What is Right to Manage
The Right to Manage (RTM) is a statutory right, given to qualifying leasehold property owners of flats in a qualifying building under the Commonhold and Leasehold Reform Act 2002.
It enables leaseholders to take over the managerial functions from their landlord without proving any negligence or mismanagement. The lease administrator or managing agent is replaced by a company limited by guarantee of which the leaseholders are members.
The RTM company assumes responsibility for services, repairs, maintenance, improvements, and insurance. Leaseholders may feel more able to effect changes and manage costs more efficiently.
When and why consider the right to manage?
As a leasehold homeowner, it is very much in your interest to ensure that your property is managed effectively.
When management is poor, it can lead to a host of issues, including declining maintenance standards and escalating service charges (including those through abuse of sweeper clauses).
The early warning signs of inadequate management include things such as consistent delays in resolving maintenance issues, poor communication from the managing agent, and unexplained increases in service charges.
The benefits of taking control
The Right to Manage gives you an opportunity to improve management standards and better control over property charges.
As the members (owners) and directors of the RTM company, leaseholders directly influence decisions that affect the building. This includes selecting contractors and setting service charges.
Taking control can foster a sense of community among owners as you'll work together to improve your living conditions.
But remember, the process requires a commitment of time and energy.
Once you have set up a Right to Manage company, it might be helpful to engage a professional managing agent to manage the building. They can ensure that the management company runs smoothly on a day to day basis.
The legal framework: the Commonhold and Leasehold Reform Act
Right to Manage is governed by Part 2 of the Commonhold and Leasehold Reform Act 2002 (CLRA). This legislation sets out the procedures for setting up an RTM company, serving the relevant notices, and the transfer of administrative functions from the landlord to the RTM company.
The Act also establishes the qualifying criteria for leaseholders and buildings.
Eligibility and qualifying for the right to manage
Under the CLRA, a qualifying tenant is a leaseholder whose lease was initially granted for a term exceeding 21 years.
It doesn't matter how much time is left on the lease. The original term is what matters.
Right to Manage applies to a self-contained building. It can also apply to part of a building, provided that part is completely self-contained.
The building must contain two or more flats held by qualifying tenants. RTM does not apply to leasehold house owners.
The building must be predominantly residential in use - non-residential use such as shops may not make up more than 25% of the floor area.
At least two-thirds of the flats in the building must be leased to qualifying tenants. These tenants must use the flats as their main or only residence. This is known as the 'only or principal home' requirement.
Provided this threshold is met, other qualifying leaseholders who don't live in the building (some of the remaining third) can participate.
If there are multiple buildings on your development, then the criteria need to be met for each one over which RTM will be exercised. Also, a separate RTM company would need to be formed for each building. For example, if there are two buildings with 10 flats each in them and all of the owners of flats in Building A want to exercise the Right to Manage, but only four in Building B do, despite 70% of all leaseholders wanting to exercise the right, only those in Building A could do so.
RTM does not apply to council housing or housing association property. Your alternative is to form a Tenant Management Organisation.
Forming the property management company
The first step in exercising your Right to Manage is to form the property management company.
This is a special company, in that its constitution, the articles of association, must set out certain operating rules. Other rules about how decisions are made are likely to be placed in a shareholders agreement.
We advise that you seek professional advice at this stage, as all the concerns of the leaseholders will need to be considered.
Another decision at this stage is who will be the directors of the company. Directors have legal responsibility to the members (the leaseholders), and it is not a job to be undertaken lightly. As such, many leaseholders may not want to be directors or have an active role in the company.
We have come across situations where no-one wants to be a director because they don't want the obligations to the other leaseholders (with whom they weren't on particularly good terms), and where directors wanted the additional influence over the day to day running of the company, but without wanting to do any of the work themselves.
For those reasons, you might agree that the members appoint a managing agent to deal with day to day oversight of contractors and building maintenance, and that the role of the directors is simply company administration.
To start, you may only want to appoint a single director in order to simplify the set-up process. Also, you might decide to form online (usually faster and cheaper), then hold a meeting to adopt the revised articles.
If you want to set the company up as a RTM company from the get-go, you will need to complete the formation forms and submit them with to Companies House, along with the articles and the appropriate fee.
Once approved, Companies House will issue a certificate of incorporation, formally establishing the RTM company.
Roles and responsibilities of company directors and leaseholders
Once the RTM company is established, it needs to be effectively managed.
The directors of the RTM company bear the responsibility for managing the company's operations on a day to day basis, making decisions in the best interests of all of the leaseholders.
This can include tasks such as preparing budgets, organising maintenance schedules for all the communal areas, and managing service charges collected from the leaseholders.
Leaseholders, on the other hand, as members of the company, participate in the running only from time to time (such as once a year).
Exercising your Right to Manage
Notice inviting participation
The initial step of exercising is to give all qualifying leaseholders a notice inviting participation. This is a formal document that must be served.
