The Hashmi condition will impact many landlords – but what is it, and how could it impact your Limited Company property plans? Below, we explain how it works and what actions Limited Company landlords need to take.
Have you heard of the Hashmi Condition? With implications for Limited Company landlords, it’s crucial you understand the Hashmi Condition to ensure your company is set up correctly before your next mortgage application.
What is the Hashmi Condition?
The term ‘Hashmi Condition’ was coined following the High Court’s decision in the Hashmi v Lorimer-Wing case in 2022. The unexpected ruling determined that whilst a Limited (or private) Company can exist with one sole director, the Model Articles require a minimum of two directors to convene and operate a quorum for a board meeting. In short, the Company cannot make corporate decisions with one sole director.
Furthermore, a minimum of two directors is required when making decisions on the company’s behalf whenever the attendance for the directors’ meeting has been set to two.
How can it impact Limited Company landlords?
Before this 2022 ruling, it was widely accepted that Model Article 11(2), which requires a minimum of two directors, only applied to companies with more than one director. This is because Model Article 7(2) states that if a company only has one director, that sole director can make decisions about the company. However, this is no longer the case.
Depending on your Company’s ownership structure, your Limited Company may have this conflict in Model Articles. This conflict generally arises when there is a sole director and one or more shareholders for a company.
If this is the case, you may find your lender will be unable to proceed with your mortgage application until this has been amended or rectified by a solicitor.
What do I need to do?
Whether you have an established Limited Company or plan to set up a new SPV, you should seek legal advice.
For new companies, if you plan to operate with one sole director, the Model Articles should reflect this and be appropriately drafted.
For those with existing Companies, it’s essential to review your company’s articles of association, Model Articles 7(2) and 11(2) in particular. Doing this before your next mortgage application will save you time and prevent unnecessary delays.
If you’re the sole director of your company, it’s important to speak to a solicitor who can draft an amendment. Please seek professional advice before making any property investment decisions.
Your property finance plans
If you would like to discuss your property finance plans, whether for your Limited Company or your personally owned properties, then get in touch with our experts.
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