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Right to Manage – Frequently Asked Questions

What is the Right to Manage?

 

The Common and Leasehold Reform Act 2002 introduced a right that enables leaseholders to take over the management of their building. This is by setting up a Right to Manage Company. There doesn’t have to be a question of fault by either the landlord or the property manager. The Right to Manage Company assumes full management responsibility for the building. Its members are free to appoint a property manager of their own.

 

What is the purpose of the right to manage?

 

The main reason for having a right to manage is to put the power and control back in the leaseholder’s hands. It enables them to set the standards of their block, managing it themselves. Also, they can ensure that they are getting value for money with their outgoings.

 

Do iInsure pay commission to any managing agents?

 

iInsure365 do not pay any commission to any managing agents for any part of our insurance. We do receive a commission in relation to the insurance we provide which we are happy to disclose. iInsure365 are a completely open and transparent business. We will work hard to ensure that your annual premiums remain competitive on a year to year basis whilst maintaining the standard of cover.

 

What is the minimum amount of Directors and do they have to be residents?

 

A right to manage company is only required to have one Director. However, normally there is between three and five depending on the size of the premises/block. There is no requirement for Directors to be residents. The majority of most Directors are normally residents. This is to avoid disproportionate influence from people who are not experienced in the property day to day living. The landlord of the building has no legal right to be a Director.

 

What sort of majority do we need to go ahead?

 

You must have at least a 50% majority to proceed. As long as at least half of the leaseholders in the block of flats are in support the right to manage can proceed (See our previous article on Right to Manage)

 

What are the responsibilities of the Right to Manage Directors?

 

All Directors have the responsibility to serve the best interest of the members of the Right to Manage Company. This goes as far as managing the property in the best interests of all leaseholders of the estate. Right to Manage companies can appoint a managing agent to deal with the day to day management of the estate itself. However, we can provide you with Directors insurance to cover any liability.

 

Will we be able to choose our own managing agent under our Right to Manage?

 

Yes, all reputable Right to Manage Companies should undertake to operate a code of practice. The Association of Residential Managing Agents (ARMA) adopted a code of practice with the Royal Institute of Chartered Surveyors (RICS). It is therefore important that you take time to choose your own managing agent.

 

Can we expect to save money?

 

Yes, most probably. Many leaseholders are facing excessively high charges for items such as buildings insurance, alarm monitoring and maintenance contracts. We would be more than happy to supply you with a like for like quote. We believe it would be substantially less than what you are currently paying not only in the first year but every year thereafter. Don’t hesitate to ask us for a like for like quote.

 

Who owns the freehold after the Right to Manage?

 

The freeholder would not change. Your freeholder retains his obligations and responsibility previously held under the Lease. This is apart from the management responsibilities of the building. These transfer to the Right to Manage. The collection of ground rent would still be required under the right to manage.

 

Are right to manage companies worthwhile?

 

Absolutely, they allow you to be able to manage your building and hopefully save you substantial costs during the process. It ensures that you have the best interest of the building at heart in future.

 

Summary

 

Don’t hesitate to ask for either a building insurance quote for the property or alternatively Directors liability insurance. We can offer you extremely competitive rates and fantastic cover.

Right to Manage Company Formation

Do you want to form your own Right to Manage Company? Right to Manage is only exercisable through a Right to Manage Company set up in accordance with the statutory regulations. A Right to Manage Company (RTM) must be a Private Limited Company by guarantee. Also, its Articles of Association should state that its object, or one of its objects, is the acquisitions and exercise of the Right to manage premises.

 

Forming a Right to Manage Company

 

You are no doubt aware of the requirements of qualifying tenants. Qualifying tenants have the right to become members of the Right to Manage Company. Their limit of individual liability is £1. The landlord also has the right to become a member of the Right to Manage Company. This is only after the acquisition date as they keep an interest in the property and his membership is usually limited to a single vote.
 
Since November 2009 Right to Manage Companies only require a single Director. Larger blocks will usually have a board of three or more. However, it is a matter for each company to decide. The Directors do not have to be leaseholders, however, most likely they will be or have an interest in the block. They are normally recommended by the majority of the leaseholders and it would be preferable if they were residents. The Directors would, therefore, be able to see what happens on a day to day basis to help with the Right to Manage Company.
 
The freeholder has no legal right to be a Director but does have the right to a single membership of the Right to Manage Company.
 
We have already outlined in our Right to manage article what you need to do to be able to proceed. As long as at least half of the leaseholders in the block are in support of the right to manage then the process can go ahead. It is always best to involve as many people as you can in a Right to Manage Company to protect against criticism at a later date.
 

Starting the Legal Process

 
There are normally founding members of a Right to Manage Company with at least one leaseholder as a Director. Once the company is established it must serve certain required legal notices on the freeholder. The notice will state that the leaseholders will be exercising their statutory right to manage the property. So as long as they meet the statutory conditions the landlord has no legal grounds to object. A month later the Right to Manage forms with the Right to Manage company taking over the management a further three months thereafter.

 

What is the Right to Manage Process?

 

  • A land registry search is first entered into to establish who the freeholder is.
  • Companies House creates the Right to Manage Company which is quite a simple thing to do.
  • Right to Manage Company serves a Section 78 Notice inviting participants of non-members.
  • To achieve the minimum membership of at least 50% of the leaseholders must join. Then, after 14 days the Right to Manage Company Serves a Section 79 Notice on the landlord.

 

The above notice starts the process of the Right to Manage.

