Common interest

In your article on commonhold (see [2000] Gazette, 21 September, 32) Anthony Shalet comments that a share company would be more appropriate than a guarantee company as the vehicle through which residents in a block of flats would manage the maintenance and repair of common areas under the proposed new Commonhold and Leasehold Reform Bill.

I agree that residents are often less comfortable with a guarantee company than the more familiar share company.

My company's own statistics show we form around 65% share companies against 35% guarantee companies for this purpose.

But if residents' misgivings can be overcome, the characteristics of a guarantee company mean it is legally better suited to be a residents' management company.

Some advantages are:l Residents of a guarantee company do not have to pay for shares, since there are none.

A resident's only obligation during the life of the guarantee company is, therefore, to pay sums actually required for maintenance and repair;l There is no need for a share transfer if a resident sells his or her flat, or dies.

The constitution of the guarantee company can simply provide that membership of an ex-resident terminates automatically.

This prevents all sorts of problems, such as lost shares certificates (especially common where the resident has died) and confusion over the stamp duty payable on transfer of shares;l New members can be admitted by a simple board resolution.

As no shares need to be issued, the complicated provisions of section 80 of the Companies Act 1985 (directors' authority to allot shares) and section 89 (statutory pre-emption rights on issue of shares) simply do not apply, and;l If property has been developed, it is easier for the developer to divest itself of its interest in a guarantee company on completion.

The developer simply resigns as a member.

By contrast, if the developer holds shares, a new owner must be found for them (or, as can happen, the company may be required by its articles by its articles of association to go through a laborious share buyback).

For these and other reasons, I would commend guarantee companies to Mr Shalet and others.

However, given the preferences of residents, it might be politically more sensible for the government to offer them a choice of share or guarantee company under the new law when it is enacted.

David Impey, Jordans Limited