The notice informs the leaseholders about the RTM company's intention and provides them with the opportunity to become RTM company members.
Issuing the notice inviting participation is a crucial step in the process, and getting it right is key. An incorrectly served notice can invalidate the entire process.
While you can undertake this task yourself, engaging a professional can help you avoid pitfalls and ensure that the notice is prepared and served correctly.
Communicating your intention: the claim notice and counter notice
Following the notice inviting participation, the next step is to issue a claim notice. This notice is served to the landlord and any intermediate landlords to formally assert the RTM company's right to manage the property.
The identities of the people on whom notice must be served can be found by obtaining copies of the title to the freehold from the Land Registry.
On receiving the claim notice, the landlord has a set period to respond with a counter notice, either admitting the RTM claim or disputing it.
In case of dispute, the matter may need to be resolved through legal process, potentially at the First-tier Tribunal (Property Chamber).
Setting the acquisition date: transitioning management
Transitioning the management of the building from the landlord to the RTM company is a significant step, and setting the acquisition date — the date when the right to manage officially passes to the RTM company — is pivotal.
This date needs to be at least three months after the date of the counter notice.
The company must then assume the landlord's management functions, including all responsibilities related to service charges and management contracts.
Transitioning to right to manage: management and contracts
Terminating existing contracts: contractor notices
As part of the management transfer, early on, the RTM company will need to handle existing service provider contracts.
If the RTM company intends to use new contractors for services such as cleaning or maintenance, it will need to serve notice to terminate arrangements with those existing contractors.
If the existing contractors are to be retained, varied or new contracts will be needed that set the contract between the RTM company and the service provider, rather than the previous lease administrator and the service provider. In legal terms, changing who is party to a contract is known as assigning.
Assigning and terminating contracts needs to be handled carefully, considering the terms of the contracts. Consider that the service provider may want to change other terms of the contract, particularly price.
Again, professional help may be valuable here because ensuring smooth transition of services is critical to the successful management of the property.
Transitioning management functions: from your landlord to the RTM company
The transition from the landlord's administrative functions to those of the RTM company can be a complex process. This involves assuming responsibility for managing all the flats, the whole building and its communal areas. There is money to manage as well.
The company must manage cost, ensuring services are delivered cost effectively while maintaining high standards.
In addition, the RTM company will need to deal with the collected service charges, transferring funds from the landlord to the company, and maintain detailed company records.
In essence, the RTM company takes on the role of a property management company, ensuring the property is well maintained and managed.
Hiring managing agents during the transition
While the transition of management functions can be handled by the RTM company, a managing agent can provide valuable support.
They can assist with administrative tasks, offer expert advice on property management practice, and help navigate the various complexities involved in the management transfers.
In the longer term, they can help you save money through efficient management. Their experience and expertise can be particularly beneficial in managing all the communal areas, maintaining service standards, and ensuring compliance with the relevant legal obligations.
Managing disputes and challenges in the RTM process
Landlords and other leaseholders may not always agree with your plans to pursue the Right to Manage (RTM).
Dealing with landlord disputes and the role of the First Tier Tribunal
Disputes with landlords are not uncommon during the claim and transition. It's possible your landlord might contest your claim notice, prompting a legal challenge.
If such a situation arises, the First Tier Tribunal (FTT), part of the Property Chamber, comes into play. The FTT provides a relatively cost-effective and less formal avenue for resolving RTM disputes.
However, the process can still be complex and it's recommended to engage a solicitor or legal adviser to represent you.
Remember that while you might handle this on your own, using a professional can reduce risk and save both time and cost.
Managing resistance from leaseholders
Resistance may not only come from the landlord but also from fellow leaseholders.
Open communication and transparency are key to addressing concerns. Regular meetings, detailed plans, and clear explanations of the benefits of RTM can help ease any anxieties and gain their support.
When handling resistance, a delicate balance between persistence and patience is required.
Encourage the other leaseholders to see the long-term benefits of having the RTM company in place, from potentially lower service charges to improved management practices.
Challenges: absent landlords and disputes over reasonable costs
When a landlord is absent or unresponsive, the process can become more complicated. In such cases, you might need to apply to the County Court for a Vesting Order to proceed with your RTM claim.
Your landlord might admit the right to manage, but then dispute costs. The First Tier Tribunal is again the place to resolve such disagreements. Consider that any costs involved, like legal fees or court costs, should be viewed as an investment towards better property management.
Remember, the potential benefits in the form of improved management and potentially reduced service charges could outweigh these initial expenditures.
Financial considerations: costing the right to manage
Pursuing the Right to Manage comes with its own financial considerations. Understanding these costs from the outset will allow you to plan effectively and ensure that the RTM process is a feasible option for your building.
Understanding the initial costs of setting up an RTM company
Setting up an RTM company incurs several costs. These include the fees for incorporating the company at Companies House, legal fees for professional advice, and potentially costs for the production and service of the claim notice.
