A Guide to Right to Manage
How Right to Manage Works
In order to be eligible for the Right to Manage (RTM) both the premises and the applicant leaseholders must meet a statutory criteria. Right to Manage only applies to leaseholder owners of flats and not to leasehold houses or bungalows.
The premises will qualify if they consist of a structurally detached building or part of a building that can be served independently, they contain two or more flats held by qualifying tenants, and at least two-thirds of the flats are leased to qualifying tenants.
The premises will not qualify if more than 25% of the floor area is non-residential, if there are self-contained parts owned by different landlords, if it is a property owned by the local authority, or it is a building of four or less flats with one flat being occupied by the landlord as his principle home.
A qualifying tenant is a leaseholder whose lease was originally granted for a period exceeding 21 years. Where a flat is being let under two or more long leases, a tenant that holds the superior lease is not the qualifying tenant.
Right to Manage Company Formation
RTM is only exercisable through a Right to Manage company set up according to statutory regulations. An RTM company must be a private company limited by guarantee and its articles of association states that its object, or one of its objects, is the acquisition and exercise of the rtm the premises.
All qualifying tenants are entitled to become members of the RTM company, with individual liability limited to £1. The landlord also has the right to become a member of the Right to Manage company after the Acquisition Date as he retains an interest in the property and his membership is usually limited to a single vote.
Since November 2009 RTM companies only require a single director, but larger blocks will typically be comprised of a board of three or more. There is no requirement for directors to be leaseholders, however in this event it is usually recommended that a majority of directors are leaseholders and preferably resident leaseholders, so as to avoid disproportionate influence from persons not experiencing day to day living at the property.
The freeholder has no legal right to be a director but is entitled to a single membership of the Right to Manage company.
Legally, you do not need a majority to proceed. As long as at least half the leaseholders in the block are in support of RTM the process can proceed. However, it is generally advisable to aim for at least two-thirds to become members of the RTM company. This also avoids any criticism that the procedure is undemocratic.
The exercising of Right to Manage is started by the formation of the Right to Manage company with leaseholders as founding members and at least one leaseholder as a director. Once the Right to Manage company is established it must serve the required legal notices, including a notice on your landlord/freeholder advising that leaseholders will be exercising their statutory Right to Manage. So long as the statutory conditions are met the landlord has no legal grounds to object and rtm is determined a month later with the Right to Manage company taking over the management a further three months later.
Note: The RTMF does not manage properties or recommend specific management companies. We have no agreements with management companies and we do not receive commission from management companies. However we will provide impartial guidance and on occasions we may advise against management companies that are financially unsound or have a poor track record and previously proved unsatisfactory
Do You Qualify for RTM
In order to qualify for Right to Manage Legislation the following must apply:-
- The premises must be a structurally detached building or self-contained part of a building.
- The premises must have at least two flats.
- At least two-thirds of the flats must be owned by “qualifying tenants”.
- If part commercial the non-residential part must not exceed 25% of the total floor area.
- At least 50% of the leaseholders in the premises must be in agreement to proceed.
- If your building is a converted property of four or fewer flats, the premises will not qualify if either the landlord or an adult member of the landlord´s family occupies one of the flats as their principal residence.
- The local authority is not the landlord of any qualifying tenant.
The Right to Manage Process
(See the section below for the RTM process for Retirement Blocks.)
- Founding members instruct RTMF and pays RTM fee.
- RTMF forms Right to Manage Company according to statutory memorandum and articles. Liability limited to £1 per member.
- RTMF make Land Registry searches.
- Right to Manage Company serves s.78 Notices Inviting Participation of non-members.
- When 50% or more membership is achieved, after 14 days RTM Company serves s.79 Notice of Claim on Landlord.
- Landlord may serve s.84 Counter Notice within 1 month. Legal grounds should be limited to the procedure not being followed, the qualification of the building or company members.
- If no Counter Notice RTM is determined after 1 month. (Determination Date).
- If a counter notice is served denying RTM the Right to Manage company can make an application to the FTT for determination within two months of the date of the counter notice. The determination date is either the date the landlord withdraws the counter notice or the date of the FTT decision (Allowing 28 days for appeal).
