Since the 2002 Commonhold and Leasehold Reform Act, leaseholders have had the legal right to take control of their block away from their landlord, and as a consequence, replace their managing agent, through the Right to Manage. It is a relatively inexpensive, swift and straightforward means of doing so.
Increasingly common amongst leaseholders, figures obtained by Companies House show that as of November 2009, there were 1,968 registered RTM companies, a 20% increase on the figure twelve months before.
And it comes as no surprise that more and more people are choosing to exercise their Right to Manage, given that it's simply a case of following a sequence of clearly set out steps whilst abiding by some well-established legislative requirements.
On meeting certain government-specified criteria, the Right to Manage is exercisable by all leaseholders. What's more, leaseholders are not required to prove that their existing managing agent has been incompetent or otherwise, and it takes just one person to initiate the process.
The minor stumbling blocks in the process are easily overcome with a little due care and attention; typically it is only a matter of ensuring that your block meets the qualification criteria in the first place, and thereafter carefully following the technical legalities involved.
Nevertheless, when outsourced to professionals, forming an RTM company is a simple, undaunting process, and the chances are that your block will sail through the Right to Manage acquisition without any complications or hold ups.
There are five steps to the Right to Manage process:
The costs involved in Right to Manage acquisition can be split into two groups:
- Your direct costs -
- The landlord's reasonable costs for which the RTM company are responsible -
The cost of administering the process. A sum paid to a company for the service of administering and overseeing the entire Right to Manage process. Recommended in that this virtually ensures that acquisition will progress without legislative infringements. We charge £30 per unit for this service, with a minimum fee of £400 for any one block.
These commonly come in at around £500 for blocks of ten units or under, and can reach £1500 to £2000 for larger blocks.
Very occasionally, the landlord will issue a counter-notice, denying the leaseholders the right to takeover on the specified acquisition date. In this instance, the RTM company would have to take the case to the Leasehold Valuation Tribunal in order to progress the process. In doing so, the RTM company would incur the cost of booking the case, and further costs of engaging legal advice.
Who is responsible for meeting these costs?
The responsibility for meeting all of the associated costs lies with whichever parties initiated the Right to Manage process.
Although the RTM company should receive uncommitted service charge monies from the previous managing agent, they cannot be used to pay the landlord's reasonable costs.
The benefits of the Right to Manage may well be fairly clear by now - essentially, it's all about getting more control over the management of your block and thereby saving money and improving service.
- Any costs incurred in the set up of the company will be typically recouped almost immediately as a result of savings made from wrestling control from the leaseholders' previous managing agent, in terms of the subsequent reduction in service charges, insurance premiums and other related charges.
- Leaseholders frustrated with dealing with a previously incumbent managing agent can choose either to take complete control of management by self-managing their block, or alternatively outsource the responsibility to a more competent managing agent.
- Leaseholders who form a Right to Manage company in order to self-manage their block invariably secure reduced charges on services as they are incentivised decision makers. Leaseholders, unlike a managing agent who is acting on their behalf, are actively looking for the best value for money in the services that they enlist.
- With control over management comes the endeavour to ensure that services are carried out to a satisfactory standard. Again, whilst a managing agent is overseeing whatever work is undertaken on the block, there is little or no guarantee that work will be carried out to an acceptable standard.
- With the Right to Manage, leaseholders employ their managing agent directly, rather than through their landlord, and consequently have more direct contact with their managing agent.
Based on a recent Urban Owners survey, these are the savings in service charges you can expect on acquiring the Right to Manage:
- 25% on your total annual expenditure
- 30% on management fees
- 30% on insurance
- 30% on general repairs and maintenance
- 25% on cleaning and refuse
- 40% on general grounds maintenance
- 60% on electricity
- 80% on legal and professional fees.
However, with control comes responsibility...
The RTM company, and therefore the directors of the RTM company, are responsible for the following:
- undertaking the landlord's obligations in the block's leases as if they were the landlord
- maintaining the building so it does not deteriorate
- operating the RTM company in line with company law
- ensuring the block is maintained / serviced in line with company law
- ensuring the block is maintained / serviced in line with current Health and Safety regulations
Failure to satisfy these obligations can have legal and / or financial ramifications for the RTM company and its directors.
It is sometimes the case that the various leaseholders in a block have a degree of experience in relevant fields like finance, company law and construction, so that they can collectively self-manage their block without having to engage a managing agent.
However, in just as many cases, and particularly in those involving larger blocks, leaseholders are dissuaded from going down the self-management route having considered the vast amount of administration and ever-increasing risk of violating legislation it entails.
It is in this scenario when engaging block management professionals to help in running a block, whether in the form of a managing agent or of Block Administration Services, is recommended.
In our own experience, there is very little that can prevent an Right to Manage acquisition from progressing without any complications whatsoever.
The Right to Manage is now nothing more than a regulation process, and with experienced professionals handling your Right to Manage transition and negotiating the legislative and administrative steps along the way, you can be virtually assured of success.
We have never overseen a case that has been taken to the LVT, and consequently have a 100% record in successful Right to Manage acquisitions.