Right to manage companies - your questions answered

Q:  What is a Right to Manage Company?

A: Right to Manage Companies (RTMs) were introduced for the protection and benefit of flat owners in shared buildings.  In the past, some freehold owners of blocks of flats abused their position by either charging exorbitant service charges and/or failing to adequately maintain the common parts.  It was difficult for tenants to get a suitable remedy for this - proof of mismanagement could be difficult to obtain and legal proceedings against landlords were time-consuming and expensive.

The Commonhold and Leasehold Reform Act 2002 brought in a brand new power to allow tenants to acquire the management functions of the common parts of the property in which their flats were situated from their landlord through an RTM company.

To make life easier for the tenants there is no need to show that the landlord had done anything wrong and no need to pay compensation.  The landlord is entitled to be a member of the RTM company.  Please note this is not just the immediate landlord and can include others under a head lease etc. or there may be two or more owners of the freehold who can then be members.  Voting in RTMs is calculated in a particular way to ensure that two or more landlords cannot obtain control over voting in the company.  This protects the tenant-members.

The RTM company can take over the management functions of the landlord.  So, management of the building and collection of the service charge for maintenance and also for insurance would fall to the RTM company.  It cannot take over ownership of the freehold and the collection of ground rent which is payable to the landlord would remain with the landlord.

Q: What conditions must be met to use an RTM company?

A: Key conditions are:

  • it must be for residential tenants of flats (not houses);
  • the tenants must hold leases of 21 years or more (Qualifying Tenants (QTs)); and
  • to set up a valid RTM there must be at least 2 QTs. 

It should be noted that there are additional conditions.  For example, if part of the building is used for commercial purposes, what percentage of the whole that commercial part can be, what counts as a qualifying building etc.  You may need to refer to a property lawyer or the Leasehold Advisory Service on these questions.

Q: How does the Right to Manage Company take over the management functions?

A: Establishing the Right to Manage Company (RTMco) is just the first stage of the process.  It is vital that it is set up correctly as failure to do so may prevent a successful application.  Once incorporated the RTMco must invite other QTs who are not already members of the company to participate in the company.  It is a minimum requirement that the membership of the company represents half the flats in the building.  RTMco may then serve the Notice of Claim on the landlord.  The landlord is entitled to serve a counter-notice disputing this claim.

There are only three grounds on which a landlord may dispute the claim:

  • the building does not qualify
  • RTMco does not comply with legislative requirements e.g. the name is wrong/it is limited by shares/its articles do not conform to the statutory requirements for RTM companies etc.; and/or
  • the members of RTMco do not represent half the flats in the building

Where the landlord disputes the claim, RTMco may apply to the Leasehold Valuation Tribunal within two months of service of the counter-notice.  If it does not do so, the claim will be deemed to be withdrawn.  If the claim is eventually successful then an acquisition date is set when the RTM company takes over the management functions.

Q: What articles of association are used for an RTM Company ?

A: The company must use the articles for RTMs prescribed by statutory instrument..  For English RTMs these articles were amended in November 2009 to take into account the changes brought in under the Companies Act 2006 .

For further information see: http://www.lease-advice.org/publications/documents/document.asp?item=21


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