 

The landlord may serve a Section 84 counter-notice within one month. The legal ground limits for them to do this are:

  • Not following the correct procedure.
  • The qualification of the building not being correct.
  • The company members are not leaseholders.

 

  • If there is no counter-notice, a Right to Manage is determined after one month, known as the determination date.
  • If the landlord serves a counter-notice denying the right to manage. The right to manage company can make an application to a Tribunal for the determination within two months of the date of the counter-notice. The determination date is either the date the landlord withdraws the counter-notice or the date of a decision by the Tribunal.
  • Following the determination date, the landlord must serve a Section 92. This is issued to any contractors and contract notices to advise about pending right to manage.
  • Leaseholders organize the block management. Either by selecting or appointing a new managing agent or by forming their own management service.

 

Three months after the determination date the Right to Manage company acquires the right to manage (acquisition date). The landlord/manager then hands over management to the Right to Manage Company or the leaseholders appoint their own managing agent.

 

Summary

 

Do you need freeholders insurance on a like for like basis? Do you want to purchase your freehold to try and reduce your costs through your insurance? Don’t hesitate to ask for a like for like quote. Your landlord could be charging a substantial amount more than the market rate so why not question what you’re paying for.

Right to Manage

Are you a leaseholder and thinking about managing your own building? Do you have a freeholder that you feel is charging you more than what you believe the building actually costs?

 

It might not be necessarily a fault of your landlord and Management Company that you wish to manage it yourselves.

 

There is a criterion that first needs to be met. That a minimum of half the leaseholders in the block need to agree to a legal right to manage process. This comes from the Common and Leasehold Reform Act of 2002 which give you the legal right to choose your own Management Company.

 

Right to Manage will seem complicated to most people but it does have a stringent statutory procedure that needs to be followed. If the legal requirements aren’t met this can leave the door open to technical objections from the landlord. It can even stop the process entirely.

 

How Right to manage works

 

To be eligible for a Right to Manage (often known as RTM) there are some criteria to meet. These are:

  • Right to Manage only applies to leaseholders and owners of flats, not houses or bungalows.
  • It must be a detached building or part of a building that can be served independently.
  • There must be two or more flats held by qualifying tenants and at least two-thirds of the flats must be leased to qualifying tenants.
  • If commercial premises make up more than 25% of the overall floor area then it would not qualify. This is also the case if the local authority owns the property and if the landlord occupies one of the flats.
  • A leaseholder must have a lease period exceeding 21 years to be a qualifying tenant.

 

Summary

 

Do you need freeholders insurance on a like for like basis? Do you want to purchase your freehold to try and reduce your costs through your insurance? Don’t hesitate to ask for a like for like quote. Your landlord could be charging a substantial amount more than the market rate so why not question what your paying for

What is the Right to Manage?

Right to manage is the term used for the statutory freehold management right. It allows a group of leaseholders to take over management of their freehold. However, it is not dependent on the freeholder doing anything wrong. There are some strict qualification criteria in place. So, it is not always possible to acquire management using the statutory process.
 

Qualification criteria?

The basic criteria are that you must have:
 
  • Over 50% of qualifying tenants want to proceed, meaning leaseholders who have a long lease. 
  • A self-contained and self-sufficient (or capable of being self-sufficient) building
  • At least 75% of the building must be used for residential purposes
  • There cannot be an existing right to manage agreement in place
 

What do the leaseholders now manage?

 
If successful, the right to manage company takes over the following duties in respect of the building:
 
If the building is part of a large estate, the management does not include communal grounds or areas. The management of those areas will continue with the freeholder (or managing agent). In addition, the landlord will still own the freehold and will remain involved in the collection of ground rents and the granting of lease consents (like subletting or carrying out works inside the flat).
 

What happens to existing contractors?

 
After the right to manage company takes over, the leaseholders will get to choose which contractors and third parties to use for maintenance. Consequently, all the freeholder’s contracts end as part of the right to manage take over unless specifically requested by the right to manage company.
 

Do the leaseholders have to manage the building themselves?

 
No, there is the option to appoint a managing agent of the leaseholders’ choice. There is no obligation to choose the same managing agent as the previous freeholder. Interviewing at least 3 different managing agents would certainly be recommended as there can be huge differences between agents.
 

How long will this take and how much will it cost?

 
Estimated timings are below. However, in total, the process will take around 6 months if the freeholder does not contest it. Costs can vary based on building, solicitors and freeholders.

Stage

Timescale

Action

Stage 1: Assessment  One week  Assessing if a right to manage can be applied.
Stage 2: Setting up the company  One week  There needs to be a minimum of one director and one member initially.
Stage 3: Notice Inviting Participation  Four weeks  Notice to all remaining leaseholders asking if they would like to join the company.
Stage 4: Qualification  One week  At least 50% of the qualifying leaseholders have to have signed up. If not the process cannot go ahead.
Stage 5: Claim Notice  One week  Serving notice to the freeholder that a correct right to manage application has been made
Stage 6: Counternotice  Six weeks  If the claim is accepted, Stage 8 applies. If the claim is rejected, Stage 7 applies. 
Stage 7: Tribunal Proceedings  Two months  If the claim is rejected the leaseholders have two months to apply to the Tribunal who decide if the freeholder’s rejection of the application is legitimate. 
Stage 8: Management handover  Three months  If the claim is accepted, the leaseholders acquire management approximately three months from the date of the counternotice or Tribunal’s decision. 

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01273 827090


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