Right to Manage Company Formation FAQ

What is the difference between the right to manage and enfranchisement?
The right to manage property is a statutory right awarded to ‘qualifying’ tenants in certain circumstances. It allows them to take control of the building in which their flat is situated. The tenants therefore control the maintenance and development of the building without actually acquiring the freehold interest from the landlord.

Enfranchisement (often referred to as collective enfranchisement )  is also a statutory right awarded to ‘qualifying’ tenants in certain circumstances. It gives tenants the right to join together and force the landlord into selling his/her freehold interest in the building to them. After buying the freehold, the tenants can then use this newly acquired interest to award themselves long leases (999 years) without ground rent. This increases the value of their flat.

Right to manage – what are the advantages?

The major benefit of exercising the rights to manage is that tenants gain control over the maintenance and development of their building. Good management is inevitably connected to the value of the individual flats and therefore increasing the value of the flat is now in the tenant’s hands. A flat within a building which is managed by tenants normally attracts a higher sale price as people are attracted to the control.

Tenants can also stop paying any extortionate maintenance fees to their landlord or his/her management company and usually administer the costs more effectively.

What happens if my landlord opposes the right to manage?
Your landlord must have a legally valid reason in order to oppose your right to manage. As it is a statutory right your landlord’s consent is not needed. Reasons which your landlord would be entitled to issue a counter-notice are those such as; not enough tenants have consented to the right to manage, the building has less than 75% residential use and your company might not comply with the law.

If the landlord does issue a counter-notice, you can take him/her to the First Tier Property Tribunal (previously known as the Leasehold Valuation Tribunal or LVT) to get an order enforcing the right to manage action. This will however create substantial additional costs and if the landlord is successful at the Tribunal, you will be liable for his/her legal fees. This is why it is important to seek advice from experienced right to manage solicitors who will be sure of your eligibility to apply for the right to manage.

How shall I organise and commit the other tenants?
It is important for all tenants involved in the right to manage process that they are committed to the cause and are willing to be organised. It is a good idea to set up a tenant committee and nominate a couple of members to be in charge or allocate roles such as a Chairman and Secretary. It can also be a good idea to invite a solicitor to your first committee meeting so that any questions that tenants may have on the process can be answered.

If the right to manage process continues, it is recommended that tenants sign an agreement to confirm their commitment to the company. Instruct a solicitor to draw up a comprehensive agreement which all tenants can sign and have a copy of.

Bear in mind however that when a tenant sells his/her flat, the new buyer may not necessarily want to be involved in the right to manage company.

Do I need Solicitors to exercise the right to manage?

A right to manage application can sometimes be complex and depending on your circumstances. Experienced right to manage solicitors will have an in-depth knowledge of the law and will ensure not only that you are eligible for the right to manage, but that you also follow the correct procedures. Although you may feel like you know the law surrounding the legal right to manage, solicitors as professionals are under a duty to remain up to date with recent developments in the law. Therefore if the law has recently changed or been slightly altered your solicitor will be fully aware of these changes.

As well as this, you will need specialist legal advice when setting up a right to manage company – which will also involve the drafting of legal documents.

Your landlord will most likely instruct a solicitor when he/she receives notice your wish to exercise your rights to manage. Therefore it is beneficial for you to be adequately represented when making your application. Not only this, but if your landlord wishes to negotiate upon the agreement your solicitor will be able to negotiate legal terms which are most favourable to you.

What is the first step in exercising the right to manage property?
You must get the support of at least 50% of your fellow tenants before you can proceed with the right to manage leasehold property. If you are successful in doing this you can move on to right to manage company formation. In order to proceed with exercising your right to manage, you should seek specialist legal advice. This is not only to ensure that you are eligible, but also to help you set up such a company from scratch.

The right to manage company that you create must be registered at Companies House and the tenants must decide amongst themselves as to who will be registered as directors of the company or the company secretary.

What does your right to manage company need to do?

