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:
Step 1 – Ensure your block qualifies
This is typically a cut and dried process for most blocks – in order to qualify, your block must meet the following criteria:
- your building must be in part self-contained, and include at least two flats – part of a building is self-contained if it has a vertical division, could be redeveloped independently and has, or could have, its own services
- at least 2/3rds of the leaseholders must have leases longer than 21 years
- No more than 25% of the block may be used for non-residential use – excluding car parks and common areas connected with the flats.
- N.B. there are some issues relating to crown land / housing association owned properties. We suggest you contact us if you think either of these could be relevant to your block.
Step 2 – Create an RTM company
The RTM company is the actual body that takes on the management responsibility. This is a relatively straightforward process when carried out by a company formation agent. We advise that all company-founding leaseholders are made directors of the RTM company in smaller blocks, and that larger blocks have a minimum of three directors.
Step 3 – Secure participating leaseholders
In order to progress with acquiring the Right to Manage, at least 50% of leaseholders in the block must be willing to become members of the Right To Manage company. Generally, come this point in the process, this figure will already have been met, as leaseholders will often hold an informal meeting to discuss the prospect of undertaking the Right to Manage. A notice to participate must be issued to all as-yet-unparticipating leaseholders, who then have fourteen days to respond. The form and content of this notice is dictated by the legislation.
Step 4 – Serve a claim notice on the landlord
Assuming at least 50% of leaseholders are willing to become members of the Right To Manage company, a formal notice must be submitted to the landlord informing them that the company intends to acquire the Right to Manage.
This is a critical step, in that any infringement of the legislative technicalities can potentially stall the Right to Manage process. The form and content of the notice is dictated by legislation. The claim notice must contain:
- details of the premises in question
- full names and addresses of each qualifying tenant who is a member of the RTM company
- the name and registered office of the RTM company
- a specified date for service of a counter-notice (a notice of response entitled to anyone who is issued with a claim notice), this must be no earlier than one month on from the date that the claim notice was issued
- a specified date, no less than three months after the date for the service of the counter-notice, on which the RTM company intends to acquire the Right to Manage
Once the claim notice has been served, the landlord has one month in which to respond. If no response is issued, it is deemed that the landlord has consented to your acquiring the Right to Manage.
If the landlord contends your claim, they will be required to provide the reasons for their dispute. If, having heard the landlord’s contention, the leaseholders still wish to proceed with acquisition, they will need to take their landlord to the First Tier Tribunal (property). The First Tier Tribunal – Property will assess whether or not the leaseholders do, indeed, have the Right to Manage.
However, in reality there is little with which the landlord can reasonably take issue, other than if your building has not qualified under the criteria outlined in Step 1.
Step 5 – Prepare to take-over management of your property
Once leaseholders have obtained consent to acquire the Right to Manage, they usually have around three months in which to prepare for handover ahead of the acquisition date. We recommend that leaseholders do the following in this time:
- Decide whether to use a managing agent, our Property Management Services, or to self-manage.
- Discuss the level of service required, e.g. weekly or bi-weekly cleaning.
- Issue a Section 93 information request to the landlord for important information associated with the block. This ensures that leaseholders have at hand all pertinent information with which to run their block after having acquired the Right to Manage.
- Sign up relevant contractors to ensure that they are in place to provide services from the date of Right to Manage acquisition.
- Arrange for insurance to be put in place as of the date of Right to Manage acquisition.
Please note that the landlord is required to hand over all uncommitted service charge funds on the Right to Manage acquisition date or as soon as practically possible thereafter.
The costs involved in Right to Manage acquisition can be split into two groups:
- Your direct costs – 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.
- The landlord’s reasonable costs for which the RTM company are responsible – 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 First Tier Tribunal -Property in order to progress the process. In doing so, the Right To Manage 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 Right To Manage 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 the lease
- 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 Right To Manage 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 a 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 overseen cases that have been taken to the First Tier Tribunal, and have a near 100% success record in successful Right to Manage acquisitions – even when there is a challenge from the freeholder.