We have created this article to try and give you an overview of the law it is not an interpretation of it. In that event we would suggest if you have any queries then please do not hesitate to contact a solicitor. We are more than happy to recommend one if you do not have a specialist solicitor who works in this area.
If you are in any doubt about your rights and duties you should seek specific advice.
The Commonhold and Leasehold Reform Act 2002. Provides a right for leaseholders to get the landlords management functions. by a transfer to a Company set up by them. This is a Right to Manage (known as RTM). It allows you to manage the building rather than the freeholder. So you can ensure your costs for the building are reduced. Without paying for excessive insurance, maintenance costs and anything else. that you believe that you would be able to maintain your property better.
It was first introduced to empower leaseholders. Who generally hold the majority of the value in their property. To take responsibility of their block. It was not meant to get rid of bad landlords or managing agents. But to help leaseholders improve their own building. The Right to Manage is available to leaseholders of flats. But not yet houses although there is legislation being created to help with these scenarios.
The Law Commission has recently published a proposal for new procedures within the Right to Manage. They have found that many leaseholders with setting up a Right to Manage Company and the Right to Manage Regulations. Which are often quite complicated. The proposals being outlined are to simplify the whole process. To ensure that leaseholders have a much easier way of dealing with their freeholder in future.
The process can be simple if the guidelines are followed and landlords consent is not required or a Court Order. There is no need for the leaseholders to prove that there has been any mismanagement by a landlord. The Right to Manage is available whether the landlord has been good or bad at management. It is more for empowering the leaseholders and lessees.
The right is exercised by a formal notice on the landlord. After a set period of time the management transfers to the Right to Manage Company (RTM) which will be set up by the leaseholders. Please see our Article on forming a Right to Manage Company. Once the Right to Manage has been acquired, the landlord is also entitled to be a member of the company.
It is important for lessees who wish to do this process that there is a large amount of research and work to be carried out before any notice can be served. It is important that you thus take legal advice. Prior to serving any such notice because if it is invalid then it can preclude you from managing a building or employing your own managing agents for a period of time. You will also have to take over the management of the building if you are successful. so you have to consider whether you wish tousey your own managing agent in future or do it yourself.
This guide sets out the issues and practicalities of the right and what you would have to do.
How to prepare to serve the notice for a Right to Manage Company.
You would need to take into account what the leaseholders want to achieve by taking over the management of the building. Is this to reduce your costs or to put your own managing agent into place? It will make sense for leaseholders to take general control of the upkeep of their most valuable asset being their flat. It will also bring duties with it and liabilities so it is important that you understand what is involved. You can insure yourself against any such issues once the Right to Manage Company has taken over through a Directors and Officers insurance policy. Please see our article on this. When acquiring the power to make approval and enforcements of the covenants, you have to adhere to the contents of the lease. The leaseholders become wholly responsible for all decision making on budget and reserve funds. As well as standards of management and the provision of services. Such as repairs and major works together with the function of the building. It is important at that point on whether you decide to manage the property yourself or to use a managing agent. You will be in control of your costs and thus Directors and officer’s liability insurance is and will be key for you. It is something that we would always recommend.
You need to take the above into account before you make any decisions on whether you wish to have the Right to Manage.
RTM does not mean self-management in itself. The Right to Manage Company can decide to either carry out a day to day management or delegate the function to a managing agent. Any managing agents will be instructed by the RTM Company. So decisions such as major works could still be taken to the Right to Manage Company if they wished.
If the building is small and say no more than six flats the day to day management may be left to a professional managing agent. This may be the best way of dealing with it. RTMs are often put in place through the dissatisfaction with the present managing agents. The leaseholders feelings of importance in the decision making process may not be taken into account. By the managing agents and they may have shortcomings in their ability. You may find that the same managing agents working with the instructions of an RTM could deliver a better service. Rather than the upheaval of changing managing agents. Only you will know dependent on your individual building.
Major motivations on a RTM are to save money on maintenance and repair works. It is a sensible goal for the RTM to adopt a responsible attitude for long term maintenance aspects of the buildings. You must understand that the building remains in the landlord’s ownership. The flats remain the leaseholder’s principal financial asset. The Right to Manage Company has to be careful. In not reducing the money spent to the point where essential services are not provided and the building may deteriorate. You need to know the RTM still has to deal with the covenants in the lease and carries out the duties and responsibilities. You have to do exactly what the lease states not carry out items when it comes necessary and convenient. This is your legal duty.
Right to Manage Companies need like any other landlord to follow the Government approved code of management practice. There are currently two such codes one produced by the Royal Institute of Chartered Surveyors (RICS). Secondly the Association of Retirement Housing Managers (ARHM). Which relates to specifically purpose built retirement properties. It is not mandatory at the present time although there are proposals to make it so to follow the codes. But if you fail to do so these are grounds at a Tribunal to either use a new manager or end the Right to Manage if it has not been done properly.
These documents can be difficult to understand but are easily accessible on the internet.
A brief summary of what taking over the management of the property will bring by way of responsibilities.
It is very important at an early stage of any Right to Manage to consider what the responsibilities will be in future.
These can be as follows:-
a) The leaseholders will manage the building for an RTM and will need to learn about companies procedures. Or to employ somebody who can advise them on such matters. However, Companies House are extremely helpful and any solicitor would help you through this process.
Officers for the RTM company must be found initially but also on an ongoing basis. The officers have the normal responsibilities of Company Directors as well as the landlords of residential properties.
The RTM Company can be vulnerable to criticism from lessees and residents as was the landlord. You must understand that being in control of the management responsibilities often brings out irrational behaviour from people. You may have to take the rough with the smooth.
b) You may need to have regular meetings so that people are informed what is going on.
