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.