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.