Residential Leasehold Property : Right to Manage

Right to Manage

Right To Manage (RTM) Solicitors

What Is Right To Manage (RTM)?

Right To Manage (RTM) gives you the right and the legal means to remove the property management company at your block of flats and replace it with an RTM company that you and your fellow leaseholders set up. Your rights are enshrined in the Commonhold and Leasehold Reform Act 2002.

Are you in dispute with the property management company that runs your block of flats? Have you complained about the cleaning, maintenance, gardening, service charges or insurance?

These are typical reasons for wanting to exercise leaseholders’ Right To Manage and take back control of your block. But you don’t have to prove that you are unhappy with the existing management company. You have the right to change regardless – subject to certain criteria.

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Right To Manage (RTM) legislation empowers leaseholders to take responsibility for managing the property. After all, they generally hold most of the value in it. 

But it is important to note that the Right to Manage (RTM) Company will inherit any existing management structure, as set out in the existing leases.  


Benefits Of Right To Manage (RTM)

Unhappy with the way your block is being maintained? You will be able to get rid of the tradespeople that your landlord has appointed to do the work and replace them with your preferred contractors.

And you may also be able to improve the long-term consistency of service because you may be able to keep a closer eye on the tradespeople than your landlord did.

Not only will that give you the chance to improve the quality of service, you may be able to reduce costs as well! That may mean lower, fairer service charges.


Disadvantages Of Right To Manage (RTM)

You will be responsible for the management of your block and all that entails. This can be quite onerous, especially if you live in a large block with a lot of residents. 

Expectations may be high. Funds may be short. And there could be some pressing bills on the horizon.

Also, setting up an RTM company is not a magic wand. You may not be able to right all the wrongs that occurred under the previous management company. You will be tasked with managing in accordance with the existing leases – and this may be part of the existing package of difficulties you are experiencing. 

So make sure you know what you are taking on. Make sure there are people in your block with the willingness to take on an RTM company director role and the ability and experience to do the job well.

Remember also that even after a successful RTM action, you will still be left with a landlord/freeholder…and that taking away their right to manage what they see as ‘their block’ is unlikely to improve your relationship with them.

Do you have a ‘difficult’ landlord? You may wish to consider buying the freehold to potentially remove your existing landlord altogether. 


What’s The Alternative To RTM Or Buying The Freehold?

If you’re unhappy with the level of service charges, you may wish to consider applying to the First-tier Tribunal in a Reasonableness of Service Charge action.

However, these applications can be costly and time-consuming. They deal only with those service charges in dispute – not any long-term future management of the property. It is important to get expert legal advice and think hard before embarking on this course of action.

You may also wish to consider applying to the First-tier Tribunal to appoint a manager. This may be more appropriate if the property has a complex leasehold structure (or if there are a lot of commercial or mixed-use parts).

Significantly, in any application to appoint a manager you must prove fault and convince the First-tier Tribunal that it is just and convenient to make the order. 


Who Is Eligible For Right To Manage?

Only 50 per cent of the leaseholders in a block need to participate in the Right to Manage process.  

But 50 per cent or more leaseholders who wish to exercise this right cannot compel the others to join in against their will.
Similarly, the others cannot prevent 50 per cent or more leaseholders from exercising this right.

These are the qualifying criteria:

  • the premises must be a self-contained building (or part of a building)
  • two or more of the flats must be held by qualifying tenants – ie someone who holds a flat under a long lease (21 years or more)
  • the total number of flats held by qualifying tenants must be not less than two-thirds of the total number of flats in the premises
  • the participating tenants must be from not less than 50 per cent of the total number of flats (at the date the Claim Notice is served)
  • a tenant can participate regardless of the number of flats they own in the building
  • not more than 25 per cent of the building can be non-residential/commercial
  • other criteria may arise in unique circumstances. 

Any qualifying tenant that does not participate will not be a member of the RTM company. They will have no direct say in the management of the premises. 

Any qualifying tenant who does not participate is entitled to join the RTM company as a member at any time. 
Also, the landlord will be entitled to be a member. 


Right To Manage Process

Right To Manage is available whether management has been good, bad or indifferent:

  • you don’t need the landlord’s consent
  • you don’t need a court order
  • you don’t need to prove mismanagement.

You exercise your right by serving a formal Claim Notice.

After the period of time set out in the Claim Notice, the management transfers to an RTM company incorporated by the leaseholders (unless the right is disputed – but the grounds to do so are limited). 

Once RTM has been acquired, the landlord is also entitled to membership of the RTM company. 


The Right To Manage Company

RTM is exercised by the RTM company – not by the individual leaseholders.

It is the RTM company which obtains the right and then takes responsibility for the management.

Over the years, individuals owning interests at the premises may move out or sell up – but it is intended that the RTM company remains in place. 

