The Residents Management Company and Right To Manage Company compared
Solicitors Specialising in Right To Manage Company formation
If you own a leasehold flat, service charges, like taxes, are unavoidable and generally unpopular. Recent research by Property Management specialists Keller Williams UK shows that most leaseholders are far from happy with the service charges applicable to them, with many considering them unfair. For this reason, leaseholders often set up a Residents Management Company (RMC) or exercise their right to manage by setting up an RTM Company.
This article sets out how each of these 2 models works and the advantages and disadvantages of each, providing you with the information required to decide which option is best for you and your fellow leaseholders.
Considering exercising your Right To Manage? Call our specialist Leasehold Solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.
2025 RTM Reforms and Why They Matter
The legal landscape around RTM is evolving. In particular, the Leasehold and Freehold Reform Act 2024 introduced amendments to the RTM regime, with effect from 3 March 2025.
Key changes include:
• Looser qualification criteria: buildings with over 25% non-residential floorspace previously didn’t qualify for the right to manage. The reforms saw that increased to 50%, meaning more mixed use buildings may now be eligible
• Cost liability rules clarified: Under the new rules, an RTM company won’t be automatically held liable for the freeholder’s costs.
For clients exploring RTM or comparing to an RMC, these reforms mean that the whole process is potentially cheaper, now that you won’t normally be expected to pay the freeholders own costs, and it may be worth reassessing whether your building qualifies under the new, more permissive criteria.
What are service charges?
Although you may have paid six or even seven figures for your flat or apartment, as a leaseholder, you do not own the land or the building, rather you have purchased the right to live in the property for a set number of years. The building is owned by the freeholder (although occasionally the situation is complicated when that freeholder grant a lease of the whole building to a company or individual who then grants ‘under leases’ to the leaseholders).
Leaseholders are required to pay a service charge to cover the upkeep and maintenance of the communal areas of a building as well as services such as security, concierge, heating, grounds keeping, and insurance.
RMCs and RMTs are two examples of legal entities that allow leaseholders to exercise management of the building in which their flats are contained in.
(NB there is one alternative, but rarely used way of leaseholders having some influence over the way their block is managed – click here to read about the Court Appointed Property Manager).
What is a Residents’ Management Company or RMC?
An RMC is a company formed to allow leaseholders to take over the management of their block or building. RMCs are non-profit companies and are normally formed by the developer. Leaseholders become shareholders of the company (one flat normally equals one share) and if one leaseholder sells their flat, their share in the RMC will usually pass to the new owner.
Under an Residents’ Management Company, the shareholders appoint a board of directors, who then hire a managing agent to facilitate maintenance and repairs of the communal areas, gardens, exterior of the building, collecting service charges, organising building insurance, rates, and taxes, and entering into contracts for security or concierge services.
Because an RMC is a company, directors have certain obligations, such as filing company accounts (if the company is dormant, this obligation is minimal), holding an AGM, ensuring shareholders can use their voting rights, and completing company secretarial duties, and any other duties listed under the Companies Act 2006.
The lease agreement will set out the duties and responsibilities of the RMC and its relationship with its shareholders.
Why set up a Residents’ Management Company?
The advantages of residents taking over the management of their block in this way include the following:
· As the shareholders/directors of an RMC are leaseholders, there is every reason for the company to succeed in its duties and manage the service charges responsibly. After all, if you are a shareholder or director of the company running your block, there is a huge personal incentive to both ensure a high level of maintenance and a reasonable price for doing so
· Shareholders have a right to be consulted on major work and Section 20 consultations, which must be held for any proposed work likely to cost over £250 or when a contractor is employed under an agreement that is to last 12 months or more, apply.
· Directors can take out insurance to cover any liability for mistakes they make.
· RMCs must hold two separate accounts; one for the service charge monies and the other for the company’s own funds. The service charge funds are held on trust on behalf of the leaseholders and are therefore not the property of the company.
What is a Right to Manage or RTM Company?
An RTM company is set up to facilitate leaseholders who have exercised their right to manage under the Commonhold and Leasehold Reform Act (CLRA) 2002. Under the CLRA 2002, qualifying leaseholders have the legal right to establish the RTM company and force the landlord to transfer the management of their building to it.
Leaseholders’ right to manage companies must be set up as a company limited by guarantee, with the leaseholders being members as opposed to shareholders (landlords can also be members). Its Articles of Association must follow a specified form set out in the RTM Companies (Model Articles) (England) Regulations 2009.