- Following the Determination Date, the Landlord must serve s.92 Contractor and Contract Notices to advise about the pending RTM.
- Leaseholders organise themselves for management, either by selecting or appointing a new managing agent or by forming their own management structure.
- 3 months after the Determination Date RTM Co acquires RTM (Acquisition Date). Landlord/Manager hands over management/funds etc to new RTM Company or to leaseholders appointed Managing Agent.
The RTM Process for Retirement Estates
- RTMF give presentation to Leaseholders.
- All Leaseholders invited to become members. 50% required to proceed. Liability limited to £1 per member. Members give good-faith refundable deposit towards RTM costs.
- RTMF forms the Right to Manage Company according to statutory memorandum and articles.
- Right to Manage Company serves s.78 Notices Inviting Participation of non-members.
- With 50% membership, after 14 days the Right to Manage Company serves s.79 Notice of Claim on Landlord.
- Landlord may serve s.84 Counter Notice within 1 month. Only legal ground is if procedure has not been followed. Minor inaccuracies are discounted.
- If no Counter Notice RTM is determined after 1 month. (Determination Date).
- If Counter Notice is served RTM Co can take matter to LVT (within 2 months). Determination date is either date the Landlord withdraws Counter Notice or date the Counter Notice is decided by the LVT (allowing 21 days for appeal).
- Following Determination Date, Landlord must serve s.92 Contractor and Contract Notices to advise of RTM.
- Following Determination Date RTMF invites members to join a Manager Selection Committee.
- Manager Selection Committee selects a short list of 3 potential Managing Agents.
- RTMF prepares tender documentation and invites tenders from three nominated agents.
- Two Managing Agents invited to give presentations to all leaseholders.
- Manager Selection Committee makes final recommendation of Managing Agent.
- Arranges generel meeting of members of RTM Co (GM) to vote on Selection Committee recommendation.
- If appointment approved at GM, RTM Co completes agreement with nominated agent. New Managing Agent pays RTMF fees and RTMF refunds leaseholders deposits.
- Three months after the Determination Date RTM Co acquires RTM (Acquisition Date). Landlord/Manager hands over management/funds to new Managing Agent.
Management Selection Process
(Retirement Blocks Only)
The appointment of the new management company is democratically determined by a Members’ Selection Committee. The invitation to join this committee is open to all members of the RTM company although we only advise participation by those capable of reviewing detailed information and willing to attend all meetings. There is no limit on committee size although it will typically comprise your founding directors and an equal number of members.
The first meeting of the Selection Committee takes place shortly after Determination Date. The principal objective of this meeting is to determine a checklist of priorities and arrive at a shortlist of three potential management companies that will be invited to tender for the management contract. Very often leaseholders have recommendations from other estates that are well-managed or they may have made contact with local property management companies or found potential candidates on the internet. If requested the RTMF can supply lists of management companies with RTM experience. The selection committee will also be asked to review a draft schedule of services and a management questionnaire, which will form the basis of the tender documentation.
The RTMF does not recommend specific management companies. We have no pre-existing agreements with management companies and we do not receive commission from management companies. We do provide impartial guidance and on occasions we may advise against management companies that are financially unsound or have a poor track record and previously proved unsatisfactory.
Management Company Qualification
We would usually advise against the appointment of a management company that is neither a member of the ARHM (The Association of Retirement Housing Managers) nor ARMA (The Association of Residential Managing Agents). ARHM members are bound by a code of practice approved by the Secretary of State for the management of retirement housing and ARMA members operate to a similar residential management code produced by the Royal Institute of Chartered Surveyors (RICS).
Invitations to tender
Following the first selection committee meeting the RTMF collates all the appropriate information into one package, which is then sent to each of the shortlisted management companies in the form of an invitation to tender for the management contract. This information will typically include a questionaire, a copy of your property lease, a copy of your current service charge budget and a draft contract for approval. Each company will be asked to submit their own draft budget using the same format for easy comparison.