The RTM company must be set up and run in accordance with statutory requirements. It must:

  • be a company limited by guarantee
  • be registered with the Registrar of Companies at Companies House
  • have a Memorandum and Articles of Association ('Memo & Arts'), which govern its purpose and running.

The Memo & Arts are prescribed by law. An RTM company will not be deemed valid if it does not match these provisions.

Once the RTM company has been registered, officers and members must be appointed.

Then the RTM company must offer those leaseholders who have not joined a chance to do so (by serving Invitations to Participate).  


The Invitation To Participate 

All qualifying tenants are entitled to become members of the RTM company. No-one may be excluded for any reason. 

The Invitation to Participate must be in writing and in the prescribed form.

It must be served on all qualifying leaseholders who are not (at time of service) members of the RTM company or who have not already agreed to be members.
 
All qualifying leaseholders who respond to the invitation and ask for membership must be enrolled as members of the RTM company. Membership must be noted in company records.


The Notice Of Claim

The Notice of Claim must not be served until 14 days after service of the Invitation to Participate.

If some owners elect to join in after service of the Invitation to Participate, it can delay service of the Claim Notice until:

  • money has been collected from them
  • they have been made members of the company.

Right To Manage is exercised by service of a Notice of Claim. 

The form for the Notice of Claim is prescribed by statute. It will specify:

  • a date (at least one month after date of service of the Notice of Claim) by which the person given the notice may respond with a Counter-Notice.
  • a date (at least three months after the date for the Counter-Notice) on which the RTM company intends to acquire the Right To Manage.

It is this Notice of Claim which brings the exercise of the RTM into being. It sets the date for the RTM company to take over the management.

By setting their own date, RTM company members can plan and prepare for the transfer.


The Counter Notice

A Counter-Notice may be served no later than the date specified by the RTM company in the Notice of Claim.

The Counter-Notice can do one of two things:

  • agree to the RTM
  • allege reasons why the RTM company is not entitled to proceed.

The Counter-Notice does not provide an opportunity to raise queries or to dispute the RTM on any other grounds. 

If the RTM is admitted or the freeholder (or current manager) fails to serve a Counter-Notice, the management will pass to the RTM company on the date specified in the Notice of Claim. 


Property Management Contracts

The existing manager will probably have a number of contracts in place relating to the premises. 

It is important that the RTM company is aware of them and that the relevant contractors are given adequate warning of the impending transfer of management. 

Contracts may be with the managing agent for the overall management of the building. The freeholder is obliged to serve the RTM company (and any contractors) with Contract and Contractor Notices giving that information.

As all responsibility for management passes to the RTM company, the freeholder will no longer be able to fulfil its part of the contract.
So the RTM company will need to decide whether to renew the contracts or look elsewhere. 


Management Company’s Duty To Transfer Funds

The existing manager may have collected service charges in advance but not yet spent them all. If so, they will be holding the remainder on trust.

They must hand over all unspent sums to the RTM company. 

These will include not only unspent service charges but also any reserve account or sinking fund.

This may take some time. The existing manager may need to consider the accounts and fulfil existing contractor duties before handing these over.  


Approvals

Most leases contain provisions requiring consent to certain actions/omissions. These can include:

  • sub-letting
  • assigning the lease
  • making alterations to the flat.

Power to issue such approvals passes to the RTM company but it must keep the freeholder informed.

Before granting any such approval, the RTM company must notify the freeholder and give them time to respond. There are different timescales depending on the type of request.


Enforcement Of Covenants

The enforcement of the leaseholders’ covenants (obligations) under the lease becomes the responsibility of the RTM company.

The RTM company must ensure leaseholders comply with all covenants. The RTM company must alert the freeholder to any non-compliance.


The Freeholder’s And Management Company’s Costs

The RTM company must reimburse the existing manager for costs they have incurred in the process, subject to:

  • relevant criteria/regulations
  • the costs being reasonable.

The RTM company can challenge any costs at a tribunal.    


How Long Does It Take To Set Up An RTM Company?

The whole RTM process from start to finish can take between five and 12 months. This depends on:

  • the date the tenants introduce their claim notice to acquire the management function
  • whether there are any tribunal proceedings concerning the ability to exercise RTM and/or the landlord’s costs. 


How Much Does Right To Manage Cost?

The costs can vary enormously depending on:

  • the size and complexity of the development
  • the time it takes your landlord to respond and whether they are likely to challenge the claim.
     

Get Expert Advice

Book a free chat with one of our leasehold solicitors. We can give you a much better idea of:

  • how much it would cost to exercise Right To Manage
  • how long it would take
  • what it will mean for you and your block.
     

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You have made, what I thought was going to be, a very long and laborious and stressful matter very easy to deal with. I wouldn't have any hesitation in recommending yourself and Coles Miller to anyone should the need arise.