Keeping and properly exercising the right to manage can be surprisingly complex. Here are some of the more common questions that our right to manage solicitors come across on a regular basis.
Q: What exactly does a right to manage company have to do?
A: Any right to manage company (or RTM Company) has to carry out the following duties and obligations.
- The RTM company has to keep to the government’s Code of Management Practice, just as any other landlord has to.
- It also has to take over any of the freeholder’s obligations which are stated in the tenants’ leases, such as carrying out repairs to a reasonable standard in a stated time period.
- The company also has to tell the freeholder when any tenant breaches their lease.
Just as with any other sort of company, the directors of a right to manage company will have the same responsibilities as other directors. It is also their obligation to maintain the landlord’s covenants.
- The RTM company has to be registered with Companies House. The company also has to submit a yearly return and keep detailed accounts.
- The company should have Articles of Association drawn up. This is something our solicitors can help with.
- The RTM company will have to appoint a Board of Directors, which is usually made up of qualifying tenants. The Directors will look after the day to day running of the company. When you are going through the right to manage process it is particularly important to make sure you have tenants who are happy to take on this level or work and responsibility.
- Any RTM company has to stay solvent. This is very important. It could mean members or directors having to make up a shortfall themselves if a tenant doesn’t pay their monthly fees.
- RTM companies also have to have a clear idea on how to raise funds to make sure that there is enough money in the kitty to pay for maintenance of the block.
- The company has to hold regular board meetings.
The most important job of any right to manage company is the day to day running of the building. This could include organising insurance, repairs and maintenance. If there is any development planned this has to be voted on by all of the company members, which might include the landlord.
Q: How much will getting right to manage cost me?
A: There are several costs which may be associated with getting the right to manage a block of flats. These can include:
- Registration fees for Companies House
- Surveyor fees
- Your solicitor’s legal fees
- Your landlord’s solicitor’s legal fees
- Landlord’s legal fees for dealing with the initial notice
- Fees for the managing agent (where applicable)
- Accountant fees
- First-Tier Property Tribunal [previously known as the Leasehold Valuation Tribunal or LVT] fees, if applicable
The exact amount of these fees will vary depending on the size of the building, the response of the landlord and how many tenants are involved in the right to manage.
Remember that as the overall cost is divided by the number of tenants involved, more tenants means less cost per person.
Q: How long does the right to manage process take?
A: Unfortunately, there are no hard and fast answers to this one. If everything runs smoothly, then it could take as little as four months for you to gain the right to manage after the company is created.
When the RTM company is established, you must then allow 14 days to tell the tenants who have chosen not to be involved about the creation of the company and give them a chance to get involved too.
After this has been done, you can serve notice on your landlord.
The landlord has to be given 28 days to respond to the notice, and issue a counter-notice if they want to. The law says that after this 28 day period has finished, you must wait a further 3 months to take over the right to manage.
Delays can happen when you are trying to get your fellow tenants together to create the company, when asking a solicitor to inspect the business and issue you with their report. If the landlord issues a counter-notice and you have to apply to the First-Tier Property Tribunal this will also hold matters up.
Q: Do I really need a solicitor to help me with right to manage?
A: Depending on your individual situation, the right to manage application might be complicated – both in terms of law and procedure.
An experienced leasehold solicitor can make a world of difference to your application. In case you aren’t aware, few property solicitors deal with right to manage applications regularly – so don’t be surprised if you have to go outside your home town to find a genuine specialist.
Specialist legal advice will also be needed when you are setting up your RTM company – ggetting the right shareholders agreement drafted, for example.
When your landlord receives the notice that tells him you wish to exercise your right to manage, he will more than likely call a solicitor straight away. It therefore levels the playing field if you are represented by a solicitor too when making the application. By not having an experienced leasehold Solicitor, you could be putting yourself at quite a disadvantage.
Q: Is there any alternative to the right to manage?
A: Yes. Exercising your right to manage is not always the right thing to do – depending on your circumstances.
In particular before exercising your right, you need to consider your available choices – which our specialist team of leasehold solicitors are happy to explain and discuss with you. Your 2 main options are as follows
- Buying the freehold of the block. Enfranchising in this way gives you and any other participating leaseholders not only the right to manage the block, but the actual ownership of the building as well. That could have substantial financial and practical advantages – and if you and enough of your fellow leaseholders have the money and the will to do so, it could prove a much better option.
Click here to read more about how collective enfranchisement could be right for you.
- Getting a Tribunal appointed manager. Section 24 of the Landlord & Tenant Act 1987 allows you to make an application to be made to the First-Tier Property Tribunal to appoint a manager for the property- in place of any manager appointed by your freeholder.
However, for the Tribunal to approve a new manager you must be able to prove bad management by the current manager. This can include being asked to pay unreasonable service charges or proving that your landlord has not complied with the code of management practice. In this instance, a new manager may be appointed for your property.
