You’re pleased to know that the acquisition date is agreed. So you know the day that you will be taking over the management of the building. The Right to Manage Company takes over all the management functions of the premises. Under the contents of the lease. This would be the function exercised by the landlord. But is often delegated to third parties such as management companies or managing agents. It doesn’t matter whoever handles managing the property. The functions pass to the Right to Manage Company on the acquisition date. Then you are responsible from then.
What’s included in the responsibilities?
You need to understand what management you have to take place in respect of the building. This is defined within legislations. As “functions about services, repairs, maintenance improvements, insurance and management”. In real terms it is everything contained within the contents of the lease on your building. It is often misunderstood by lessees who take over on a right to manage that you can now do whatever you wish. You have to take into account the covenants of the lease together with the normal law on management. It is always important to look at RICS code of management and what it consists of. For example what you’re required to do will be as follows:-
- Carry out the repairs, redecoration and maintenance of the structure of the building. The common parts. Including whether this is on a cycle or seasonal basis. Will be contained within the contents of the lease. It could include for instance lifts and central heating if communal.
- Any repairs to the building
- Dealing with all utilities in relation to the property. Including lighting of the common hallways, cleaning, grounds, maintenance and anything else.
- Arranging the insurance for the building
- Collection of the service charges and accounting and any statutory provisions or requirements in this regard
- Compliance with all statutory requirements in respect to the management and fabric of a building. We have already mentioned before RICS code of practice this should be taken into account.
- The day to day management of the building.
- Dealing with lessees and any correspondence if you are dealing with the day to day management.
The Right to Manage Company deals with all functions to include approvals and enforcements of the covenants under the terms of the lease. The ground rents collection do not pass to the Right to Manage Company but remain with the landlord. The landlord might yet use a Right to Manage Company to collect his ground rent on this behalf if required.
What is not included in the responsibilities?
- Management of any commercial parts of the building
- Functions relating to forfeiture and possession
Non-residential parts are also not included and explained below.
If the building you are going to manage has a non-residential commercial unit. Such as shops or offices, garage etc. then these are not included in the leases. The management of these parts remains the responsibility of the landlord. If a dispute arises. Then unfortunately there is no provision in the legislation to deal with this.
In all cases these will need to be resolved. Through simple and sensible negotiation or at the last resort through the Arbitration or Court. It is something that you need to take into account.
Non qualifying flats
If a landlord owns and lets flats within the building other than on long leases. Then he handles the general management of the tenants of the flats. But will be liable for the RTM company for the service charge on those flats. If repairs are needed to be carried out. Then the landlord will be responsible for the works within the flat. But when the repair relates to the structure of the building then this generally comes under the RTM company. But you should always check the leases. There is a provision under the Act for the landlord’s share of the cost of the management repair to be recovered from him. If there is no lease on this flat so you would always be covered.
Forfeiture and possession
This is a very specific remedy that is for the landlord only and cannot be exercised by the Right to Manage Company. The RTM Company cannot instigate forfeiture proceedings in recovery of arrears of service charges. If the arrears cannot be recovered through other means, the company will have to seek the cooperation of the landlord. If the RTM Company does have the power to sue for arrears of service charge on costs incurred or after the acquisition date.
It is very important that the powers are as clear as possible and that powers are transferred on the acquisition date. The day to day functions and responsibility of the management of the building. Pass to the RTM company. Thus the original management is no longer entitled to perform those functions. But a landlord is still responsible under the terms of the lease. So handles the performance of the landlord’s covenants outside the general duties of any general management. This would be such things as providing quiet enjoyment of your property and the rights of support of flats i.e. the main structure of the building. The Act provides for the landlord to remain entitled to collect service charges. On costs incurrebefore the date of any acquisition.
What happens if one of the lessees needs approval for something?