There may be technical issues to deal with such as budgets and accounts, specifications and legal requirements but any solicitor advising you through the process can help you with this.
c) There will be a need to keep the RTM company solvent. It is important that you understand what accounts a Company has to provide which are not leaseholders accounts. This should be very minimal and again Companies House can help you with this.
d) There may be difficulties and sensitive issues to deal with such as neighbours and leaseholders on difficult subjects but this is the whole point of taking over the management.
e) The company’s Directors are legally required to comply with a range of Company Housing and safety under Health and Safety law which you will need to look into.
f) If you have an employed person by the freeholder you would have to look at the TUPE which is a transfer of undertakings and protection of employment regulations. However, this would be highly unlikely and very unusual.
All of the above may seem difficult but the Right to Manage is an opportunity for those who have an interest in the building, the leaseholders, to run their own affairs to make the decisions to upkeep their flat. It is an opportunity that most times peoples shouldn’t dismiss lightly.
Qualification for RTM.
We have provided this in other articles in detail but there are minimum requirements as follows:-
1) At least two thirds of the flats must be “qualifying tenants”
2) It can be part commercial but the non-residential must not exceed 25% of the total floor area, excluding common parts.
3) RTM does not apply where the immediate landlord of any qualifying tenant is a local housing authority.
4) RTM does not apply when a premises fall within RESIDENTIAL LANDLORD EXEMPTION. For a landlord to have this exemption they would require the following:
a) The premises must be other than a purpose built block for example a converted house and it must comprise of not much than four flats and one of the flats must be occupied by the freeholder or an adult member of their family as their only or principal home for the last twelve months.
A qualifying tenant is a leaseholder whose lease was originally granted for an original term of more than 21 years. There is no requirement for any past or present residents in the flat, nor any limit on the number of flats which can be owned by one person.
The Right to Manage may only be exercised by the Right to Manage Company and the members of the Right to Manage Company must comprise of a sufficient number of qualifying tenants. The required minimum number of qualifying tenants must be equal to at least half in terms of number of flats within the building.
The right relates to a building so, in an estate of separate blocks, each block would need to qualify separately and an individual RTM notice served. In the case of an estate of flats under the Right to Management, it will be sensible to take over the management of the whole estate, but this would have to be accomplished by application in respect of each separate block.
The RTM Company
The Right to Manage can only be exercised by the Company, not the individual leaseholders, and cannot be done without the formation of a company. Please see our previous article. It is the Company which obtains the right to manage and which takes responsibility for the management. This is to ensure that as the leaseholders change over a period of time it does not affect the overall management of the building through the Right to Manage Company.
The Right to Manage Company must have Articles of Association which govern the purpose and running of the company. The articles are prescribed by law and a company which does not have a valid RTM for the purposes of the act does not match these provisions. This can be done when you form a Right to Manage Company and please see previous article on forming a Right to Manage Company.
There are various prescribed articles which are set out in a statutory instrument 2009 number 2767.
If you want to form a Right to Manage Company it is quite a simple operation. This can either be done by a solicitor, company agent or the qualifying leaseholders themselves.
Companies House produce various articles and leaflets that would help you within this process and they are extremely helpful.
You can contact the registrar of Companies which is at Companies House, 4 Abbey Orchard Street London Westminster SW1P 2HT telephone number 0303 1234500. They also have one in Cardiff being Crown Way, Cardiff CF14 3UZ.
Any number of qualifying lessees/leaseholders may set up the RTM company. The law does not require the full number of participants at this stage. Simply enough participants to provide a Chairman, some Directors and a secretary. However, the law has recently changed on this and you may not even need to provide a company secretary or Chairman but you should check with Companies House. One of the very first steps when dealing with a Right to Manage Company is to identify those leaseholders of the building who are prepared to take on this responsibility. They can get insurance through Directors and officers insurance and please see our article on this. Once the Right to Manage Company has bene registered, with its original members, then it must formally invite the rest of qualifying leaseholders to join and we outline this in a separate article.
Right to manage – Notice invited by Participation, obtaining information, plans and budgets and how to do them.
Right to manage – are you thinking about participating?
When you consider a RTM there are various areas that you need to consider and procedures you need to follow in order to do this. We outline below some of the areas.
The notice inviting participation from leaseholders
You have to understand when doing a Right to Manage Company that all qualifying leaseholders can become a member of the RTM Company. You are not entitled to exclude anyone for any reason. This is not a matter of choice but legislation which allows all the qualifying leaseholders to become members.
It is also important to understand and remember that once the Right to Manage is acquired. The landlord is also entitled to membership of this company and you cannot exclude him.
You will need to provide a notice inviting participation to all the leaseholders. This must be in writing and in a prescribed form. You should consult your solicitor on the form itself. This must be served on all qualifying leaseholders. Who are not at the time of service, members of the RTM Company or have not already agreed to become members.
The Notice must state the following:-
a) State the right that the RTM company intends to get the Right to Manage
b) State the names of the members of the RTM
c) Invite the recipient to become a member of the RTM
d) Provide other information which by regulations. Such as the right to Companies registered number. Its address of its registered office. The names of its Directors. If applicable secretary, the name of the landlord. Plus the name of any other person who is party to the lease other than the leaseholder.
e) It is so important that these notices are correct.
The notice must also state:-
a) The Right to Manage Company will take over the landlords management functions under the contents of the lease. This will include for example enforcement of tenant’s covenants and the granting of approvals. In the case of buildings containing flats under the control of the landlord. Or commercial units. The notice must make it clear that the management powers obtained through the Right to Manage. Will not extend to those flats or units. These are laid out in legislation.
b) That each member of the RTM company. May become liable for the landlords reasonable costs arising for the service of the notice to exercise the Right to Manage. You need to be aware and ensure that everyone knows that there could be financial ramifications of the involvement of a Right to Manage application. Yet there also could be large savings such as the insurance which don’t hesitate to speak to us that negate any costs involved.
c) Whether the Right to Manage intends to use a managing agent. If so the prospective agents are identified. his name and address would be served. Or alternatively whether the company intends to appoint the current managing agent. If the Right to Manage Company does not intend to appoint an agent but to manage the building itself. The notice must give details of the amount of experience if any, of the existing members of the company.
