decisions made in their official capacity.
It is essential to recognise that whilst errors are inevitable in any directorship role, mistakes leading to incidents like property damage or personal injury can lead to legal actions against the Landlord, RMC or RTM. The liability for such incidents will likely fall on the directors and officers of that company. This might appear unjust. After all, serving as a director is a voluntary commitment that demands significant time and effort. Consequently, it can be challenging to comprehend why directors and officers face such heavy penalties. Nonetheless, the truth remains that they need appropriate protection in the event of legal action.
Claim Examples
- Tenants of a residential block filed a lawsuit against the Residents’ Management Company for failing to promptly hire a building company to repair external brickwork damaged in a heavy rainstorm.
- A Residents’ Management Company faced an accusation of wrongful termination after dismissing an employee for gross misconduct.
- A Director of a Residents’ Management Company was threatened with a lawsuit when property values decreased due to their decision to paint the building’s exterior an unconventional colour.
- During a party in one of the flats, an overcrowded balcony collapsed, resulting in serious injuries to several individuals. While the Insurance Company’s coverage is £7.25 million, the RMC’s Property Owners Liability cover is only £5 million, leaving flat owners distressed and prompting legal action against the responsible director.
- A Director mistakenly pays a contractor with service charge funds before the work begins. The contractor disappears with the money, leading to potential legal action from flat owners due to the loss of RMC funds.
Directors and Officers Liability Insurance provides coverage to those company directors shielding them from legal liabilities. Most policies should protect them against potential claims for alleged wrongful acts, including breach of trust, duty, neglect, error, omission, misstatement, libel, slander, breach of warranty of authority, and wrongful trading.