All leases will contain some form of provisions. Requiring some form of consent to certain actions of the leaseholder. Such as a subletting or making alterations to a flat. The power to issue such approval passes to the RTM company. Although the company must keep the landlord informed. They cannot grant an approval without giving notice to the landlord first. The approvals relating to assignment, subletting, placing a charge on, parting with possession, or making structural alterations or improvements for the change of use of the unit. The RTM must give at least 30 days’ notice. For any other approvals it is 14 days’ notice.
The RTM company does not need specific consent of the landlord. If he does nothing the Company may grant the approval. Where the landlord objects consent is granted. Until the landlord withdraws his objection or the matter is decided by the Tribunal. Where the landlord wishes to object he must do so by writing to the RTM Company and to the leaseholder concerned. This would then be sent to the tribunal.
The leaseholder’s covenants or obligations under the terms of the lease. Become the responsibility of the RTM Company. thus the company must ensure that all covenants are complied with and must keep the landlord informed. The company has a statutory duty to review the leaseholder’s compliance with their covenants. It must take steps requiring any remedy of any breaches. Any breaches which may not have been remedied must be reported to the landlord unless he confirms that he doesn’t need you to do so. The landlord may proceed to enforce these.
We are thinking of ending our Right to manage what do we wish to do?
When you get a Right to manage once it is acquired it is not subject to a time limit and will continue until it is terminated. There is nothing that suggests that it needs to be reviewed at any point.
If you feel that you don’t wish to carry on the Right to Manage any longer then there are three circumstances which it can be terminated:-
- By agreement with the landlord. The Right to Manage Company may simply agree to return the management to the landlord. But, this will be in agreement with the landlord and is a joint matter and the landlord must agree to take it back. It cannot be imposed on a reluctant landlord to take responsibility of the building. It is so important that you understand the position when you a take on a Right to Manage from day one.
- A Right to Manage Company may collapse. If the company for instance is wound up. Or taken into receivership or goes into voluntary insolvency. It can also be struck off by Companies House. This would normally be when accounts aren’t supplied to them. Many RTM companies and leaseholders don’t appreciate that when it comes to accounts they only have to deal with money. That they need for the company only not the maintenance account. The maintenance account is held in a Trust fund and as such is not the companies. Company money for instance would be where the shareholders pay money in. To pay out for an insurance such as a Directors and Officers policy. Which would not come under the maintenance fund. Thus it would only be a very simple account for you to give to companies House. At the end of the year. Or if you do not collect or pay out any money of any nature then you would provide Companies house with a dormant company form. This is a very simple form and Companies House will be able to give you advice on this.
- Through the appointment of a manger. Part II of the Landlord & Tenant Act 1987 provides for a Tribunal to appoint the managers to take over and run the building. Such an order may be in response to an application from any leaseholders or by the landlord. The Tribunal may simply place an order that ceases the right to be exercised by the Right to Manage Company. The grounds for such an application are quite specific and are the landlord or the Right to Manage Company as follows:-
- A breach of obligations under the terms of the lease
- Has demanded or is likely to demand unreasonable service charges
- Has failed to follow the relevant provisions of approved code of management practice
- Other circumstances which makes it just and convenient to put the order to be made
Where the right to manage is terminated. For any reason. No further application for Right may be made. For another four years other than the consent of the Tribunal. It is imperative that you understand what the responsibilities are. Please do not hesitate to see our previous articles on this.
Do you need a quote for your insurance?
Are you considering Right to Manage and concerned about the cost?
We can provide you with a quote for your Right to Manage in relation to your property. You might find that there are large savings in your insurance. That will provide you with the funds to be able to proceed. We have done on many occasions quotes for lessees. Who are surprised at the amount that the freeholder/managing agent is charging by way of commission. Did you know that you are entitled to ask your managing agent how much commission they are obtaining through the insurance? It may be that their receiving up to 40% commission on the premium itself. We have a guide that we have now produced for Right to Manage. Which has examples where we have saved large amounts of money. For lessees who have been able to use the savings on a year by year basis. To not only pay for the Right to Manage but to also improve the costs of their building on a year to year basis. Please don’t hesitate to contact Charlotte Skinner on (01273) 827090