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.