Are you looking to take back control of your block of flats? As a leaseholder, you reserve the right to do this, subject to certain criteria.
Following typical procedure, you can transfer the management functions to a Right to Manage company (RTM). This right is enshrined in the Commonhold and Leasehold Reform Act 2002.
RTM empowers leaseholders to take responsibility of the management of the property, but it is important to note that the RTM company will inherit any existing management structure, as dictated by the existing lease(s).
Who is eligible?
Only 50% of leaseholders in the block must agree and participate in order to proceed with the Right to Manage, those participating cannot compel other leaseholders to join against their will. Here are the qualifying criteria for RTM:
- 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 i.e., 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% of the total number of flats (at the date the Notice of Claim is served).
- A tenant can participate regardless of the number of flats they own in the building.
- Not more than 25% of the building can be non-residential/commercial.
- In unique circumstances, other qualifying criteria may arise*.
Any qualifying tenant who does not participate will not be a member of the RTM company, meaning that they will have no direct say or influence in the management of the property.
Any qualifying tenant who does not participate is entitled to join the RTM company as a member at any time.
Other notes
• Leaseholders do not need the landlord’s consent to exercise RTM.
• Leaseholders do not need a court order to exercise RTM.
• Leaseholders do not need to prove mismanagement to exercise RTM.You exercise your right by serving a formal Claim Notice. After a set period of time, the management transfers to an RTM company
incorporated by the leaseholders. Once RTM has been acquired, the landlord (freeholder) is also entitled to membership of the RTM company.
The RTM company
The Right-to-Manage is exercised by the RTM company, and not 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 and Arts’), which govern its purpose and running.
The Memo and arts are prescribed by law. An RTM company will not be deemed valid under the Act 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 the 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, and they have been made members of the company.
The Right to Manage is exercised by service of a Notice of Claim. The form for the Notice of Claim is prescribed by statute, which 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 the 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 ahead and prepare for the transfer.
Counter-notices
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 as to 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.
Enforcement of covenants
The enforcement of the leaseholders’ covenants (obligations) under the lease becomes the responsibility of the RTM company. The company must ensure that leaseholders comply with all covenants.
The RTM company must alert the freeholder to any non-observance/compliance.
Management contracts
The existing manager will likely 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, for the maintenance of boilers etc. 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 Right to Manage 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 or omissions. These can include:
- Sub-letting
- Assigning the lease
- Making alterations to the flat.
The power to issue such approvals transfers 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 if appropriate.
Freeholder 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 and regulation, and whether the costs are reasonable, or not.
The RTM company reserves the right to challenge any costs at a tribunal.