Rights To Manage – How They Work

Exercising the right to manage and taking control of the management of your own block of flats is likely to save you and your fellow tenants some money. But it’s not without its pitfalls and responsibilities. Before rushing into forming an RTM Company, make sure that you understand what you are taking on.

Why would I want to take on the right to manage?

You may want to take on the right to manage if you believe that your landlord or the management company currently in charge of your building, is not doing a good or efficient job of the upkeep of your building. You may also feel that you are overpaying on maintenance charges. Not only this, but in order to increase the value on your flat, your building may need development, which is something that your landlord or his/her management company is not offering you.

Exercising your rights to manage is not something that you can take on single handed. It involves the support of at least 50% qualifying tenants in your building. Therefore it will not just be you who is taking on the right to manage; instead you and your fellow tenants will create a right to manage company. This company will then look after the building and its upkeep.

Are there any disadvantages to exercising my right to manage?

Yes, the down side to Right To Manage Company formation include :

•  At least one tenant must act as a director to the company, which incurs addition liabilities such as being responsible to the members of the company.

• Budgets and cash flow must be monitored and when tenants do not pay up, it is not the landlord’s responsibility to collect payment, it is the company’s.

• It may be difficult to please all tenants. Some may be for development and some may be against, this can inadvertently create conflict and blame may be laid at the director’s door.
Not every tenant will join as a member of the right to manage company, yet those who do not join will still benefit from the fruits of your labour.

• The present landlord is entitled to join the company as a member and may therefore be entitled to vote on what action is taken (depending on the set up of the company).

The Criteria
In order to exercise your rights to manage the following criteria must be satisfied:

  1. You must reside in a self-contained block of flats.
  2. The landlord must not be charitable housing and the lease must not be a business lease.
  3. The building must be at least 75% residential use.
  4. You must ‘qualify’ for the right, i.e. you must be the owner of a long lease (more than 21 years).
  5. 2/3 of the building must be let to other ‘qualifying’ tenants.
  6. 50% of the qualifying tenants in the building must want to exercise the right to manage and must become members of the right to manage company.

How Right to Manage Works  – The Procedure

Exercising your rights to manage (or RTM) is a relatively simple procedure. It does not involve getting the landlord’s consent or applying for a court order. Although there are legal costs involved in forming right to manage companies and in addition the tenant must pay the landlord’s costs in regard to responding to the notice (see below), they do not have to pay the landlord a fee for exercising their rights to manage.

These are the steps qualifying tenants must take in order to exercise their right to manage:

Step 1 – Create the company
A Right to manage company must be created and registered at Companies House. The qualifying tenants must become members of the company and it is limited by guarantee (as there is no share issue). When creating the company the tenants will have to decide who will become directors and which member will become the company secretary. This information is also registerable.

Step 2 – Inform the other tenants
Newly registered right to manage companies should serve notice on the remaining tenants in the building inviting them to become members of the company.

The company cannot exclude particular tenants and must invite everyone. The company must wait at least 14 days after inviting the other tenants before it serves notice on the landlord (Step 3).

Step 3 – Serve notice on the landlord
Notice of the right to manage should be served on the landlord with details of the right to manage company. The landlord is given one month to respond to this notice and potentially issue a counter-notice. The takeover date for the right to manage company should be 3 months from the end of the reply period. Therefore the quickest this process can be completed is 4 months from the date of notice.

If the landlord approves of the application then he/she will have to serve notice on the current management company and any contractors that may work on the building.

Each member of the newly created UK RTM company is joint and severally liable for the landlord’s costs in dealing with the claim (i.e. each of them are liable for up to the full amount of the landlord’s costs).

If the landlord is absent and the tenants receive no response to the claim, this does not mean that they cannot proceed with the right to manage action. They must, however, show that they took all reasonable steps to contact the landlord and have had no success. They must then bring the claim before the First Tier Property Tribunal (previously known as the Leasehold Valuation Tribunal) which should grant the right to manage accordingly.

Step 4 – Receipt of a counter-notice
The landlord must have sufficient reason to deny the right to manage claim and serve a counter-notice. A good reason would be that the building does not qualify for the right, or not enough tenants have signed up as members of the company.

If the landlord does return a counter-notice he/she could dispute the claim to the right to manage. Unfortunately, this normally results in taking the claim before the Tribunal which will delay the process significantly. Fortunately although it is relatively unusual, bringing a matter before a Tribunal can significantly add to costs – in particular as the Tribunal is in effect a court, most tenants are reluctant to represent themselves and usually instruct solicitors on their behalf.

Step 5 – Serving an information notice

Before acquiring the right to manage, participating tenants must collect all the necessary information from the landlord about the property so that they can ensure effective management of the building. This involves serving an ‘Information Notice’ on the landlord for him/her to respond to. It is also normal practice at this time to instruct a surveyor to examine the building.

Finally don’t forget that as well as giving you new rights, exercising your right and forming right to manage companies does bring with it new responsibilities.

Rights to manage – am I eligible?

The Commonhold and Leasehold Reform Act 2002 awards qualifying leaseholders the statutory rights to manage their building without having to buy the freehold. These rights to manage enables a tenant to remove the management control of the building from the landlord and create a “right to manage company” [also known as an RTM company]. In many cases the landlord will have appointed their own independent management company. The rights to manage exercise works in the same way in this situation as it removes the control from the management company as opposed to the landlord.

A desire to exercise a right to manage can arise when a tenant becomes frustrated by the level of care put in to the maintenance of their building or the level of charges they have to pay for maintenance. However it is not a pre-requisite to claiming the right to manage that the landlord must have either acted negligently or that the tenant is not happy with the maintenance charges.

For advice from exercising your rights to manage, talk to us first
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