d) The notice must be accompanied by a copy of the Articles of Association of the Right to Manage Company. Please see our previous article on this. The Articles must state where they are inspected and copies taken. The notice is not considered to have been served if it does not include the Articles of Association. Or where it is found. This is a very formal notice and care needs to be taken that it fully complies and is properly This is so important as it is one of the areas that the landlord might use to try and negate around the Right to Manage Company.
e) The notice may be served by post or simply delivering it to all the flats. The legislation provides that it may be addressed to the leaseholder of the flat. Of the building (the qualifying address). Unless the leaseholder has before notified the company of a different address in England and Wales. If this is the case then you should also serve a copy on the address of the where they request. The secretary of the RTM should make all reasonable attempts to send the notice to anybody even if they are abroad. Yet it is not obliged to serve it outside of England and Wales. Again we would advise you to use a solicitor who deals with Right to Manage Companies. This is a specialist area and we would suggest that you use a solicitor who deals with this type of aspects of the law.
f) Notice of intention of participation is important and so is the service of the notice itself. It is important because legislation requires that all leaseholders have the opportunity to take part in the Right to Manage exercise. Yet, the adequacy, or otherwise of the procedure may provide an opportunity for the landlord to challenge the eventual action of obtaining a Right to Manage. on the basis that the RTM company is not constituted. This means that the landlord can challenge that the RTM was not put together properly. thus the RTM cannot provide the correct notice. You will find a lot of landlords/freeholders will look at this as an area to challenge the Right to Manage. So it is important that it is done properly and as advised above by a solicitor. If it fails to follow the service under Notices there can be issues. You may need to provide evidence of satisfactory delivery of the notices. This could be a picture duly dated and stamped of you posting the document through the letterbox. It is important that this information is retained. In the case of any subsequent challenge for a qualifying leaseholder or the landlord. You may find that you might want to send the Notice by recorded delivery.
g) The qualifying leaseholders who respond to the Notice who ask for membership must enrol as members of the RTM Company. The membership will be noted on Company records as a normal Company itself. It would be prudent to include an application form for membership with each notice of inviting participation. So that people are aware of their responsibilities although it is not compulsory.
Obtaining information for the Right to Manage
A Right to Manage Company is now legally equipped to proceed. Yet, it would be unwise to do so without some detailed investigation into the present management arrangements. Or the implications of a company taking part in the management. Do the managing agents have a contract in place? Are there any existing large contracts, and what is the purpose of having a Right to Manage Company? The legislation provides rights for both information from the landlord and access for inspection of the premises. But it is of the greatest importance that an RTM Company takes stock to find out what information it requires and what it wants to know. What are your objectives and what information do you need to get the objectives?
The management of any building being small or large can be complicated and especially if they are large buildings or estates. They can be comparable to the size of a large business depending of the number of people you have to deal with. It is so important that the RTM understands what the responsibilities not only for the Company but for the management in future will be.
Are you going to use a managing agent or are you going to do it yourself. Have you read the RICS code and what are your principals for the building?
If you are thinking of appointing a managing agent, please see our guide in this regard.
Each building is different. In case of larger buildings it may be prudent to get professional advice from a surveyor or managing agent on what may be required.
- a) The proper name of the leaseholders, immediate landlord and its address for services of notices. This should appear on all rent and service charge demands.
- b) Full names and addresses of leaseholders in the building.
- c) Details of all non-residential commercial use of the building.
- d) What is the current arrears position? Are there large arrears that you will need to deal with?
- e) What are the insurance arrangements for the building? You are entitled to ask for a copy of the schedule together with policy document and get a comparable quote which we would be happy to help you with.
- f) How is the building managed?
- g) Where the building is managed by an agent the name and address of the managing agent?
- h) Details of all contracts present enforced in the maintenance of the building or fittings and provision of services. You would have been given notice of any long term arrangements on the contract.
- i) The state of the building and any identified requirements. Of major works repairs and improvement including copies of any recent survey report. It is important that you understand what you are going to have to do once you come to manage the property.
- j) A lot of the above information will already be known by The remainder can be obtained through the right for information under the Landlord & Tenant Legislation from the land registry and a service of notice under RTM legislation.
- a) Landlord & Tenant legislation – you are entitled to the name and address of your landlord. This should be on all the maintenance demands. If it is not it must be within 21 days and failure to do so can be a criminal offence. The Act also provides for an annual statement of service charge. Which you should receive every year which are often known as maintenance accounts.
- b) Land Registry – the land registry is now an open record and all property must be registered. although there is a very small percentage. There are no more than 2% which are unregistered in the Country. You can inspect the register and get copies from the land registry of the freeholders and leaseholders details. The land registry will call this office copy entries. They will provide the name and address of the registered owner. Together with any mortgages etc. There will be a small fee for obtaining copies but they are very easy to deal with. You should look on the internet to try and find your nearest local land registry or look for the following link:-
Section 82 Notices under the 2002 Act – this provides a right for the Right to Manage Company to serve a Notice on the landlord requiring certain information. This reasonably requires for ascertaining particulars including the claim, notice, for changing the Right to acquire the Right to Manage. It is important that you understand that these types of legislation have very precise wording. The power within the law requires information sufficient to serve the claim notice. It is not a general power to obtain information other than this purpose. Where the required information is contained in other documents for example accounts, bank statements, contract specification. The Notice can require the landlord to allow you to inspect these and have a set of copies of the documents. If a Notice is served under Section 82 then it normally has to be complied within 28 days. We would again suggest that you contract your solicitor in this regard.
Plans and Budgets
One of the fundamental reasons for lessees/leaseholders to take over the management of their building is the cost. They often find that landlords through such areas like insurance. Have a tendency to charge substantially more than what can be obtained. It is important that you understand what the requirements of the RTM are.
Legislation does not need the RTM Company to produce or submit to the landlord any form of business plan or budget. Nor to provide any informationabouto how the company proposes to manage the building. That is a matter for you in the future. The notice inviting participation requires a statement on whether the Company proposes to self-manage. Or appoint a professional management but there is no statutory need for the appointment of a manager. There is also no need for prior management experience by the Company when serving the notice.