Second Meeting of Selection Committee
The second meeting of the selection committee takes place following the receipt of information and tenders from each of the shortlisted companies. The purpose of this meeting is to eliminate one of the companies. The remaining two companies are then invited to give presentations to all resident leaseholders. Elimination is determined by a show of hands and simple majority of the committee.
Management Company Presentations
The management company presentations and the final selection usually take place within the same week. Typically the two chosen management companies will give presentations at convenient times between Monday and Wednesday. Although the presentations are technically being arranged by the RTM Company for its members it is usual practice to invite all residents in the hope that those that are not already members may be encouraged to join and take a full part in subsequent meetings. The management company presentations are usually followed by a question and answer session so that everyone has the opportunity to participate..
Final meeting of Selection Committee
The final meeting of the selection committee usually takes place on a Friday morning following the management company presentations earlier in the same week. The purpose of the meeting is for the committee to arrive at its recommendation for the management appointment. To assist in the decision process the RTMF uses a simple scoring system based on the priority checklist agreed by the committee at its first meeting. This is only used as a guide and is always followed by further debate before voting takes place. The final committee recommendation is determined by a show of hands and simple majority. It should be noted that this is only a recommendation and still requires ratification by members in general meeting, usually on the Friday afternoon.
Members General Meeting
The primary business of the general Meeting is for members to vote whether or not they accept the management recommendation of the Selection Committee. Voting is preceded by debate and members have full opportunity to question the Selection Committee about its findings. The recommendation is then put to members in the form of a motion and voting is by simple majority. If the motion is approved the directors are empowered to enter into a formal management agreement with the proposed company.
Note: In the unlikely event that members vote against the recommendation the chair will usually ask the meeting to vote on the appointment of the second management company. In the very unlikely event this is unsuccessful the general Meeting would be adjourned and the Selection Committee would have to reconvene to reconsider its recommendations.
Right to Manage Costs
See the section below for Retirement Blocks
Our standard fee for RTM is a base charge of £500, plus £75 multiplied by the number of flats in the applicant block plus VAT.
If there are multiple blocks applying it is now a legal requirement to form one RTM Company for each block even if it is intended that a single management company will manage the blocks. The overall fee for each block in a multi-block estate is a base fee of £500 per block plus £75 multiplied by the total number of flats in the block.
If the Claim is disputed and it is necessary to make applications to the First-tier Tribunal or the Court, the cost of professional representation is subject to an additional charge, usually about £1,500. This may increase by agreement in complex cases.
For a block of 3 flats the all inclusive fee will be:-
£725 plus VAT = £870
For an estate comprising 1 block totalling 10 flats, the fee will be:-
£500 plus 10 x £75 (£750) plus VAT = £1,500.
For an estate comprising1 block totalling 40 flats, the fee will be:-
£500 plus 40 x £75 (£3,000) plus VAT = £4,200
For an estate comprising 3 blocks totalling 45 flats, the fee will be:-
3 x £500 (£1,500) plus 45 x £75 (£3,375) plus VAT = £5,850
RTM Costs for Retirement Blocks
Under our subsidised scheme the RTM process is potentially free to all leaseholders. The democratically selected managing agent agrees to pay the RTM cost and the fee paid by each participating leaseholder is fully refunded on completion of the process.
Frequently Asked Questions
What is the Right to Manage?
The Commonhold and Leasehold Reform Act 2002 introduced a right enabling leaseholders to take over the management of their building by setting up an RTM company. Leaseholders do not have to prove that the current landlord or property manager is at fault. The RTM company assumes full management responsibility for the building and is free to appoint any property manager of its own choosing. Right to Manage was first exercised by leaseholders in retirement estates in 2006.
What is the purpose of Right to Manage?
It is intended to put power and control back in the hands of leaseholders, thereby driving up the standards of leasehold management and providing leaseholders with the statutory power to resist exploitation by less scrupulous managers and freeholders.
Does the RTMF get commissions from Managing Agents?
The RTMF receives no commission from managing agents. Our advice is independent and unbiased. Leaseholders frequently select a management company that the RTMF has not previously experienced, in which case we assist with tested and proven evaluation procedures and impartial guidance. Occasionally we may advise against an agreement with a company that appears financially unsound or has questionable references.