There are also 3 other possible approaches to problems of poor management in your block. These are;
- make sure that your freeholder keeps to their obligations under the lease, including complying with any requirement contained in the lease for consultation with leaseholders about works that need to be done to the block. If the freeholder fails to comply with these obligations, it is possible to apply to court for what is known as a Specific Performance Order. This can be used to ensure that the freeholder keeps to their obligations under the lease
- consider challenging the reasonableness of any service charge imposed by the freeholder
- negotiate a lease variation with your freeholder, allowing for the appointment of a Leaseholders Management Company “head-lease” – which could allow leaseholders to take on the management role by agreement
Q: What is going to happen if I don’t want to participate in the right to manage application?
A: You can’t be forced to take part. From your point of view not much changes – the any exception being that after the right to manage the exercise, those participating in the management company will be responsible for maintaining your block – and it’s then your going to have to deal with rather than the freeholder
Q: Does A UK RTM Company Make It Easier To Sell Your Flat?
A: We think so – at least in most cases.
The only situation where having the right to manage may be a disadvantage, is where, for whatever reason, the right to manage company is failing to satisfactorily maintain the building or comply with its other obligations. In that case, buying a flat with a badly performing RTM company could bring some serious legal and financial problems.
Q: How do we choose the right managing agent?
A: Getting the right to manage means you get the choice over whether to manage the block yourself or ask a professional property managing agent to do the job for you.
Managing your own block is much more popular with small blocks.
Choosing the right managing agent should not be underestimated. They deal with maintenance contracts as well as holding large amounts of your money
If you do decide to appoint an external manager, then do spend some time looking for the right managing agent as this choice can affect the value of the properties in the building. Depending where your block is, we may be able to introduce you to managing agents for you to talk to
Here are some things to think about when trying to select a managing agent:
- Price is obviously a significant factor when choosing a managing agent ,but cheapest is not always best. The right managing agent may not always be the cheapest, but should help you make considerable savings in other ways, such as maintenance costs.
- What is their level of expertise and how does the managing agent structure their team?
- Consider their efficiency in replying to your phone calls and emails enquiring about the service.
- Do they have a robust reporting and accounting system in place? Can they show you how they will spend your money?
- Do they carry out check for problems regularly or carry out a programme of regular inspections?
- Is the agent a member of any professional organisation? ARMA (Association of Residential Managing Agents) is a body whose members have to prove their competence. It is also the only trade organisation in England and Wales to be solely concerned with leasehold apartment blocks.
- How will you contact the manager in case of out of hours emergencies?
- Will they give you a dedicated account manager?
- Do you think you could form a good working relationship with the agent – as this is a critical factor in effective building management?
- Make sure you are getting the best value for money in terms of utility providers and contractors for the block.
- Ask potential agents about the types of blocks they currently manage to ensure they have good experience of a building like yours
- Let any potential agent know exactly what you’re looking for, what you need and how you would like to work with them
- Ensure that the agent has time to manage your building and isn’t overloaded with other work
- Speak to other clients who are currently using the agent and establish whether they are happy – word of mouth recommendation is often the best way of establishing a company’s reputation.
- Ask our solicitors – we regularly deal with highly efficient managing agents in many parts of the country
Termination of the right to manage – the grounds
If a RTM has already been carried out but at a later date the management of the building is not up to scratch, the RTM can be terminated by an application for the appointment of a manager.
This is a joint decision with the landlord, and the landlord must agree to take the management responsibilities back.
A few of the instances in which a RTM company stops having the rights to manage the building include:
• An order is made under Part 2 of the Landlord and Tenant Act (1987) which takes the RTM away from the right to manage company, or when a management company appointed to replace the original RTM company begins to operate
• When the RTM company starts the process of buying the freehold to the building
• The RTM company goes into receivership, is wound up by the directors, is struck off or becomes insolvent. In these cases the RTM ceases and responsibility for management reverts to the freeholder
• All of the leaseholders agree that they no longer wish to exercise their rights to manage
Termination of the right to manage – the application
An application to cease the right to manage must cover all of a building, or at least part of it with two flats or more. Any one tenant or a group can make the application.
An application under Part 2 of the 1987 Act can only been made if it can be shown that the RTM company has:
• Demanded or is likely to demand service charges which are unreasonable
• Breached some of their obligations under the terms of their lease
• Not complied with some of the codes of management practice
Who then takes over the right to manage?
If the First-tier Tribunal Property Chamber has sufficient proof that removing the right to manage is appropriate, they might make an order to remove the RTM company’s management responsibilities and place them with a manager designated by the Tribunal. This could be one of the other tenants or another named responsible person. This person can then get a management company to carry out the tasks, but the responsibility remains with the person named by the Tribunal.
Restrictions on future RTM applications
In cases where a RTM is terminated, the tenants are not allowed to make a subsequent right to manage for four years, unless the Tribunal agrees. This is a complicated and specialised area of property law, so if you are looking for legal advice on right to manage issues, make sure you are dealing with the experts.
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