The cost to register the company at Companies House is relatively minimal, but professional fees can add up.
Again, while you might handle some aspects of the process yourself, using a professional service provider could reduce risk and save you both time and cost.
Anticipating ongoing management costs and service charges
Once the RTM company is in place, it will incur ongoing management costs. These could include building maintenance, insurance premiums, accounting fees, and costs for a managing agent, if you choose to hire one.
Service charges collected from leaseholders cover these expenses. It's crucial that the directors budget accurately for these costs and keep transparent, detailed accounts for all leaseholders to access.
Effective management will also ensure that these charges are kept reasonable and fair.
Dealing with landlord's costs and saving money through efficient management
While the RTM company may be liable for the landlord's reasonable costs incurred during the process, you could offset these by efficient management and the potential savings it brings.
An efficiently managed company can help save money on maintenance and service charges in the long run. It also opens up potential long-term financial benefits, including cost-effective management of the building, potential reductions in service charges, and an increase in the property's value.
Alternatives to the Right to Manage
While the Right to Manage offers many benefits, it's not the only route available to leaseholders unhappy with their property management.
Tenant Management Organisations
Tenant Management Organisations (TMOs) are companies set up by a council's tenants to take over some of the landlord's management responsibilities, often at the behest of the local housing authority.
Unlike RTM companies, TMOs operate primarily in the social housing sector, but provide an interesting model for participative and locally-accountable property management.
A well-run TMO can be a cost-effective way to manage communal areas and to give tenants a say in how their homes are managed. However, establishing a TMO requires a strong sense of community and a commitment to collective decision-making.
Hiring a new managing agent: pros and cons
If the RTM route feels too daunting or isn't viable, hiring a new managing agent could be a simpler solution. A professional managing agent can bring expertise and efficiency to the property management, relieving leaseholders of the day-to-day tasks.
However, remember that the appointment of a new managing agent will usually require the landlord's consent, and the agent will still act on the landlord's behalf, which may not resolve all the issues you're experiencing.
Other options under the Leasehold Reform Act
Other provisions of the LRA can empower leaseholders. These include the right to extend your lease, the right to buy the freehold (known as enfranchisement), and the right to first refusal when the freehold is being sold. Tenants might also seek an order to acquire the freehold.
While these options don't directly change the management of the building, they can provide more control over your property and its management in the long run.
Each route has its own costs, legal requirements and processes, so a clear understanding of these will help you determine the best approach for your situation.
Managing your property after acquiring the right to manage
Effective ongoing management of communal areas and flats
As soon as your RTM company takes over, you'll need to manage communal areas and flats.
This involves taking on a wide range of tasks, such as cleaning communal areas, maintaining gardens, fixing structural issues such as leaking pipes or air conditioning, and much more.
Dealing with the management of all the flats in your building involves more than just dealing with repairs and maintenance.
Your RTM company will be responsible for the collected service charges, which must be managed efficiently to cover costs. Additionally, you'll have to handle any leaseholder disputes about service charges or maintenance schedules.
Management companies can ease the manage process, especially if your building has many flats or if the leaseholders do not have the time or skills to handle it themselves.
Hiring a managing agent is a viable option to help manage these tasks, allowing you to ensure that your building is well-managed without overstretching your resources. Remember, it can be a full-time job to manage a property.
Moreover, you should set clear guidelines about what is expected from all the leaseholders to maintain a clean and safe living environment. This could be set out in the shareholders agreement, limiting powers to make decisions if certain standards aren't met.
This will help in reducing disputes and also in maintaining the value of your property.
Building good relationships with fellow leaseholders for successful management
Working together with the other leaseholders in your RTM company can strengthen your manage company's effectiveness. Good relationships among leaseholders are a fundamental element of successful management.
Regular communication is key to building these relationships. By maintaining an open dialogue with all the leaseholders, everyone will feel included in the decision-making process. This helps to avoid any feelings of alienation or dissatisfaction among members.
Hosting regular meetings or social events for leaseholders is another way to foster a sense of community within your building. These gatherings can also serve as platforms to discuss any upcoming changes or challenges faced by your RTM company.
An RTM company isn't just about managing a building, it's about building a community. With open communication and cooperation, you can create a positive and productive environment for all residents.
Next steps towards your Right to Manage
We'll recap the essential points before you take your next steps.
The Right to Manage is a powerful tool for leaseholders looking for a greater say in the running of their property. Not only does it provide a pathway to taking control of your own living environment, it can also save money in the long run.
Eligibility for RTM relies on a number of factors, including the proportion of qualifying tenants in the building.
Setting up an RTM company is a legal process and requires careful attention to detail. Professional advice is recommended to ensure that all steps are followed correctly and in compliance with the law.
Managing the property and the RTM company effectively requires regular communication and cooperation among leaseholders. At times, it may be beneficial to use a managing agent to assist in managing the building effectively and cost-efficiently.