It is important and sensible to look ahead to find out what would be required for you to manage the building in future. You need to examine how the building should be managed. What advantages may be achieved and what cost savings can be made together with other benefits that might be gained. You have before you make a commitment to any action have time to clarify what the motives are for managing the building. Is it to save money, or is it to improve standards, or take control of the decision making process or to get rid of a bad landlord or managing agent. It is around the motivation that the management should consider what their strategy in future should be and how to achieve it.
You have to consider do you to use a managing agent and to look at this cost in advance rather than at a later date. Is it the service delivery that you have an goal to improve? Are you having a problem with the existing managing agent not giving you information or working with you on the building? Is it the instructions from the landlords that are a problem for the managing agents rather than the way they work? Perhaps you should consider before you serve a notice inviting participation that you work out what you need. To see a few managing agents in advance to see what the market is like. Perhaps you should have some interviews with managing agents to find out how they work. Do you want to change the insurance? Do you feel you can get a much better price and service?
It may be that you need to use a managing agent but the Right to Manage Company will still have a duty to the landlord not to allow the depreciation of value in the freehold of the building. Through neglect, mismanagement or deliberate under spending on the building. It is important that you ensure that your covenants under the terms of the lease are still maintained. You are keeping the fabric of the building in good condition as the landlord still owns this.
In larger blocks you should consider what will the planned maintenance be over the next few years. Employ a professional for help in this regard. A programme should ideally be laid out for a period of 25 years so it covers all the building elements that are needed in periodical renewal. These are known as budget costs and include all sorts of fees together with potential regular costs so they can be properly programmed. Understand what the expenditure will be.
You must make sure that your expectations through management are not going to be unachievable due to there being too much expenditure. You have to think through all the different aspects of the budget and what you feel is reasonable.
You must understand it is still your responsibility to manage the covenants of the lease and maintain the landlord’s investment.
You have served the notice on the landlord. You have an acquisition date you are moving towards. What are the next steps you will need to take place?
One important step will be the insurance. You will need to ensure that you not only have insurance in place for the acquisition date. But it is exactly what you need. It may be one of the main reasons why you are able or want to proceed so don’t hesitate to contact us for a quote.
Management contracts by the landlord
The landlord could well have many contracts that are in place in relation to your building. It is the responsibility of the Right to Manage Company to make itself aware of them. That the relevant contractors have given warning of the impending transfer management. There could be a contract with a managing agent for the whole management of the building. A lift maintenance contract. Boilers and central heating contract. Door entry system Contract. Cleaning, gardening, caretaking and other direct services or provisions of supplies.
You are now taking the responsibility for the management as it passes to the RTM Company. The landlord will no longer be able to fulfil his part of the contract. The RTM Company will need to make decisions on whether to renew the contract. Or to look elsewhere for other services. This may be due to the cost that you wish to try andgetn a better quote elsewhere.
What is the RTMs responsibility?
It is important that you make sure you have taken steps to ensure a smooth transfer of management services. It is the RTMs responsibility on the acquisition date. To deal with the day to day management thereon. For instance if somebody was trapped in a lift. You didn’t have a maintenance contract you would have been responsible. It issoe important to make a list and prepare for what needs to be done.
It is the landlord’s duty to ensure that parties are aware of contracts. Through the service of various notices. You should have had any notices and be aware of contracts.
A contract of notice must be served on contractors appointed by the landlord and include the following information:-
a) Confirmation of the relevance of a contract as well as a copy of it.
b) Statement of the Right to Manage to be acquired by the Right to Manage Company
c) The name and address of the Right to Manage Company
d) The Acquisition date
e) A statement advising a contractor you wish to continue to provide services to the building. To contact the Right to Manage Company.
f) It would be in your interest to make sure that you contact these companies to find out whether you wish to continue with them. Or whether you wish to finish. They may have notice periods and it is important that you are aware of these.
g) Where there are services that are sub contracted. Then the contractor who receives the contract notice must send a copy to a sub-contractor as well
h) Contract notice – this must be served on the Right to Manage and include the following information:-
I. The details of its existing contract and the name and address of the contractor
II. A statement advising the Right to Manage Company to contact those contractual services that it wishes to keep.
The landlord doesn’t have to supply you necessarily with a copy of the contract. But inform the Right to Manage Company of its existence and that it is now party to it. It is so important that you get the information direct from the contractor if required.
The contractor contract notices should be served by the landlord. As soon as possible after he receives the notice of any claim from the RTM Company. But, this should be no later than is reasonable or practicable. This should be after the determination date. It is enforceable through the County Courts. So you need to try and work out from the maintenance accounts whether you think there are contracts. The Law changed some considerable time ago so you should have been given notice of any long term contract that had been entered into.
Determination date is the date specified on notice of a claim. For the service of the landlord of the counter-notice and if the claim is disputed by the landlord. The final date of the determination of the tribunal or the date or subsequent agreement by the landlord. This is outlined in our previous article.
Because there is a gap of three months between the determination and the acquisition. The notice should be served well before the management is transferred.
If you are going to be a well-organized Right to Manage Company. Then you should have obtained all these details at a much earlier stage. You should have already made the decisions on whether to keep or get a new contractor. It is important that you are organized. That all existing contractors will be prepared to contract with the Right to Manage Company. and that the company should investigate any alternative providers if they are not. You need to realize that as you are breaking an existing contract. That the company has the opportunity to review the contract services of the building. They can re-specify or re-negotiate their terms. It is up to you whether you decide to keep them.
Has the landlord a duty to provide all the information
A lot of landlords will drag their heels when it comes to transferring information to an RTM company. The RTM company cannot manage a building without detailed information and records. They may need the landlord to provide whatever the company determines is reasonable. in connection with the exercise of the Right to Manage Company to manage the building. These requests will be different as they are requests for information. The earlier requirement for information was the purpose of serving notice of claim. This right for information isn’t the management of the building so they are very different. The RTM Company must be quite clear on its requirements. You might want to consider having professional advice on what you wish to get information on as you may not get to ask this twice.
