What is the right to manage?
The “right to manage” [or RTM] is a right granted to residential leaseholders through the Commonhold and Leasehold Reform Act 2002. It allows qualify leaseholders to force their freeholder to hand over the responsibilities of managing the building to them, providing that they can meet certain eligibility criteria and conditions. These conditions and other issues are laid out by the 2002 Reform Act. Among the main responsibilities that the leaseholders take over from freeholder are:
- Repair and maintenance of the block
- Collection of service charges
- General block management
The right to manage is not available if the freeholder is a charity.
NB right to manage is quite different from a Residents Management Company.
Click here to read more about the difference between an RMC and RTM Company
Appointing the Right Solicitors
That genuine expertise is why we are the the sole partners of The HomeOwners Alliance – the only solicitors recommended for right to manage applications by the leading organisation representing Britain 17 million owner/occupiers.
So when you appoint Bonallack and Bishop to help you exercise your right to manage, you can do so with the confidence that you are appointing genuine specialists with plenty of experience.
Got a question about exercising your Right To Manage? Call our specialist lawyers on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.
First Steps in Exercising your Right to Manage
The first part of the right to manage process is getting the support of at least 50% of your neighbours and fellow leaseholders. If you can gather this level of support, you can then take the next steps to form a right to manage company.
The issue doesn’t arise with smaller blocks, but with many of the larger blocks, the first stumbling block can even be turnover the names of the owners of the flats in your block – because it’s the owners not the occupiers who qualify for the right to manage. With larger blocks, you may choose to can buy a list of names of the owners from the Land Registry. Alternatively, an easier option may be to serve an information notice on the managing agent or freeholder in order to get a list of names.
At this early stage of the process it is important to get the right legal advice from solicitor specialising in RTM cases.
The solicitor can confirm whether or not you are eligible for right to manage, and can also help with setting up the RTM company.
Your Right to Manage Company
A right to manage company is the legal body that will be responsible for managing the property once you have completed exercising your rights to manage your block.
The newly-created right to manage company must be registered at Companies House.
The leaseholders must also decide between themselves who they wish to appoint as the registered directors of the new company and who should be the company secretary. The board of directors are generally drawn from your pool of qualifying leaseholders – who will be responsible for overseeing the day to day management of the company and therefore the block.
In exercising our RTM, do we have to manage the building ourselves?
In short, no. Just because you and your fellow leaseholders acquire the ‘right to manage’ the building you live in, it does not mean that you have to carry out that physical management yourselves.
You are, however, responsible for making sure that the block management duties are carried out – you could do so yourselves if so wish or you can hire an outside management company to take care of the day to day maintenance and repairs on your behalf.
How does right to manage differ from enfranchisement?
The right to manage a property is a legal right which is given to qualifying leaseholders in specific circumstances. This right lets the leaseholders take control over the management of the building where they live. It lets the leaseholders look after the development and any maintenance issues in the building without actually taking over the freehold from the freeholder.
Enfranchisement is a different legal right which is also awarded to leaseholders who qualify in specific circumstances. It is also sometimes known as leasehold, collective or freehold enfranchisement – or freehold purchase. Enfranchisement gives leaseholders the right to get together and go through a process to force the freeholder to sell the freehold to them. After the freehold has been bought, the leaseholders can then use their powers to grant themselves a lease extension up to 999 years without having to pay any ground rent, which in turn increases the value of their flats.
Click here to read more about lease enfranchisement
Is there any alternative to RTM or enfranchisement?
Yes, although it is very rarely used. Leaseholders who are dissatisfied with their freeholder’s management of their block can make an application for what is known as a Court Appointed Manager
Click here to read more about a Court Appointed Property Manager
Do we need to prove that the freeholder is somehow at fault?
No, to win your right to manage, it’s not necessary to prove but either your freehold or the any existing managing agents are to blame for the current state of the block – or are doing a bad job.
Can your freeholder object to the right to manage?
The freeholder can only oppose a right to manage application if they have a legally valid reason to do so.
Your freeholder’s agreement is not needed, as right to manage is a legal right.
Your freeholder can only issue a counter-notice inner attempt to prevent right to manage application succeeding in a limited set of circumstances. These include the following:
• Not enough leaseholders have agreed to the right to manage application
• Less than 75% of the building is in residential use
• The newly-established right to manage company does not comply with the law.
If the freeholder chooses to send a counter-notice, the leaseholders can take him to the First Tier Property Tribunal (previously known as the Leasehold Valuation Tribunal or LVT) to get a court order which grants the right to manage. This course of action will cost a lot more though, and if the freeholder wins the Tribunal, the leaseholders have to pay their costs.
For this reason it is very important to get advice from expert right to manage solicitors who can ensure you are eligible under the law for these rights.
Click here to read more about how the First Tier Property Tribunal works.
