Mr and Mrs Lulham acquired the freehold of a block of flats through their company, Matchmount Ltd, while retaining long leasehold interests in the flats in their personal capacity. The company was struck off the register in 2010 for failing to file annual returns, a responsibility the Lulhams had outsourced to a now-defunct firm of solicitors. No application to restore the company was made within the statutory six-year window and pursuant to the Companies Act 2006, the company’s assets, including the freehold of the block of flats, became bona vacantia, i.e. ownerless property that automatically vests in the Crown. In 2022, the treasury solicitor for the Crown Estate disclaimed the freehold triggering the doctrine of escheat, a common law principle whereby the freehold interest was terminated, and the ultimate ownership of the property transferred to the Crown, as the ultimate beneficial owner of land in England.
The legal challenge
The Lulhams sought a vesting order in accordance with the Companies Act 2006, which allows the court to vest an interest in any disclaimed property to a party that has the benefit in it (or a liability in respect of it that has not been discharged). They argued that they had an interest in the disclaimed property or liabilities therein pursuant to their leasehold interests, and pursuant to the Law of Property Act 1925, which allows courts to recreate a lost legal estate.
The court rejected both arguments on the basis that their role as shareholders and directors did not confer on them a proprietary interest in the freehold, on the basis of the long standing principle that a company is a distinct legal entity from its members. The court also held that their leasehold interests were not sufficient to justify vesting the freehold in them. Their leasehold interests only entitled them to the benefit of the landlord and tenant covenants pursuant to the leases. In addition, leaseholders have no right to reclaim a freehold lost through escheat; their interest is derivative of the freehold interest in the property and survives independently.
Implications for corporate governance
This case serves as a cautionary tale for companies, especially those holding real estate assets, about the risks of administrative oversight.
The key lessons from this judgment are that directors should ensure that the filing of annual returns and other statutory obligations are met, and that outsourcing these statutory obligations does not absolve directors of responsibility. Directors should also monitor company status and regularly check the company’s standing with Companies House to avoid inadvertent dissolution, act promptly in the event of dissolution and, in the event that a company is struck off, directors should note that restoration must be sought within six years to reclaim assets that may be lost. Prior to initiating the winding up of a company, directors should ensure that all property assets are appropriately transferred. Directors should also ensure that the company or group's ownership structures are fully understood and crucially, directors should not assume that personal rights over company-held assets will exist without any formal legal arrangements.