An RTM company is specifically designed and structured under statute (Commonhold & Leasehold Reform Act 2002 and relevant regulations) to exercise the legal right to manage under the RTM regime. An RTM company must comply with precisely prescribed rules (e.g. about membership, notices, articles, and procedure),)
If a member sells their flat, they will usually need to resign from the RTM company. The new owner will then take their place. This often differs from RMCs, where a purchaser of a flat automatically acquires one share in the RMC once ownership is transferred. RTM companies are usually established because there is no existing Residents’ Management Company.
Once enough leaseholders had joined together to exercise their right to manage, the RTM company can immediately take over ‘management functions’, which include:
- services
- repairs
- maintenance
- improvements
- insurance
- management
Only the management functions that are given to the landlord or freeholder under the lease can be assigned to an RTM company. For example, an RTM company will not have the right to collect ground rent. Furthermore, only the landlord has the right and power to deal with re-entry and forfeiture.
The RTM company is responsible for enforcing the covenants under the leases held by the leaseholders. If a tenant breaches a covenant, then the RTM company must report the breach to the landlord.
Click here to read more about setting up a Right to Manage Company
Service charges are collected by the RTM company. Any accrued reserve or sinking funds set-aside for potential future major works must be responsibly managed.
Click here to read more about the leasehold sinking fund
| Feature | RMC (generic) | RTM Company (statutory) |
| Purpose | Broad, possibly owning freehold or holding lease | Sole or primary object: to acquire & exercise the right to manage the premises (statutory) |
| Company form | Often a company limited by shares or guarantee, with potentially flexible articles | Must be a private company limited by guarantee, with prescribed or model articles and appropriate objects clause |
| Membership | Can restrict membership, shares may be transferable, rules may differ | Membership must be open to all qualifying leaseholders |
| Governance & notices | Flexible approach | Must follow strict procedures for notice inviting participation, notice of claim, counter-notices, etc. |
| Owner / landlord involvement | May exclude or specialise | Landlord has statutory right to become a member after acquisition date |
| Risk of invalidity | More flexibility | High risk of invalidity: if procedural or formal requirements are not met exactly, or the building does not qualify, the RTM claim may be challenged or refused |
Why set up a Right To Manage Company?
The advantages of an RTM company include:
· Assurance that the service charge funds are spent well as members have full control over costs and can shop around for the best deal.
· Full control also means that repairs and maintenance will be done to a standard acceptable to the members.
· All members have equal voting power at AGMs.
If you are considering exercising your right to manage, you might also want to look at the alternative of enfranchisement – i.e. joining together with some of your fellow flat owners to buy the freehold of your block together.
Click here to read more about the Pros and Cons of Right To Manage
Click here to read more about Leasehold Enfranchisement vs Right to Manage
Setting up a right to manage company Common Pitfalls and Risks (and why specialist legal advice helps)
If you and your fellow leaseholders are thinking of taking on the right to manage, make sure that you are all aware of the risks up front. Here are some particular issues you should all be aware of:
• Non-compliance with formalities: Even small errors in notice wording, service, dates or missing parties can allow a landlord to invalidate the claim.
• Wrong company structure: If the RMC is not properly constituted, converting it into an RTM vehicle may be impractical or unwise.
• Cost exposure: Under the new reforms, if a claim is unreasonably pursued or not withdrawn, the RTM company (and in some cases its members) may be liable for costs.
• Disagreements among leaseholders: Disputes about expenditure, voting rights, or contractor selection may escalate and undermine the process.
• Insufficient membership: If you don’t hit the minimum participation threshold (half of flats), the claim will fail.
• Freeholder involvement: The landlord becomes a member after RTM acquisition and may seek to influence decisions.
• Competence and obligations: Taking on management is a significant ongoing duty. The RTM company must meet health & safety, insurance, contractor management, record-keeping, accounting, dispute handling, and compliance with lease terms.
• Possibility of Tribunal reversal or manager appointment: If things go badly, a Tribunal may rescind the RTM right or appoint a manager.
• Asset transfer delays: Freeholder may delay handing over records or funds, causing cash flow risks early on.
Because of these hazards, having specialist solicitors on board from the start can greatly reduce the risk of challenge or failure, and help ensure that the RTM claim is robust and defensible.
Why you need specialist solicitors in setting up your RTM company
As you have seen above, there are risks involved – and they are significantly increased if you try to do the whole thing yourself or you involve solicitors without experience in this highly specialist area.
Here is the kind of really practical value our specialist leasehold team can provide:
• Reviewing or drafting a robust RTM-compliant company constitution (articles, guarantee, membership rules).