Unfortunately, the landlord has no statutory obligation to provide the information requested. He is not obliged to volunteer. The company must make clear and precise in the notice to him what theyneede. The Company may need sight and the inspection of document. Or copies of them for example contracts, accounts etc. as well as maintenance schedule. It is important sometimes as landlords aren’t often forthcoming. That you try and get this information as you go through.
If the RTM is appointing a new managing agent then they may be able to tell you and get records on your behalf.
The notice for information can be served on the landlord any time during the process. But, he is not obliged to act on it before the acquisition date. He must comply within 28 days of a notice but cannot do so before the acquisition date itself. You will often find thus that he may not have any information. Of what is in the maintenance account. Until the day you complete so it is important that you have a budget in advance of what you are able to pay out at the time.
If for example you serve a notice on the acquisition date the landlord must comply within 28 days of the notice. If the notice is served say 28 days before the acquisition date. Then the landlord must comply within 8 days of the acquisition date. It is thus important so you know exactly how much money you may have in any account. When they transfer it over that the notice is served as early as possible.
The timings allow the landlord enough time to assemble information. But does not need him to release sensitive or confidential material. Before the RTM company actually takes over the management. They canthuse delay this and make it very difficult for the Right to Manage Company to work out where they will be. It issoe important that this notice is served as early as is possible.
Delaying the service of notices until the acquisition date. Could create a very difficult situation for you. The company would not be able to manage without proper information but a landlord could quite legally delay it for 28 days. You should take legal advice on exactly when to serve this notice.
Most reasonable landlords will be concerned with maintaining proper management of his long term asset. They should provide the information and records required. In other cases arrangements must be put in place for the continuity of the management. Without the information during the notice period. Or even longer if the landlord fails to comply. With any matter that has to be referred to a court for enforcement. It is important so that you take professional advice on this on what you may be required to do.
It is important that you are aware that on the acquisition date if you wish to transfer the insurance. You are liable to pay the premium on that day. But we are able to help you in this regard. In accepting part payments or delayed payments. Don’t hesitate to contact us or look in our recent guide for the services that we provide in this area.
What are landlords duties to transfer funds?
The landlord has an obligation to hand over any sums that are not yet paid out to the RTM company. He should be holding these into a Trust fund and any service charges that have been paid in advance should be paid over. These will not only include the unspent charges but also any reserve or sinking fund that they may have accrued. This does not need any form of notice from the RTM company. The actual law requires the landlord to act and make payment to the RTM company. Equal to those uncommitted sums held by him on the acquisition date or as soon as is practicable.
The amount of the sum paid. Are the monies paid by the leaseholders as service charges. Monies invested in the service charge payments. Any interest and the landlords outgoings for the provision of services up to the date of acquisition. It would be like any normal account showing the income and expenditure.
The RTM Company has no need to have any form of capital. It is important that they can control these funds. As soon as is possible. To maintain the service provisions to the leaseholders of the building. Any difficulties likely to arise lie in agreeing what the sum should be as accounts are not always up to date. It is down to the landlord to ensure that these accounts are provided. On the acquisition date or thereafter.
The Landlord & Tenant Act. Provides that an application may be made to the Tribunal. To determine the amount to be paid. Where some landlords rely on the Tribunal to fix the sum other landlords make pay what they consider to be appropriate. The Right to Manage Company can challenge this through the Tribunal at a later date if required. You will find that in most cases the RTM company and landlord agree an external audit of the service charge account. The RTM company to cover the cost of this so that they can take over. An audit is a list of income and expenditure carried out by an accountant and is certified by them so that it can be used in future. This is done by either an accountant. Or managing agent. Acting on behalf of the landlord. They may be prepared to take over responsibility of handing over the sums to the Right to Manage Company. You would expect some form of verification.
Where there is a dispute the Tribunal can provide a final route for determination. This shouldn’t be the first port of call. As the Tribunal are under constant pressure. Determinations can take a long period of time and not help the lessees deal with the maintenance on a day to day basis in the future. You can challenge service charges at any point through the Tribunal if you wish.
The RTM company might be in a difficult position if a hand over of monies is delayed and it is sensible to expect that this may be the case. You would have to put in some form of financial ability to deal with the day to day operation. i.e. the members of the RTM making a special contribution or the company seeking a loan which you are unable to do. It is down to you that you know what is due to come out of the maintenance account and what you need to provide for. In the event that you did have to take any form of enforcement procedure. Then this would have to be an application to the county court on a 14 day default notice.
It is clear from the beginning of any Right to manage that you will know well in advance when the end date will be. As such there take into account what monies you need to have. It may be that you even ask for maintenance demands to be delayed. So that you can send these out to lessees in future yourselves or that you make loans to the account. It is a question of whether you have a landlord who wishes the right to manage to go through or is being difficult. You should take legal advice on this.
You have been through the performance of dealing with the Right to Manage and have started the company and organized the membership. You are now ready to serve the notice on the landlord. You have employed a solicitor and you have organized everything and the notice is now served. What happens next?
The landlords counter-notice
The notice that you serve will have a date specified by the Right to Manage Company. In the Notice of claim that the landlord may be able to serve a counter-notice. The counter-notice can either agree to the RTM. Or try and allege reasons why the RTM company is not entitled to proceed. It is important so that youusey a solicitor to make sure that this notice is served. This is when the landlord has an opportunity to raise queries or dispute the RTM on certain grounds.
The landlord would use a solicitor as he is aware that the counter-notice must have a prescribed form. Is limited to a couple of statements:-
a) Admitting the Right to Manage Company is entitled to get the right to manage. Agreeing to it or alleging the RTM Company is not so entitled. Giving reasons to support his allegations.
b) You would hope that it would go smoothly. The landlord admits to the RTM notice. That the management will pass to the RTM company on the date specified in the notice of claim. This will mean that you will need to organize yourself on being ready to take it over. Please see our previous articles on what to do.
What if a landlord doesn’t serve a counter-notice?
Where the landlord does not serve a counter-notice. Then the acquisition date for the right will be the date specified on the notice itself.
What are the grounds in which the landlord can dispute the claim?
