The Right to Manage – what is it?
If you are a flat owner, you have the right under the Commonhold And Leasehold Reform Act 2002 to force your freeholder (subject to certain criteria being met) to give you the Right to Manage your own block – either yourselves by setting up a Right to Manage (or RTM) company or by appointing a professional managing agent of your own choosing.
Got a question about exercising your Right To Manage? Call our specialist solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.
Why exercise the Right to Manage your block of flats?
- Many tenants become frustrated dealing with a poorly run management company over which they have no control
- Some property management companies fail to maintain flats to a sufficiently high standard
- Other management companies can prove very expensive
- Poor maintenance and upkeep of your block can make your flat harder to sell and may well reduce the price you can charge significantly
The practical drawbacks of your Right To Manage
The Right to Manage is a popular option for many leaseholders and can prove quite effective. However, there are considerable drawbacks which should also be taken into account;
1. Firstly, it is important to remember that RTM can be very limited. A right to manage company can only generate income through service charges which will then be protected for all leaseholders.
2. Although, the management situation is taken care of, the role of the freeholder is not removed completely and their consent will still be needed for lease extensions and work done on the building.
3. Furthermore, the burden of paying the freeholder’s often considerable costs falls squarely with the RTM company (not all lessees).Throughout the year, the Directors of the Right to Manage company will have to spend time on a variety of issues ranging from decisions on how and when maintenance work is required, and liaison and instruction with those carrying out such maintenance work. Depending on the size of the block and how agreeable your fellow leaseholders are to reaching agreement on any work required, this can be hard work and highly time-consuming to say the least
4. You will need to set up and run a company to run the building. This will then take over from the existing block management company hired by the landlord. You must be ready for all the processes and responsibilities that come with being involved in such right to manage companies.
The most important thing to remember is that RTM is not an easy option and should be carefully thought through. Talk to a specialist leasehold property solicitor to make sure that you do not bite off more than you can chew.
Buying the freehold of your block – the best alternative to RTM?
These drawbacks are quite problematic and we therefore advise clients who are interested in RTM to consider buying the freehold instead as this affords them for greater freedom in the long term. However, whilst collective enfranchisement is usually desirable, it can be very expensive and at least half of all leaseholders will need to get involved in the process. If this is too difficult, the RTM can be a decent alternative which enables leaseholders to make service charges much fairer.
Leaseholders should not view RTM as the answer to all of the problems relating to the poor management of their building .They are simply assuming responsibility for all management tasks and cannot fix past mistakes relating to payments for example. They therefore take on a lot of work and may have very limited funding available.
Click here to find out more about how Lease Enfranchisement could work for you.
Click here to read more about the differences between right to manage and enfranchisement
The other alternative to RTM – the Court Appointed Manager
Leaseholders who do not wish to run the block themselves but are dissatisfied with their freeholder’s management have another alternative to exercising the right to management – an application for Court Appointed Manager at the First Tier Property Tribunal (previously known as the Leasehold Valuation Tribunal or LVT)
In order to do this, the freeholder must be served with a notice stating that unless management improves, the Tribunal will become involved. The Tribunal can then instate a managing agent if they are convinced by the leaseholder’s case.
Click here to read more about Court Appointed Property Managers.
Right To Manage Eligibility
To qualify for the right to exercise the leaseholders’ right to manage your block, you will need to fill the following criteria (under the 2002 Commonhold and Leasehold Reform Act)
· your block must be a mainly residential block. RTM does not apply to purely business leases. However the right may apply provided that no more than 1/4 of the building is used for business purposes i.e. a minimum of 75 per cent of the building should be residential
· The law states that the building must be self-contained. But if it forms part of bigger structure it should be able to be developed independently
· The building cannot be a charitable trust.
· To be a “qualifying tenant”, the flats must be what is referred to as “long leasehold) i.e. originally granted for at least 21 years.
· At least two thirds of the building must be let to other ‘qualifying’ tenants.