The right to manage company ( or RTM Company) will have the following obligations and duties:

  • Like any other landlord the company should comply with the government approved Code of Management Practice.
  • The company must honour any obligations the landlord has in the tenant’s leases, i.e. to fix repairs within a certain time to a reasonable standard.
  • The company has an obligation to keep the landlord informed when a tenant breaches the terms of their lease.
  • As the right to manage company will function like an ordinary company, the directors will have all the responsibilities a normal director would have as well as maintaining the landlord’s covenants
  • Right to manage companies will need to be registered at Companies House, maintain  comprehensive accounts and submit yearly returns. It will also need to have Articles of Association drawn up – something your solicitor can help you with
  • You will need a Board of Directors for the company (usually made up of qualifying tenants), who will oversee the company’s day-to-day management. It is therefore particularly important, when considering exercising the right to manage, to identify tenants who are willing to take on this level of responsibility and commitment
  • The company must remain solvent, which may involve directors or members funding the shortfall when other tenants do not pay their monthly contribution on time. It will also need a tight fundraising strategy – to make sure that sufficient monies are raised to keep up with a satisfactory level of block maintenance
  • It will need to hold regular board meetings

Most importantly, any UK RTM company will be responsible for the day-to-day running of the building, including arranging insurance, maintenance and repairs. Any planned developments must be voted on by the company’s members, which may include the landlord.

Exercising Your Right To Manage – How Do I Pick The Right Managing Agent?

When you acquire the right to manage, you can opt whether to manage the block yourselves or to appoint a professional property managing agent of your own choosing.

It is very important that you invest time in finding the right managing agent as this can influence the value of the properties in your building. Here is some practical advice on finding the right one:

  • Ask how the managing agent’s team is structured and their level of expertise
  • Find out how they communicate with residents, e.g. via a bulletin board, by letter or online
  • Enquire if there is a structured accounting and reporting system in place and request examples which demonstrate how your money will be spent
  • Check if they carry out regular inspections and can reassure you that they will be monitoring problems and checking monthly
  • Check if they hold memberships of any professional organisations such as ARMA (Association of Residential Managing Agents) whose members have to satisfy an independent body of their competence. AMRA is also the only body in England and Wales to focus exclusively on the management of residential leasehold blocks of flats
  • Check if you will be given an out of hours contact number for emergencies
  • Check if you will have a dedicated account manager for your building
  • Choose a service tailored to the needs and expectations of you, the tenants and the building
  • Develop a good working relationship with the agent as this is key to the successful ongoing management of a building
  • Do your research on contractors, utilities providers, etc. for the block to ensure you are getting the best possible service and value
  • Enquire about what types of properties the agent currently manages and their similarity to yours
  • Ensure that you communicate your requirements to the agent so they can manage your expectations and supply you with the relevant information
  • Find out if the agent has many other properties to manage and if they have the time to adequately manage yours
  • Find out if they communicate well and regularly with the residents of their properties
  • Speak to the agent’s current clients and ask them to rate their performance and take  references – word of mouth is the most effective and reliable benchmark of a firm’s reputation

When does the Right to Manage end?
There are no time limits on your rights to manage, but there are circumstances in which right to manage companies stop being entitled to exercise the right to manage your building, namely:

  • Where all leaseholders and the right to manage company wants to give up exercising the right to manage.
  • Where the right to manage company becomes insolvent or is wound up.
  • Where the company stops acting as a right to manage company (eg if the company is used, under the enfranchisement process, to buy the freehold of the building).

Does anybody who buys a flat after the right to manage is exercised automatically become a member of the RTM company?

As a UK RTM company is limited by guarantee rather than limited by shares, when a participating flat is sold the RTM company is under no obligation to issue shares to the new tenants.

What is a Court Appointed Manager?

As an alternative to exercising the right to manage, individual leaseholders can attempt to have a managing agent instated to run the block instead of the freeholder (under the Landlord and Tenant Act 1987).

A notice must be served upon the freeholder stating that the First Tier Property Tribunal will be asked to intervene if management standards do not improve. If things that improved and applications are tribunal may be necessary. Appointment of a manager by a tribunal is not automatic – it’s members will need to be persuaded that a change is needed before appointing a specified managing agent to run the block.

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