About Right to Manage

Darren Bagnall from Flat Living Insurance explains more about Right to Manage and how it can impact on the management of your block of flats.

The Right to Manage can be used by Leaseholders who wish to take over the management of their building, leaving the landlord as the owner of the building, but relieving them of the duties involved with managing it. This can be done with or without the agreement of the landlord and with or without any evidence of the building being poorly managed by them.

We want to take the time to explain what invoking the Right to Manage entails, why you as a leaseholder may consider it and what it means to take over the management of your block.

What is Right to Manage and Why Does it Exist?

The Right to Manage is part of Commonhold and Leasehold Reform Act 2002. It allows qualifying leaseholders to collectively transfer the freeholder/landlord’s management responsibilities to a company, set up by them, known as the RTM Company.

The right was stipulated for two reasons; due to bad management on the part of the freeholder or, simply to retain control of their investment. In many cases, the leaseholders collectively hold more of an investment in the property than the landlord, so it was decided that they should have the right to manage the upkeep of the building as a whole if they wanted to.

The process for serving the formal notice to the landlord is relatively simple- they do not need to consent and nothing needs to go through the courts for the right to be enforced. The leaseholders don’t need to prove or claim mismanagement by the landlord- the right is available regardless.

Once the right has been acquired, the landlord/freeholder is entitled to membership of the company as they still have the right to be involved in collective decisions.

How do Leaseholders Qualify?

Only qualifying leaseholders can form an RTM Company. To qualify, the building must be made up of individual flats and at least two thirds of the flats must be leasehold. The leasehold flats must have had a lease of more than 21 years when they were granted.

Additionally, at least 75% of the building must be residential and, if there are less than 4 flats in the block, the landlord must live elsewhere (unless the block was purpose-built).

Any number of leaseholders can set up an RTM company, but at least 50% of the flats in the building will have to be members of the company before the RTM can actually take over management.

All qualifying leaseholders will be allowed to become members of the RTM company with no exceptions. No one can be refused and the landlord is automatically invited to become a member of the company too.

Notices

Once you have decided to form and RTM Company and you fulfil all the qualifying criteria, notices must be served to the landlord.

If there is information you need from the landlord before being able to claim your RTM, you can send a ‘right to information’ notice.

Once you have everything you need, you then supply the landlord with a ‘notice of claim’. This must detail when you intend to take over management of the building (the date of acquisition) and provide them a date by which they need to respond (the deadline must be more than one month from the date of the notice).

The landlord can then either accept the claim or dispute it via a counter-notice. The only reasons the landlord can give to dispute the claim are:

• If they believe the building doesn’t qualify
• If they believe the RTM company doesn’t comply with the legal requirements
• If they don’t believe the RTM company members represent half the flats in the building

If you receive a counter notice and don’t agree with the landlord’s reasons for disputing the claim, you will then apply to the Leasehold Valuation Tribunal (LVT) within 2 months of receipt. The LVT will then decide whether or not your claim is valid.

The Date of Acquisition

Once the decision is made and it’s decided that the RTM claim is valid, the date the RTM company takes over management responsibilities will be decided.

If the landlord simply accepted the claim following the ‘notice of claim’ then the date of acquisition will be as stated on the notice.

If the landlord disputed the claim and subsequently lost, then the date of acquisition will be set for three months after the LVT decision became final.

If the landlord disputed the claim but then later came to an agreement with you outside of the LVT, then the date of acquisition will be set for three months after the agreement was made.

The landlord must transfer any service charge funds over to the RTM on the date of acquisition or as soon after as ‘reasonably possible’.

Your Ongoing Obligations to the Landlord

The landlord is still the owner of the property and a member of the RTM company, and they are therefore afforded certain rights to be notified of certain events in the following manner.

You must give the landlord at least 30 days’ notice before approving:

• assignment (selling or transferring the flat into someone else’s name)
• a sublet
• a charge to leaseholders

If the lease states that the landlord’s consent is needed, you must give them 30 days’ notice before approving:

• any changes to the structure of the building
• any changes to the use of the building

For any other approvals, you must give at least 14 days notice.

Points to Consider before Acquiring the RTM

Who is responsible for the costs associated with transferring the RTM?

The RTM Company is responsible for their and the landlord’s costs, even if the RTM isn’t achieved.

If we acquire the RTM, will we be legally responsible for upkeep?

Yes. By acquiring the right to manage, the landlord is effectively relieved of all management responsibilities and liabilities. You will be taking over the responsibility to manage the property in line with the lease and tenant/landlord law. You’ll be taking on the maintenance, health & safety, budgeting, reserve funds, service charges, repairs and major works as well as the day to day running of the building including cleaning and contractor vetting.

We’ve acquired the RTM; do we have to be hands-on in managing the building?

In a word, no. Acquiring the right to manage doesn’t mean you have to handle the day to day running of the block yourselves. You can choose to employ a Managing Agent to work on your behalf with your full involvement in decisions made. This may well be advisable, especially for larger blocks.

Will acquiring the RTM allow us to reduce maintenance costs?

This is quite a pull for some leaseholders who believe their service charges are unreasonable. However, the covenants of the lease do not change when responsibility is transferred, and the RTM Company must comply with the lease at all times. You should also keep in mind that the building is still owned by the landlord and the individual units are likely to be each leaseholder’s primary asset- maintenance and general upkeep are paramount to protecting those investments.

Flat Living Insurance provides specialist insurance policies for blocks of flats and apartments. For more information or a quote, please contact a member of the Flat Living Insurance team on 0333 577 2044.