Volunteer directors of residents management companies across the UK that have taken control of their own destiny can be handling five-figure service charge revenues and may not realise that, even if they retire and move away from the block, the consequences of any decision that they made will follow them. They face potentially unlimited personal liability in the courts.
While it is good news for other leaseholders that resident-controlled management companies have to be set up as limited companies so that directors have well-defined responsibilities, it exposes the volunteers to liability. In fact, even though they are volunteers, the law treats them no differently than if they ran a big commercial organisation. So few leaseholders begrudge paying a few extra £££s on their service charge to provide these volunteers with the directors and officers (D&O) liability cover and peace of mind they deserve.
However, what directors may not realise is that the liability for their decisions follows them, even if they retire as directors or move away. If the D&O insurance has not been renewed, they could indeed face personal claims if a decision they made had, for instance, affected the value of a neighbour’s flat.
In practice, most policies will allow up to six years’ grace so, if the management company decides not to renew or moves the policy to a new provider, the old policy will continue to protect directors who were in place at the time it was in force for actions they took at that time.
“It’s not really as complicated as it sounds, and these policies cost only a few £s per flat, but it’s worth checking that your provider does offer this extended cover” says Deacon managing director Nigel Feast.