Volunteer directors of a residents’ management company or RTM company owe exactly the same Companies Act duties as the directors of a trading company, and being unpaid does not lower the standard. On top of that, the company holds the leaseholders’ service charges on a statutory trust and must follow landlord and tenant law on reasonableness, consultation and the timing of demands, so most of a board’s legal risk sits in how it handles money and major works.

Are volunteer directors held to the same standard as paid directors?

Yes. The general duties in sections 171 to 177 of the Companies Act 2006 apply to every director, whether or not they are paid and whether or not they are also a leaseholder. They are summarised in our guide to directors’ duties under the Companies Act.

The duty of care in section 174 has two parts. A director must show the care, skill and diligence of a reasonably diligent person with the general knowledge, skill and experience that may reasonably be expected of someone doing that director’s job, and also the knowledge, skill and experience the director actually has. A surveyor or accountant who sits on the board of their own block is therefore judged against what they know professionally, not just against what a lay volunteer would know.

GOV.UK makes the same point about delegation: a company can hire people such as an accountant to manage things day to day, but the directors are still legally responsible for the company’s records, accounts and performance. Appointing a managing agent does not hand over the board’s legal responsibility.

Whose interests must the board serve?

Section 172 requires each director to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. One of the listed factors is the need to act fairly as between members. In a block where some flats are owner occupied and others are let by investors, or where some leaseholders want major improvements and others want the lowest possible charge, that duty is central. A director cannot use the board to favour their own flat.

Section 175 requires a director to avoid situations where their interests conflict, or may conflict, with the company’s. A director who is in a dispute with the company about their own service charge, or whose relative runs the contractor being considered for the roof, has a conflict. In a private company the other directors can authorise it, but only if the quorum and vote work without counting the conflicted director. See directors’ conflicts of interest.

What is the duty over service charge money?

Section 42 of the Landlord and Tenant Act 1987 provides that where two or more tenants contribute to the same costs through variable service charges, the sums paid, any investments representing them and the income on them are held by the payee on trust. The trust is first to pay the costs the charges were collected for and, subject to that, for the contributing tenants in proportion to their liabilities.

The money is therefore not the company’s own. ICAEW’s technical release TECH 03/11 on residential service charge accounts explains that section 42 does not expressly require a separate bank account, but it does impose a trust and the payee is liable for any breach. If service charges sit in the company’s ordinary bank account they may be treated as the company’s assets in an insolvency, and the directors could be personally liable for breach of trust. TECH 03/11 records that best practice is for the funds of each property to be separately identifiable, either in a separate account or in a client account with separate records.

The tax consequences of the trust are covered in tax for residents’ management and RTM companies.

What limits apply to the service charges the board sets?

  • Reasonableness. Under section 19 of the Landlord and Tenant Act 1985, costs count towards a service charge only so far as they are reasonably incurred and, for works and services, only if they are of a reasonable standard. Advance charges must also be no more than is reasonable.
  • Consultation on major works. Section 20 limits what can be recovered for qualifying works unless the consultation requirements are followed or a tribunal dispenses with them. Under regulation 6 of the Service Charges (Consultation Requirements) (England) Regulations 2003 the threshold is works costing any one tenant more than £250.
  • Long term agreements. Under regulation 4 of the same regulations, consultation also applies to a qualifying long term agreement where any tenant’s contribution in an accounting period exceeds £100.
  • The 18 month rule. Section 20B says a tenant is not liable for costs incurred more than 18 months before the demand, unless within that 18 months they were told in writing that the costs had been incurred and would be charged later.

Illustration only.

A block of 20 flats, each paying an equal share, needs a new roof costing £60,000, which is £3,000 per flat. That is above the £250 threshold, so the company must consult before committing. If the board signs the contract without consulting and no tribunal dispensation is obtained, the company can recover only £250 from each leaseholder, £5,000 in total, leaving £55,000 that the company has no way of collecting. That shortfall is exactly the kind of loss that leads leaseholders to question whether the directors exercised reasonable care.

What must the company file and keep?

GOV.UK’s guidance on flat management companies says the company must send Companies House its annual accounts, a confirmation statement and details of changes such as new or departing directors. It must also file a Company Tax Return for its first year, after which HMRC may treat it as dormant for corporation tax if it does none of a listed set of things, including making a profit, receiving property income, paying dividends or owing more than £100 in corporation tax in a year. HMRC writes to confirm this; until it does, returns are still due.

TECH 03/11 adds that a service charge statement prepared for leaseholders should be separate from the company’s statutory accounts filed at Companies House. Boards often confuse the two. Our guides to dormant company accounts and the confirmation statement explain the filings.

Since 18 November 2025 every director, volunteer or not, must verify their identity with Companies House. Existing directors give their personal code in the company’s next confirmation statement, and Companies House says the company cannot file that statement unless all its directors have verified. Continuing to act after the deadline without verifying is an offence by the director and potentially the company.

Can volunteer directors be personally liable?

The company is a separate legal person, so contracts and debts are normally the company’s. Personal exposure usually comes from three directions. The first is breach of the service charge trust, as described above. The second is breach of the general duties, for example committing to works without consultation. The third is criminal: Companies House points out that failing to file accounts or confirmation statements is an offence and directors can be fined personally.

Section 1157 of the Companies Act 2006 lets a court relieve a director wholly or partly from liability for negligence, default, breach of duty or breach of trust if they acted honestly and reasonably and ought fairly to be excused. That is a discretionary safety net, not a defence to rely on. Boards commonly look at the indemnity and insurance points covered in director indemnities.

What mistakes do volunteer boards make?

  • Paying service charges into the company’s general account and mixing them with ground rent or other company income.
  • Instructing major works or signing multi year maintenance contracts without section 20 consultation.
  • Sending catch up demands for costs more than 18 months old without having given a section 20B notice.
  • Assuming the managing agent is responsible for Companies House filings and identity verification, then discovering the confirmation statement is blocked.
  • Letting one director make decisions that affect their own flat without declaring the conflict.
  • Treating a dormancy letter from HMRC as permanent after the company starts receiving rent, for example from a phone mast or parking spaces.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.