The claims on the grounds for the landlord to dispute the RTM limited to the following:-
a) The building does not qualify or
b) The RTM company does not follow the legislation requirements or
c) The members of the RTM company do not represent half of the flats within the building
It is thus important that before you serve any such notice that a solicitor looks over this to ensure that it is correct. There are various companies out there that will be able to help with this. on your behalf and we would always advise going to a specialist.
A Counter-notice must specificy the reason for the alleged no qualification. By a reference to a specific rule of the Act andsoe would have to state the following:-
a) The RTM company may apply to the first tier Tribunal (property chamber). For determination of the issue – this Tribunal deals with all property matters in disputes with landlords and lessees. It will determine whether the landlord can use these grounds.
b) The company will not get the rights unless the Tribunal determines in favour of the Company or the landlord agrees.
What happens when an RTM company has a counter notice served on it that the landlord does not agree?
The RTM Company must make an application to the Tribunal within two months of the landlords counter notice. If the application is not made within this time the claim withdrawn. This means that the notice that you have served is to have been withdrawn so the landlord does not have to deal with it. The Tribunal application would be dealt with by a solicitor and have accompanying documents.
The tribunal will then determine the situation on whether the RTM is or not entitled to the Right to Manage. This is often used by landlords to delay the process and to increase costs to put off the Right to Manage Company.
Is there a right of appeal?
Yes, there is a right of appeal to the landlords Tribunal by leave of the Tribunal or the landlords Tribunal if it is a complicated case. The decision by the Tribunal becomes final following any appeal and at the end of the period during which the appeal could have been made.
Who pays for the landlord’s costs in the whole of this process?
Unfortunately RTM Companies must reimburse the landlord for any costs he has incurred in this process. This is why it is so important that you learn the reasons why you are doing the Right to Manage. This is a reminder that the Right to Manage is not a default based system and may be exercised against the best and worst landlords. It is thus a system where there is no justification for the landlord to suffer any financial loss. From the process other than the loss of management fees. This is being looked at by the law commission (https://www.lawsociety.org.uk/news/stories/law-commission-releases-consultation-on-right-to-manage/
The Act lays out which costs you are liable to pay for. It states that on a professional services where the landlord is liable hes entitled to a refund. This is generally taken to mean that the landlords legal expenses in dealing with any notices. Any accountants fees and audit costs arising from the provision of accounts. Or transfer of monies. The cost of his solicitor or managing agent in handing over the management records and functions. It is important that when dealing with this you take it into account, you may be asked for these costs. But the landlord is not entitled to recover any costs from a Tribunal. Hearing elements on the RTM, accept what the Tribunal finds against the RTM Company. The costs are only recoverable by the landlord to the extent that they were reasonable. Where costs are disputed even may apply to the Tribunal for a determination whether the costs are reasonable. The Tribunal has been set up to try and deal with these disputes and it will be an easy process.
But if the company does not proceed for example where the claim notice is withdrawn by the Company. Or is deemed to be withdrawn then costs are recoverable. It is so important that if you are going to serve such a notice that you fully are committed to the event. If the Tribunal determines that the Company is not entitled to get the right. It must appreciate that the liability of the landlords costs extends to all members of the RTM Company. The liability of costs of an unsuccessful application cannot be avoided by winding up the Company. You have to understand that this is quite a legal process and it is important that you are understand what your liabilities will be. Any solicitor will be able to tell you on this who deal on this specialist subject.
What happens on taking over?
There is in the Notice an acquisition date. This acquisition date is the date on which the RTM company takes control of the management from the landlord. This takes place where the landlord has not disputed a claim in any way. Then the acquisition date will be specified within the Companies notice of claim. You need to ensure that you have everything ready for this date and you know what you need to do. Please don’t hesitate to see our guide in this regard.
Where there is a dispute in favour of the RTM company by the Tribunal. Then the acquisition date is three months of the determination becomes final. This then gives you enough time to prepare.
If a landlord disputed the claim but agrees in writing that the company is entitled to the right. Then the acquisition date is three months after the date of the agreement. You have to understand that there are various problems you may encounter at this point. If you have not prepared to get registered to take over.
Is the landlord entitled to membership of the RTM Company?
Yes, immediately upon the RTM company taking over the acquisition date. The landlord becomes entitled to membership of the company with full voting rights as a company member if he wishes to take it up. If the landlord has various units what does this mean on membership. If the landlord’s votes are determined according to the units he holds in the building, flats or non-residential parts. In the case where he holds no units and therefore has no votes, he is allocated one vote as the landlord.
We have mentioned before that the Right to Manage is a non-default based system. There is no reason why a landlord is thus not entitled to become a member of the company. He will still keep an interest in the building. He should have some input into the practicalities of its management. It can be different where there has been a manager appointed by a Tribunal to replace a poor or incompetent manager. Here the landlord is removed as a consequence of his mismanagement. But, with the Right to Manage it is assumed that the landlord is not necessarily at fault. So there is no justification for his exclusion in the management process and you need to understand this.
Please be aware that the right is not limited just to the immediate landlord. But includes any intermediate landlords under the terms of the lease. For example the landlords may comprise the freeholder plus a head lessee. Or the freehold may be split into the ownership and two or more owners of the freehold. Who will be entitled to membership of the company and to a vote?
However, there is no danger of multiple landlords being able to outnumber the flat owners on votes so don’t be worried. The votes are allocated on a pro rata to the number of landlords. For example, if there are many intermediate interests in the building. Which result in say five landlord members then each flat owner would be allocated five votes to reflect this. This would all be laid out in the Articles of Association of the Right to manage company. It would allow you to always ensure that you are able to proceed with any vote whenever votes take place and the landlord cannot block it.
The landlord has voting rights in respect of each unit he holds. The units may be flats let on any form of tenancies, the caretakers flat and any non-residential units.
We give examples as follows:-
If for instance, there are a block of flats of twenty and sixteen of the flats are let to lessees but four of the flats are held by the landlord and let by him on shorthold tenancies. In this instance 16 leaseholders can become members of the RTM company with one vote each the landlord has one vote as the flat owner on his four flats thus he has four in total.