Exercising your right to manage – Getting the other leaseholders organised
Everyone involved in a right to manage application has to be committed to the project and willing to get organised. In fact with medium or large blocks, a failure to keep enough people involved and active is the main reason why these applications fail. In contrast, it’s generally easier with a smaller block where fewer leaseholders need to get involved.
It is usually a good idea to set up a committee and elect a couple of the leaseholders to take charge of the process.
With larger blocks, you may find it helpful to ask one of our specialist right to manage solicitors to come along to the first committee meeting so that they can respond to any questions there might be about how the process works.
What is a participation agreement?
If you and your fellow leaseholders decide to go ahead with the right to manage process, it is a good idea to get them to sign an agreement stating that they are committed to the company. A solicitor can draw up this sort of agreement (known as participation agreement), get everyone to sign and then give everyone a copy.
Remember though that if a leaseholder sells their flat, the new owner might not be interested in the right to manage company and getting involved.
Do we have to pay to take over the right to manage?
No – there is no premium payable to your freeholder, but you must pay your own legal costs and pay back any necessary costs incurred by your freeholder
Will our freeholder remain involved in any way?
Yes, your freeholder will still need be consulted on certain decisions and can become a member of your RTM company if they wish to.
The First Decisions After Acquiring The Right to Manage?
It’s not unusual that when the Right to Manage is obtained, the new company discovers there are urgent repairs and other maintenance jobs required. It is essential that these outstanding issues are dealt with as soon as possible.
Particularly with larger blocks, flat owners are likely to be reassured if they see that problems in the block are being sorted swiftly.
With larger blocks, it can even be worth considering employing a Property Manager for the first few weeks or months, to supervise and oversee maintenance and repairs if there are plenty of them and if none of the RTM company directors has the time or energy to handle these urgent issues.
Getting hold of the right documents
It is essential that the RTM company or the newly-appointed managing agent has access to information related to the building – such as the contracts and copies of counterpart leases that existed before the RTM was obtained, as well as accounting records. These books and records will need to be thoroughly checked and updated periodically.
It is important to note that certain contracts and leases may need to be renewed by the company that has recently obtained the Right to Manage.
What are the responsibilities of the new right to manage company?
Any RTM company will have to perform the following duties and meet these obligations:
· Comply with the government’s Code of Management Practice as any other freeholder would
· Take over any obligations the freeholder has as stated in the leaseholders’ leases, for example an obligation to carry out repairs in a certain timeframe and to an agreed standard
· Keep the freeholder informed when any leaseholder breaches their lease
· Just as with any other company, the directors have the same responsibilities as any other director and has to maintain the freeholder’s covenants
· Register at Companies House, keep detailed and comprehensive accounts and complete annual returns. Also have Articles of Association and a bespoke shareholders agreement drawn up – our lawyers can do this for you.
Click here to read more about what you might include in a shareholders agreement
· Elect a Board of Directors, which is usually made up of leaseholders who qualify. The Board oversees the day to day running of the company. When considering applying for right to manage it is important to make sure there are enough leaseholders who are comfortable with this level of responsibility.
· The leaseholders have to control the company’s cash situation, and members or directors might have to make up any shortfall if leaseholders do not pay their monthly bills. The company also has to have a strategy for fundraising to make sure that there is enough money to pay for maintenance of the block.
· Regular meetings must be held
The most important duty of any right to manage company is organising the day to day running of the building. This includes organising repairs, maintenance and insurance. A vote of all company members, which might include the freeholder, has to take place when any developments are planned.
Starting the RTM process
When your right to manage company has been formed, you, or your right to manage solicitors, will need to take the following steps:
- Serve the Notice Inviting Participation to every leaseholder qualified to receive one but who is not currently a member of the company.
- You will need to be able to identify who owns each and every flat, whether it is an individual, a trust or a company
- You are legally obliged to invite your Freeholder to become a member of the new RTM company
The notice must be sent to all qualifying leaseholders, the landlord, and any other necessary people who are involved like the managing agent. You should provide everyone with a date by which you expect them to have responded; it should be no less than 28 days after you have sent out the right to manage claim notice. It is advisable for most people to seek specialist right to manage advice when forming their notice to claim, as there are certain legal requirements that a claim must meet in order to be valid.
Your freeholder can then choose how to respond to the notice.
Four months after the claim notice’s issue date is likely to be the time when your company acquires the rights to manage- provided there have been no objections to your claim.
Can my freeholder try to reject the right to manage application?
When your freeholder has received the claim notice, they have three main options:
- Not to respond to the claim
- To issue a counter-notice to accept the claim to RTM
- To issue a counter-notice to dispute the claim to RTM
If they have a dispute, the landlord must respond in the specified time and prove that the right to manage application is not in accordance with the 2002 Act.
The most common reasons that the landlord may use to object are:
- More than 25% of the building is non-residential
- There are no self-contained flats in the building
- All relevant parties have not had participation notices served
- Less than two-thirds of the flats are sold on long leases