How does it work?
The first step is usually a no-obligation RTM presentation to leaseholders in your estate lounge or at a nearby location. If RTM has support , the next step is the incorporation of your RTM company with 50% or more leaseholders as founding members and at least one leaseholder as a director. Once the RTM company is established, the RTMF will set up all the legal procedures and serve the required legal notices including a notice on your landlord/freeholder advising that leaseholders will be exercising their statutory Right to Manage. So long as the statutory conditions are met the landlord has no grounds to object and the legal Right to Manage is determined a month later (The Determination Date). Your RTM company will take over the management 3 months later (The Acquisition Date)
The final step is for you to appoint a managing agent of your choice and on your terms to provide the ongoing management service to your estate. In the 3 month interval between the Determination Date and the Acquisition Date the RTMF sets up a Selection Committee comprising the nominated directors and volunteer leaseholders and arranges for short-listed management companies to make presentations at your estate. The RTMF does not recommend specific management companies but does assist you in identifying the key information required to help you vet those selected. The RTMF offers a template Management Agreement which can be modified to suit your specific needs and we help in negotiating your final agreement to ensure you will get the services you require.
How many directors are required and do they have to be residents?
The RTM company is only required to have one director but will typically have 3-5 directors. There is no requirement for directors to be residents and often relatives of residents will volunteer to join the board. In this event it is usually recommended that the majority of directors are resident so as to avoid disproportionate influence from persons not experiencing day to day living at the property. The landlord has no legal right to be a director but would be entitled in the unlikely event it was requested.
What sort of majority do we need to go ahead?
Legally, you do not need a majority to proceed. As long as at least half the leaseholders in your block of flats are in support the Right to Manage process can proceed. However, to continue with only 50% support could be divisive and in practice when the benefits of Right to Manage are explained to all leaseholders most will support the idea.
What are the responsibilities and liabilities of RTM directors?
All directors have a responsibility to serve the best interests of members of the RTM Company and insofar as the main object of the RTM company is the management of the property; directors’ responsibilities extend to all leaseholders of the estate. (They cannot treat non-members as second-class residents just because they choose not to be RTM members.) RTM Companies that appoint a managing agent do not retain responsibility for the day to day management of the estate as it is delegated to the appointed management company.
If the management company meets all its obligations the RTM directors should have very little work themselves. However the RTM company and its directors do remain legally liable and it is important for the board of directors to insure themselves against claims of negligence or incompetence. This typically costs about £200-£300 per year for all directors. The directors are also liable to keep a register of members, make annual returns and prepare annual accounts although this work is typically delegated to a professional service provider at a minimal annual cost of a few hundred pounds. The role of director may sound daunting but with the responsibilities properly delegated it is easily manageable and there are many RTM directors in their eighties who enjoy this privilege of service and perform the task with exemplary efficiency.
Do we need to hold a secret ballot?
RTM legislation does not require a ballot. Support is usually determined by a show of hands at a meeting of leaseholders called for this purpose. If support is marginal or there is an indication some residents are being intimidated a ballot may be utilised but it is not possible to make it a secret ballot because it is a statutory requirement to disclose to the landlord the names of those leaseholders supporting RTM.
Will we be able to rely on our new managing agent?
All reputable managing agents should undertake to operate to a code of practice. The Association of Residential Managing Agents (ARMA) adopts the code of practice of the Royal Institution of Chartered Surveyors (RICS). The Association of Retirement Housing Managers (ARHM) has its own government approved code. For retirement estates we generally advise against any managing agent that is unwilling to commit to the ARHM Code of Practice. In addition, our standard management agreement includes the obligation not to take undisclosed commissions on any of the services provided, guaranteeing that leaseholders get the best value for money.
Will appointing another managing company solve our problems?
Nothing can be 100% certain. If there has been a history of neglect by the previous management it may take time to turn things around. However your new manager will know that if they do not meet your expectations, you can replace them. This will be a powerful incentive for them to improve standards, control costs and keep all the promises they make to you.
What about our landlord´s costs?