Example two – a six storey block of flats with a single landlord, five floors are residential comprising of twenty lessees the ground floor of the building is non-residential i.e. commercial a mix of different shops. We assume that each floor has one thousand square feet or nine hundred and fifty if you squared the common parts. There is no residential floor area of nine fifty so the total floor area is four thousand seven hundred and fifty i.e. five floors. The landlord votes for the no residential part. Within the total votes allocated on the residential are multiplied by the relative floor area that he owns. For example assuming there are twenty flats having one vote each the calculation is 20 x 950 = 4750 equals four votes. So in the case where the leaseholder has 20 votes and the landlord has four votes for the non-residential part.
If there is any dispute on the management of the floor area then the Articles of Association provide this to be referred to an independent chartered surveyor. A surveyor acts as an expert not an arbitrary. His decision is based on his own measure will be final and binding on the RTM company. A surveyor should be selected and agreed by the parties but if not by the president of RICS. His fees will be payable by the RTM company. But the surveyor has the direction to ensure that some or all fees are reimbursed by the individual members of the company who raised the initial question.
It is so important that you understand that the Right to Manage. whilst it is there to help you in future to deal with your own building and take control it is not on a fault based system. The above may change due to the recent law Commissions paper (https://www.lawsociety.org.uk/news/stories/law-commission-releases-consultation-on-right-to-manage/ and the process may change over a period of time.
We recommend that you always use a solicitor who is able to help you with right to manage as it can be complicated and it would make it a lot easier. We also provide a brochure on Right to Manage which can be obtained here …….or don’t hesitate to give us a call if you want a quote for insurance.
Being a leaseholder and a shareholder or a member of an RMC is not the same thing, although it is possible to be both. RMC Directors need to keep a clear distinction between the two roles when making decisions.
What are the differences between shareholders and leaseholders?
There are both legal and practical reasons why being a shareholder and a leaseholder is completely different. You are more than likely to be both in an RMC though.
A shareholder or member can still take part in decision making. Although there is normally a restriction to voting on a Board of Directors. A meeting normally takes place once a year. In that meeting, you can then either remove the Board of Directors or vote them back in. It depends on whether you think they are doing a good job.
This is totally different from being a leaseholder. A leaseholder is contractually bound under the terms of the lease. This includes paying service charges and adhering to covenants. Most lessees often believe that once you are a shareholder of the RMC the lease doesn’t exist which is not the case. An RMC board have no legal right to take a decision against the terms of the Lease for a block even if agreed by the shareholder. The terms of the lease must still guide the shareholders.
RMC’s duties to Leaseholders
The duties that RMCs have towards leaseholders are set out in the leases and can take two forms. Either the RMC is a party to the leases with its covenants set out expressly. Or the RMC is directly responsible for performing the landlord covenants and managing the building.
The fact that leaseholders are also shareholders or members of the RMC means that the RMC has no excuse for failing to perform its obligations. Contractual duties such as repairs, maintenance, insurance and service charges combine with statutory duties. These include restricting service charges to a reasonable amount and consulting on major works. The leaseholders are allowed a duty of care from the RMC.
It is essential that RMC Directors have reliable advisers. They should be up to date with Landlord and Tenant legislation as well as various Companies Acts. We would suggest in this instance that you take out Directors and Officers insurance to cover the directors’ liability against errors. The RMC has a Board of Directors who then either employ managing agents or carry out the works on behalf of the lessees themselves.
Should we place the maintenance money and the company money in the same account?
No, RMCs need to have two separate funds. One that the service charge is in and the other has the companies own money. The RMC holds service charge funds on trust for the lessees as these are not the companies’ money. We often speak to people who have mixed up their management accounts with the company accounts and end up paying tax for no particular reason. Most management companies are known as “Dormant Companies”. This means that they only have to do a very simple form once a year to maintain the company at Companies House and for Inland Revenue purposes.
Company funds often derive from subscriptions or payments from members. If it owns the freehold they may charge ground rent but if all the lessees are shareholders it is unlikely that they will change this.
Leaseholders all contribute fairly to the service charge fund in accordance with the terms of their lease. The RMC is a statutory trustee for these contributions and the beneficiaries under the trust are the leaseholders.
It is a fundamental duty of a trustee to cover all funds received and spent. Service charge money is not owned by the RMC and so will not count as an asset of the Company. The leases normally set out clear service charge money payments which are contractual.
Preparing annual accounts
If the company receives no income and pays no money out then it is known as a dormant company for tax purposes and accounts are often not required.
Administration costs for running the RMC
Any payments made by the company for the company have to come from the shareholders’ funds or money paid in by shareholders. It is important to understand for instance that the company should pay the Directors and Officer’s liability insurance. Not the maintenance fund.
Can the RMC carry out major work and long term agreements?
Under Section 20 of the Landlord & Tenant Act 1995, the landlords must consult with leaseholders if proposed work to their block is likely to cost any one leaseholder £250.00 or above. The same applies if they intend to enter a long term agreement with a contractor to provide services over one year. RMCs and RTMs have the duty of this requirement to consult lessees even if they own their own freehold.
Don’t fall into the trap thinking that Section 20 doesn’t apply just because everybody who is a member of your block is a member of the RMC. Even if residents reach a unanimous decision at the residents meeting to go ahead with the work a Section 20 Consultation is required by law. It is not acceptable if shareholder committee members or Directors have taken a decision, and ignored the law. For instance, if you don’t consult properly you may be subject to a penalty, or not be able to recover the funds. It is important that you have the right insurance for your block or building. Don’t hesitate to contact us on this or look at our other article on Directors and Officer’s liability insurance.
The BBC recently published an article on how leasehold flat and house owners have become trapped in their own homes. Unable to sell their homes and with no control over the fees charged by the freeholder. Ashleigh Wilson bought her own home four years ago and had not understood what she had entered into. She was being charged £800 per year in ground rent and service fees. The lease even stopped her from changing the floor tiles. This is, unfortunately, a situation that many homeowners find themselves in.