· 50% of the qualifying tenants in the building must want to exercise the right to manage and must become members of the right to manage company
RTM – Do I need to prove that my freeholder or the current managing agents are somehow at fault?
No, there is no need to provide any evidence. Equally you do not need any any application to or order from a court.
In general terms, you simply have the right to take over the management of your block (although in certain very limited circumstances your freeholder may be able to challenge the exercise of your Right to Manage).
Do I Really Need A Solicitor to Exercise our Right To Manage?
As there are some quite tricky aspects of the right to manage process, it is definitely worth hiring a specialist solicitor to take you through what needs to be done in exercising your right to manage and setting up your RTM company.
Here are a few of the things your Solicitor can help you with when it comes to RTM company formation:
- They can tell you whether or not you and your fellow tenants qualify for the right to manage
- They can set up your RTM company and make sure you have the right shareholders agreement – and advise you everything you need to do in order to run a successful company
- They can help you with the paperwork and successfully exercise your right to manage – including;
– drafting the Notice Inviting Participation that you will need to send to all qualifying leaseholders as well as your current freeholder
– drafting the Notice of Intent that you need to serve to your current freeholder in order to inform him or her that you intend to acquire the right to manage
– advising you on what to do following your landlord’s Counter Notice
How much does it cost to exercise my right to manage?
You don’t have to pay your freeholder any sort of premium to exercise the right to manage your block. That means that, unlike extending your lease and enfranchisement, you do not need to go to the extra cost of reimbursing your freeholder for their loss of interest or in having the block valued by a specialist surveyor.
However exercising the right to manage flats your block is likely to incur the following expenses:
- Surveyor fees
- Your costs in setting up a RTM Company, including Companies House registration fees
- Legal fees (for your solicitor)
- Legal fees (for your freeholder’s solicitor)
- Any fees incurred by your freeholder in dealing with the notice
- Accountancy fees
- Managing agent fees (if you decidec to appoint external managing agents
The amount of these fees will depend on the size of the building, the number of tenants involved and the response of your freeholder.
Don’t forget that the more tenants involved in the right to manage company, the more the overall cost is divided down.
How long will it take to exercise the right to manage?
There is no hard and fast time for the right to manage process.
However if everything ran smoothly, then your right to the management of the building could begin 4 months after the creation of the company.
Once your UK RTM company is created, you must allow 14 days in order to inform the non-involved tenants of its existence and offer them membership. Once this is done you can then serve notice upon your landlord. You must give your freeholder 28 days in order to respond to the notice and where applicable issue a counter-notice. Under statute you can only officially commence the takeover of the right to manage company 3 months after this 28 day period.
This time period can be delayed by factors such as organisation of your fellow tenants when creating the company, getting a surveyor to examine the building and produce a report, and the freeholder issuing a counter-notice which means you have to apply to the First Tier Property Tribunal.
Click here to read more about how the First Tier Property Tribunal works.
Is it best to appoint an organiser or spokesperson?
Forming a right to manage company involves multiple leaseholders, but it can be a good idea to have a designated contact who deals with the solicitors – especially in larger blocks where more leaseholders are involved.
In our experience, this helps to avoid confusion and set out a clear line of communication. It’s good business practice that will serve you well for the future.
Setting up an RTM company
In acquiring the right to manage your flats, do bear in mind that you will need to create a limited company. This limited company will become legally responsible for the management and maintenance of the block.
Right to manage companies have to be limited by guarantee. This involves having a prescribed form of constitution to cover issues such as voting rights. They must be registered at Companies House.
What responsibilities do members of the RTM company take on?
In addition to legal requirements in administering your company, and in providing proper accounts, there are also a significant number of regulations affecting the upkeep of your block.
It’s very important that you understand these and make sure that these are regularly carried out. If you think there’s any risk that you and your fellow RTM company members will be unable to always arrange this on time, then it may will be worth looking to pointing external managing agents, who should cover all these tasks for you.
Here are some of the most important of those responsibilities:
- Testing electrical wiring in communal areas on a regular basis.
