Yes, there are two ways for residents to take over their management company – but that is only if the residents also own their flat. That’s the Right to Manage and the Court-Appointed Manager.In fact, it doesn’t matter whether or not the leaseholder actually lives in the flat – it’s the ownership of the flat that gives them the right to take over the management of their block.
So technically, residents can’t necessarily take over management of their block – but leaseholders can.
NB By leaseholders we mean someone who owns a “long leasehold” flat i.e. one with a lease that was originally granted for at least 21 years).
Looking for specialist legal advice about the Right To Manage? Call our team on FREEPHONE 0800 1404544 for FREE initial phone advice – no strings attached.
Here at Bonallack & Bishop, we have a dedicated five strong leasehold team. All they do is work related to leasehold property – leasehold extensions, right to manage, and freehold enfranchisement. And you don’t just have to take our word for it.
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Is Right to Manage the same as a Residents Management Company?
No, they are noticeably different.
Click here to read more about the difference between an RMC and RTM Company
Two ways to take over management of your block
1. The usual and most common way of acquiring management rights is through Exercising your Right to Manage (often referred to as RTM).
2. However, there is an alternative – an application to the First Tier Property Tribunal, or FTT, for the Appointment of a Manager (although the application is to the FTT, this route of taking over management of your block is more commonly known as an application for a Court Appointed Property Manager).
These two routes are quite different. This page deals with the right to manage.
It is important to be aware of the Court Appointed Manager route. Even if you do not wish to seek to pursue it, others in your block may feel differently. And you need to be aware that even an RTM Company can be replaced by a manager appointed by the Tribunal – and there is no minimum participation required for Appointment of a Manager.
And an application for Appointment of a Manager application can be made by a single leaseholder
Click here to read more about the Court Appointed Property Manager
Can residents take over management of their block? Flat owners’ rights
The Commonhold and Leasehold Reform Act 2002 (“the Act”) provides leaseholders with the right to manage their block. Provided you meet the qualification criteria, you may exercise this right by complying with the provisions and deadlines set out in the Act, without the need to prove that your freeholder/manager is at fault.
Since this is a “no fault” claim, landlords and existing block managers will often take purely technical points in an effort to delay or otherwise defeat your claim, where they are keen to retain the management for any reason. That’s the reason why it is so important to instruct a specialist RTM solicitor who is familiar with the Act and who can prepare the relevant notices on your behalf to ensure the provisions are complied with and to limit the risk of such problems.
In the event of a dispute either party may apply to the First Tier Property Tribunal to settle the issue.
Why exercise your Right to Manage?
The Right to Manage gives qualifying leaseholders the right to take over the management of their block through a Company which they have incorporated for the purpose (“the RTM Company”).
And the main reason why leaseholders decide to take over management of their block themselves is usually because the current block management is either too expensive or simply doesn’t get the work done properly. Poor maintenance or high service charges not only affect the value of your flat, but can make it really hard to sell.
The RTM Company will be made up of the participating leaseholders and it will take over the management functions set out in the leases (except the right to forfeit those leases).
However, there are limitations to what can be achieved under the Act. When you acquire the Right to Manage you are not acquiring the freehold title and you cannot therefore make any changes to the lease themselves. You are therefore limited to managing the block in line with the provisions contained in those lease as drafted
Does our Block Qualify for RTM?
To qualify the building must;
· Be a self-contained building or part of a building, with or without appurtenant property
· Contain two or more flats held by qualifying tenants
· The total number of flats held by qualifying tenants must be not less than two thirds of the total number of flats in the building
What is a self-contained building?
To qualify as a self-contained block, your building must be structurally detached (there can be some attachment, but it must not be structural). The question of whether or not a building is structurally detached or not has been the subject of many Hearings and lots of case law exists on the topic to guide your advisor.
Meanwhile, a self-contained part of a building is one which is attached to another building but which is vertically divisible so that it could be developed independently of the rest of the building without significant interruption to the services of the rest of the building.
One Building – One Right to Manage Application
The important point to note here is that since a fairly recently decided case (Triplerose Ltd v Ninety Broomfield Road RTM Co Ltd) it is clear that the Right to Manage can only be acquired over a single set of premises (i.e. one block and its appurtenant property), which means at one development made up of a number of buildings there may be as many RTM Companies. However, in practice if several RTM Companies exist on one estate and they wish to coordinate their efforts, they could choose to instruct the same managing agent who could ensure a holistic approach is taken to management.
· those with substantial non-residential parts
· those with resident landlords
· those with an immediate landlord who is a local housing authority
· those where there is already an RTM Company, and
· those where the right to manage has been acquired (but ceased within the past four years)
Your solicitor or surveyor should be able to give you more information about your particular building to help you to establish whether your building qualifies. They may need to inspect the premises in order to form an opinion on this point which is crucial to your claim.
What is a Qualifying Tenant? Do We Have Enough Leaseholders on Board?
A Qualifying Tenant is;
· A leaseholder with a lease of over 21 years
· Where a head lease exists or multiple long leases over the same flat, the qualifying tenant is the one who is at the bottom of that chain
· Business tenancies (if the flat is in business use at the relevant time)
· Unlawful sub-tenancies (unless the breach has been waived)
· Tenancies which aren’t assignable or capable of being sub-let as a whole
To exercise your right to manage together, at least 50% of the Qualifying Tenants in the block in question must take part in the RTM application (50% or more for each building).