A recent consultation by the law commission looks to address the disparity of leasehold property ownership. The law commission recommended changing to the Scottish system of commonhold. Which is when property owners communally own a building and have more say on how money is spent.
iInsure365 contributed to the law commission proposal. Our input was on how the change would affect the building insurance.
We believe in transparency. We feel that freeholders have overcharged leaseholders and continue to do so.
Freeholders inflate the insurance cost and include it in the service charge. This isn’t transparent and is masking the true cost of the insurance. We feel this is one of the biggest issues in the Leasehold debate.
What options do leaseholders have?
Leaseholders can take hold of their costs by using the Right to Manage process. Leaseholders can alternatively join together to buy the freehold. This is known as collective enfranchisement. They will need a solicitor to handle the legal process and a local valuer to value the freehold. By purchasing the freehold they have the freedom to manage it how they wish. Alternatively, they can apply for the Right to Manage and take over the management duties from the freeholder. This way they can control their costs without purchasing the freehold.
iInsure365 can help leaseholders in either situation. We can provide transparent quotes to save leaseholders money. See our Google reviews from our clients! We have a rebuild cost calculator that will also save leaseholders money. The assessment is only £160 and will recommend the rebuild cost to use. This will stop leaseholders from paying for insurance that they don’t need. Saving leaseholders money and providing peace of mind. If you would like a quote, request a call from us and a member of staff will contact you at a time that suits.
Ashleigh Wilson is not alone in her naivety regarding her lease. Taking the Right to Manage or collective enfranchisement can be can be even more confusing. However, we have a news centre with lots of articles that explain both processes and cover a number of other insurance related subjects.
Do I need Directors and Officers liability insurance?
Do I need to take out additional insurance?
Can I be personally sued?
What does my policy cover?
Your policy will cover the items listed below:-
- Legal costs of a claim or investigation incurred by you or your organization
- Any award or settlement made
- Employment, regulatory pensions, cyber, contractual, pollution and employee dishonesty claims
- Can include contract dispute and debt recovery pursuit
- Negative social media
- Public relation cost
- Circumstances related to investigation costs
Examples of what can happen: –
HM Revenue and Customs prosecuted a property investment company. The reason being that they were alleged to have made false statements in earlier tax investigations. Legal fees in the case came to more than £50,000
The directors of a property management company were called to give evidence following a pollution leak into a local river. The legal fees for the represented company were £10,000.
Breach of duty
Shareholders of a family run property group made a claim against the company and its Directors. They accused the property group of acting unfairly and breaching their duties. The property group seeked an investment which reduced the value of the shares. The legal costs in the case were more than £150,000.00. A minimum settlement was eventually agreed.
What else will I get as part of my cover?
- There will be free access to a comprehensive range of specialist advisors, and advisory services. Offering support to help customers minimize risk and promote growth if required.
- There will be a team of experts working with customers to develop their business sustainability and responsibility for providing design innovation and ethical solutions.
- Knowledgeable and experienced legal teams available when customers need it most. The policy will provide full professional representation to help customers succeed and manage claims successfully.
Other such incidents include:-
- Human resources and employment
- Health and safety
- Waste and environmental regulations
- Money laundering, fraud, bribery and corruption, anti-competitive practices.
The cover with respect to intellectual property covers:
- Data protection and cybercrime
- Legal advice on a range of areas including Directors and shareholders duties, contract disputes, financial crime, motoring and criminal offences.
If you would like to discuss any of the above then request a call back to discuss your options. We can provide a separate policy or include the cover in a building insurance quote.
The Law Commission has unveiled a series of reforms. These are with the view to make it quicker and easier for leaseholders to take control of the day to day management of their flat block.
We at iInsure365 are privileged to have been able to contribute towards the consultation and the Law Commission document.
The Consultation has now been released on how the leaseholders will be able to change the Right To Manage. These proposals will make it easier for people to take the Right To Manage.
What does it cover?
The new proposals include extending the Right To Manage criteria to include leasehold house owners. It will also allow leaseholders to apply to manage multiple blocks and addresses the costs and paperwork of doing so.
Other questions raised in the proposal are as follows:-
1) What are the requirements for the Right To Manage and who can apply for the Right To Manage?
2) Do people have experience of failing the Right To Manage because of definitions of the Act?
3) Would it be helpful for lessees to have one person to have the right of management? Or should there be a reduction for qualifying tenants from at least two thirds of the flats to 50%?
4) Do you agree that there should be a removal of the exemptions for buildings that consist of a non-residential area of more than 25%?
5) Should Right To Manage Companies have to employ a managing agent where there are commercial properties involved?
6) Should there be an extension to the qualifying terms of Right To Manage and if so how?
7) Should the Right To Manage Company be able to obtain ownership of the building?
8) Should the Right To Manage companies by limited by guarantee?
There are various other questions on the Right To Manage and how lessees should govern and use them.
This is the most comprehensive review of the Right To Manage system that has taken place over the last few years. It will dramatically change and help lessees to be able to deal with the Right To Manage for their block of flats in a much easier way in future.
We are pleased to be able to confirm that we have contributed towards the Law Commissions paper on the Right To Manage. We believe it is absolutely critical for lessees to be able to have a much easier way to manage their own buildings and to reduce their costs. It is often so problematical for lessees and owners of flats as they do not understand the process. We are often asked to obtain quotes for lessees. In doing so lessees often find that they have been paying more than they should for their insurance premiums. This may be knowingly done by the freeholder/managing agent or the building may be over insured. This document will be able to bring restrictions that will help the Right To Manage company to control their expenses.
Consultations in relation to the above end on the 30th April. We believe that if you have any involvement in Right To Manage you should read the Law Commission paper. Not only that but also try to give consultation and any comments on it to help lessees in the future.
Even after taking the Right To Manage or Collective Enfranchisement?
Can I get my own insurance quote for the building?
Is iInsure365 affiliated to any managing agent?
Should I complain to the managing agent about my insurance premium?
Can I change an insurance policy halfway through?
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