• Auditing any existing RMC structure and advising on whether it is suitable, or whether a fresh RTM company is safer.
• Preparing and checking all formal notices (inviting participation, claim notices, contractor notices, etc.) to ensure compliance.
• Identifying all parties to serve (landlord, intermediate landlords, managing agents, leaseholders).• Advising on counter-notice risks, Tribunal strategy, and appeals.
• Helping comply with cost risk provisions under the reforms.
• Advising on transition, handover of records, service charge transfer, cashflow, contracts, insurance, and negotiating with freeholder or contractors.
• Acting in Tribunal or court proceedings if the landlord disputes or delays the RTM claim.
• Advising on ongoing governance and liability issues for the RTM company and its directors/members.
These are precisely the issues where DIY or non-specialist handling often leads to invalid claims, litigation, delays, or expense. A properly advised RTM path gives leaseholders confidence and resilience.
I am in dispute with my freeholder. Are there any alternative options ?
If however you are in dispute with the owner of the building, you do have other options apart from setting up a RMC or RTM company. And that includes exercising your legal right to buy your freehold with your fellow leaseholders.
Click here to read more about Freeholder Leaseholder Disputes
Step-by-Step: From RMC to a Valid RTM Claim
Here is a simplified roadmap for a group of leaseholders looking to “convert” or complement their existing RMC setup into a legally robust RTM claim:
1. Eligibility check of the building
- Must consist of flats (not a house).
- At least two thirds of the flats must be held by qualifying leaseholders (with leases originally granted for over 21 years).
- At least half the flats in the building must become members of the RTM company by the time of claim.
- Non-residential space in the building must not exceed permitted thresholds
- If the building is a converted house with four or fewer flats and a family member of the landlord lives in one, it may disqualify – check the details.
2. Form, or vet, a company to act as your RTM vehicle
- If you already have an RMC, check whether it is structured as a private company limited by guarantee, with non-transferable membership and appropriate articles and constitutional object for RTM. If it doesn’t meet those, it may need to be restructured or replaced.
- Draft or adopt statutory/compliant articles of association (model RTM articles exist).
- Appoint initial officers (directors, secretary). A very minimal membership can suffice initially, so long as the statutory threshold is achieved later.
3. Invitation to Participate (Notice Inviting Participation)
- Serve a statutory “Notice Inviting Participation” on all qualifying leaseholders not already members, in prescribed form. It must include details of the company, its members, the landlord, and urging recipients to join.
- You must wait at least 14 days after that notice before delivering the next stage.
4. Notice of Claim (RTM claim notice)
- The RTM company serves the Notice of Claim on the freeholder, parties to the lease, and each qualifying leaseholder (even those who haven’t joined).
- The notice must comply with detailed statutory content requirements (premises description, grounds, company membership, dates, etc.).
- Choose a suitable “acquisition date” (usually 3–4 months ahead), to allow transition time.
5. Counter-notice by landlord / objection / tribunal
- The landlord may (within time) serve a counter-notice either admitting the claim or disputing it (on permitted grounds).
- If a dispute arises, apply to the First-Tier Tribunal (Property Chamber) for a determination.
- The Tribunal may also award costs in certain circumstances (especially under the new reforms where a claim is unreasonable)
6. Acquisition and handover
- If no valid counter-notice is served, the RTM company acquires the right on the date specified.
- On acquisition, the interest in unspent service charges must be transferred to the RTM company.
- The freeholder becomes eligible for membership of the RTM company, with voting rights.
- The RTM company takes over management functions (repairs, maintenance, insurance, enforcement of lease covenants) from the landlord.
7. Ongoing operation, obligations and fall-back
- The RTM company must run the building in compliance with the leases, statutory obligations, and best commercial practice.
- Maintain required membership and adhere to company law (filing accounts, annual returns). If the company is wound up, the RTM right can collapse and revert to the landlord.
- Be alert to challenges, appeals, or future methods to terminate the RTM right (agreement, winding up, Tribunal appointment of a manager).
By following this structured approach, you can give prospective clients a clear view of how an RMC can be assessed for RTM suitability, and how the formal RTM route proceeds.
RMC vs RTM Company – a summary
Both RMC and RTM companies must abide by strict rules and meet relevant statutory compliance. Directors must be prepared to take on significant responsibilities. It is vital to work with an experienced Leasehold Solicitor to ensure whatever the structure, the company is fulfilling its duties to all the leaseholders, as well as the landlord.