To qualify is there a minimum period of ownership?
No, and there is also no limit on the number of flats any one Qualifying Tenant may own and still qualify.
Taking Over the Management of Your Block – What is Appurtenant Property?
Appurtenant Property is usually seen as being part of the property — an appurtenance. It often includes garages, gardens, yards, or other outbuildings which belong to the flat.
What Appurtenant Property Should Be Claimed as Part of an RTM Application?
The following should be claimed where they belong to the relevant premises;
· Other appurtenances
Your solicitor should be able to advise you as to what appurtenant property should be claimed and they may require an inspection of the property to form an opinion on this point. This can be complex – another reason why your solicitor really does need to be an RTM specialist.
Setting Up Your Management Company
You will need to set up a new RTM company to manage your block – and it’s always a good idea for this to be done at an early stage. That’s because there may only be one RTM Company in existence for a particular building – though if someone else has set up a company before you can do so, your claim may not succeed.
In short, your block management Company must be what is known as “a company limited by guarantee” – i.e. a particular type of company without shareholders or share capital, but it is instead based around the fact that it’s members act as guarantors of the company’s liabilities. The new management company must have as its object the acquisition of and exercise of the right to manage the property.
There is a prescribed form of Memorandum and Articles of Association. In addition, the company name needs to include the ending “RTM Company Ltd”
The participating leaseholders will all be members of that RTM Company. Any leaseholder that doesn’t take part in the art application, will not.
Importantly, once the right to manage has been acquired any Landlord may also become a member of that Company.
However, third parties to leases who do not own any leasehold or freehold title in the property (such as block management companies) may NOT be members of the RTM Company.
Exercising Your Right to Manage – The Process
Our solicitors will manage the process for you and ensure the procedure and any timelines are followed.
However, in brief, the process involves the following;
1. An initial investigation into the facts – in particular, does the building qualify and who are the qualifying tenants?
2. Establish that you have sufficient interest in each relevant building
3. Purchase and properly set up the RTM Company
4. Serve a Notice of Invitation to Participate on EVERY qualifying tenant in each relevant building to let them know your intentions and to invite them to join in) unless they are already members of the RTM Company. Sending this notice is essential
5. Enter into a Participation Agreement or have each participant sign a Letter of Intent.
The Participation Agreement is a particularly important document with larger blocks. In short, it is a binding document that commits all of those who sign to remain involved in the RTM process. It’s the best way of making sure the leaseholders who initially agreed to take part in the RTM application actually stay on board through what can sometimes be a frustratingly slow and awkward process.
Click here to read more about Participation Agreements
6. Select your new managing agents in principle
7. Consider your preferred Acquisition Date (i.e. the date when you actually want to take over the right to manage). You will need to take care in setting the right date – in particular make sure that you take into account any existing management issues, contracts, service charge issues, insurance renewal date and financial year end
8. Get hold of as much information as possible about the current management. There are notices in a prescribed form available for this purpose
9. Consider appurtenant property over which the right to manage is going to be claimed
10. Prepare and serve your claim notice upon the landlord/s and any third party management company/s
11. Diarise key dates and wait to see whether any objection is raised to your claim
12. Consider whether you need to claim a right of access during that period
a. If the claim is admitted – on the Acquisition Date (set out in your notice of claim) the management obligations will pass to your RTM Company.
b. Alternatively, if the claim is disputed – then an application must be made to Tribunal for determination by the RTM Company
Who can be a director of an RTM company?
It’s possible for the flat management company to have just one single director. However, depending on the size of the block, it’s more common for there to be between three and five directors.
What happens when I come to sell my flat?
If you are an RTM company shareholder, it is usual for your share to be transferred across to the purchaser of your property on sale. Why? – It’s important that the RTM company represents the interests of those actually owning the flats in the block.
Thinking of Proceeding Further?
If you and your fellow flat owners would like to look further into the possibility of exercising the Right to Manage your block, our Leasehold Property Team are more than happy to assist with any queries you may have. We always offer free initial phone advice.
There may, also, however, be sufficient interest within your building to investigate the possibility of purchasing the freehold, known as ‘Collective Enfranchisement’ or you may have a claim for Appointment of a Manager by Tribunal.
Click here to read more about in Leasehold Enfranchisement
You also have rights available to you as an individual flat owner to purchase a lease extension from your freeholder.
Click here to read more about lease extension.
Future Management of your block
Please note – on the Acquisition Date all existing management contracts come to an automatic end unless otherwise agreed by the RTM Company.
As a result, a good deal of thought needs to go into the management of the block BEFORE the Acquisition Date.
Particularly with larger blocks, it is often a good idea to instruct an experienced managing agent who can deal with the day to day running of your block. It’s probably too big a task for any individual resident or even a group of residents.
The RTM Company will have the power to make decisions about management and to instruct a managing agent of their choosing, but an agent will have the expertise and the time to give to the work to ensure it is well managed.
If you are thinking of appointing an external managing agent, you should make sure that you consider your choice of agent at an early stage. The RTM process may be quick once the notices have been served, and you will need to have a manager in place on the Acquisition Date in readiness.
We work with a number of highly experienced managing agents in many parts of the country – and we are happy to introduce you to one of them as part of our service.
In addition, here’s a link to an excellent article on picking the right managing agent from the government supported Leasehold Advisory Service.