The landlord may seek to charge its costs incurred in the transfer process, for example accounts and audit costs. By law, any costs must be reasonable and in the event of a dispute, can be decided by the FTT. These expenses will be minimal (typically between £500 and £2,000 depending on the size of the block) and will usually be borne by the RTM Company after Acquisition Date.
Can we expect to save any money?
Yes, most probably. Many leaseholders are facing excessively high charges for items such as insurance, alarm monitoring and maintenance contracts purchased at uncompetitive prices. By appointing your own managing agent on your specific terms you can require that the agent spends your money to benefit leaseholders not the landlord. This may result in thousands of pounds in overall savings or alternatively, if leaseholders prefer, it may result in an improvement in services at no extra cost. At the end of the day, you the leaseholders decide. The Competition & Markets Authority Residential Property Management Services (RPMS) market study published in December 2014 advises that “where residents have an RTM company their degree of satisfaction over RPMS is higher”.
Who owns the freehold after Right to Manage?
The ownership of your freehold will not change. Your freeholder will retain all the obligations and responsibilities previously held under the lease apart from the management responsibilities, which will pass to your selected management company. If provided in the lease your freeholder will continue to collect the ground rent. The freeholder also has the right to become a member of the RTM company after the Acquisition Date as it retains an interest in the property. The freeholder’s vote is usually limited to a single share. Otherwise, the freeholder will have no involvement in the day to day running of the property.
Will we still pay rent for the manager´s accommodation?
Whether or not the freeholder can collect rent for the use of the house managers flat (called warden´s flat or caretaker´s flat in earlier leases) will depend on the wording of your lease. If the lease clearly and unambiguously states that a rent is payable then you are probably required to do so, although the rent must be reasonable. If a rent is not clearly specified in your lease in terms an ordinary person would understand, then the rent can probably be successfully challenged. In our experience many leaseholders are paying rents they are not legally required to pay. Some landlords are charging excessive rents and the courts are already beginning to rule against such unreasonable charges.
What happens to leaseholders funds?
All leaseholders' funds which are held on trust by your existing manager or freeholder must be handed over to the new manager on the Acquisition Date. In practice the outgoing manager may withhold a small percentage of funds until the current year´s accounts are audited up to the Acquisition Date. Otherwise all funds in reserve fund accounts, sinking funds and future maintenance funds must be transferred to trust accounts in leaseholders´ names and operated by the new manager. Your new manager will organise the transfer of your service charge payments and advise you of any changes to your standing orders or direct debts.
Are there any disadvantages to Right to Manage?
Managing a block and running a company are important responsibilities which should not be undertaken lightly. It is for this reason that it is generally recommended to appoint a professional managing agent. Right to Manage requires careful thought and planning but the RTMF scheme simplifies the process and looks after all the procedures and executive functions on leaseholders´ behalf, working alongside your nominated directors. With the administrative side handled by the RTMF and the cost controlled and minimised, leaseholders will usually find that the benefits of Right to Manage clearly outweigh any potential risks. If you are considering RTM the best advice is to consult with other estates that have already exercised RTM.
Frequently Asked Questions
(Retirement Blocks only)
Why choose RTMF?
The RTMF offers a comprehensive no-cost service preparing all the statutory notices and handling all legal procedures on leaseholder´s behalf. Leaseholder participation is minimal and the changeover seamless. Unlike solicitors or company agents the RTMF provides ongoing support throughout, attending meetings with residents, liaising with prospective management agents and generally guiding leaseholders through the entire RTM process until the chosen management company takes over.
Will I be asked to pay any costs?
All the fees and expenses of acquiring your Right to Manage will be paid by the RTMF. To cover initial expenses incurred in setting-up the RTM Company and as evidence of leaseholders’ good faith to proceed with RTM the RTMF will request a deposit of £40 from each participating leaseholder. These deposits will be fully refunded when the RTM process is completed and a new management company appointed.
Have other Retirement Estates taken this step?
Yes, thousands of leaseholders in blocks of retirement flats have already taken this step with RTMF assistance. They now employ professional management of their own choosing, providing better services and considerable savings in service charges.