RTM: The reality for tenants

The Right to Manage,  introduced by the Commonhold and Leasehold Reform Act 2002, empowers leaseholders to take control and responsibility for the management of their block without having to pay a premium. But, is the grass always greener?

The right is exercised via a Right to Manage Company (the RTM Co) and one of the most important parts of the process is to set up and efficiently run the RTM Co. This will require leaseholders to devote time, inject costs, become familiar with the company’s procedures and, for some leaseholders, take on the duties of a company director.

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It is advisable to instruct professionals to set up the RTM Co and instruct solicitors to conduct the claim. During the process, leaseholders will need to understand the current service charge regime, decide whether they need to enter into alternative service and management contracts, and ensure that all management systems are in place by the acquisition date. This will require a huge commitment, both in terms of costs and time.

From the acquisition date, the RTM Co will step into the shoes of the landlord in carrying out the management functions. These include not only the obligations to repair, maintain and insure the building, but also compliance with health and safety requirements and enforcing covenants in relation to planning and listed building consents where appropriate. On the acquisition date, the RTM Co should have control of any excess service charge and reserve fund held by the previous managers.

But what if there are no service charge funds held on account; what if the leases require service charges to be paid in arrears? The management functions must be performed irrespective of whether there are any funds in the service charge account and the RTM Co may need to pay for services in advance before demands can be served.

Even after the right has been successfully exercised, the RTM Co will be faced with other challenges. The right does not affect non-residential parts of a building and, in some cases, the RTM Co will need to seek the cooperation of and work amicably with the landlord to ensure that all parts of the building are managed properly. In the case of leaseholders who consistently fail to pay their service charge, the RTM Co may need to persuade the landlord to take forfeiture proceedings (as this remedy does not pass to the RTM Co) and they could potentially be asked to fund the Landlord’s costs in taking such action which may not be recoverable under the leases. The RTM company will also acquire the power to issue consents including licences to assign and alterations.

But what if it does not approve of the proposed assignee or the proposed works? Will it have the capacity to say no and therefore risk offending one of their fellow leaseholders? If it does withhold consent, will it then be able to defend any claims and deal with any disputes that would ordinarily arise between a landlord and tenant?

The Right to Manage is indeed a useful tool but one must not underestimate the significant obligations that the RTM Co will inherit by stepping into the shoes of the landlord.

 

Swita Kothari is Senior Associate at CMS Cameron Mckenna LLP

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