- Arranging building insurance that covers everything that it needs to and confirmation of reinstatement values.
- Making sure that communal areas have regular Health & Safety assessments
- Ensuring safety and regular maintenance of lifts in the building.
- Assess the fire risk to the building.
- Arrange frequent inspections of the fire alarm systems and fire safety equipment.
- Consider arranging an asbestos survey and an awareness of its outcomes for employing contractors.
In addition to these responsibilities for the proper maintenance of your block, taking on the right to manage also means that you’re going to be responsible for;
- keeping proper company and accounting records and submitting annual company returns
- making sure your company stays solvent
- setting up proper company management structures, including appointing a board of directors who will be responsible for the day to day running of the right to manage company.
Finally, do be aware that taking on the Right to Manage your block automatically terminates some of the landlord’s existing contracts.
The financial responsibility of a right to manage company – a warning
From the very moment of right to manage company formation you are liable, along with the other participating leasehold, for any shortfall in the accounts. It is critical that you understand this.
For example every leaseholder will need to continue paying a service charge, just as they are at the moment. But if one or more leaseholders fall behind with those payments, and that cash is urgently needed, you could become liable for covering that shortfall until you can recover the service charge. This not only applies to any director of the RTM company, it also applies to the other leaseholders who are involved in exercising the right to manage.
Also be aware that when running an RTM company, it can sometimes be difficult to maintain the kind of previously friendly relationship you may have experienced with other residents of your block – for example if you have to chase them for unpaid service charges or if they feel you’re not maintaining the block up to the standard they expect themselves.
Does exercising my right to manage give me any right to extend the lease on my flat?
No, – and that’s because in taking over the right to manage, you’re not actually acquiring any further legal interest in the property – but as the holder of a long lease (i.e. one originally granted for at least 21 years) you are (in the vast majority of circumstances) entitled to extend your lease by a further 90 years, though this comes with a cost.
Click here to read more about how lease extensions work.
The main alternative to RTM, buying the freehold of your block, does allow you to automatically extend your lease to 999 years without further payment.
Exercising our RTM – Do we have to invite all the other flat owners to join in?
Yes. Every flat owner that meets the criteria must be invited to participate in claiming the Right to Manage. If they choose to participate they must then become members of the Right to Manage or RTM company.
Tenants eligible for collective enfranchisement are also eligible for the Right to Manage, under most circumstances.
I own a long leasehold house. Can I claim the right to manage?
No, the right to manage does not apply to leasehold houses. The alternative, in most circumstances is to exercise your right to buy the freehold of your house entirely.
Exercise your right to manage – it really can improve things
According to the National Leasehold Survey, carried out back in 2016 by The Leasehold Advisory Service, the majority of leaseholders surveyed were pretty disappointed with the level of management carried out by the block manager – and those that had exercise the right to manage notice improvements.
Amongst the significant findings of the survey, which involved 1,244 leaseholders, including 181 residential management company directors, were the following:
- 57% of leaseholders admit they regret buying a leasehold property
- Around 2 in every 3leaseholders felt that they did not receive a good level of service from their block manager – with just a remarkable 6% “very confident the managing agent could resolve issues”.
- In contrast, 68% of leaseholders said they had little or no confidence that their current block manager was able to sort out issues efficiently
- 51% believed that a different managing agent would produce improvements and benefit the block.
- Around 20% of leaseholders surveys, simply did not know that they have the legal power to appoint a better performing managing agent.
- 40% of leaseholders felt strongly that their service charge was not good value for money
- Around 20% of leaseholders surveys, simply did not know that they have the legal power to appoint a better performing managing agent.
This survey followed an earlier 2013 report by Livingcity Group, a property asset management business based in the North West, which broadly found similar views about their block management amongst flat owners in England and Wales. These findings probably explain why nearly half of those surveyed would support residents managing the block. Worryingly, this report also found that 3 in 10 respondents claimed they had not received sufficient advice prior to purchasing their flat – meaning they did not know the extent of their leasehold obligations and rights.