​The introduction of the Right To Manage (RTM)

What Are The Advantages?

In exercising such a right, the RTM does not have to show fault on the part of the existing Landlord or managing agent to succeed.  Therefore whether the leaseholders simply wish to take matters into their own hands or the property has been historically mis-managed, the RTM process allows leaseholders to acquire the management of their property without having to worry about proving why.

Successful completion of the RTM process also empowers leaseholders with the ability to fully control the running of the property in question, even as to how and where funds are spent.  Providing the covenants of the various leases are adhered to and maintained, the RTM Company can decide what management strategy to employ and in most cases day-to-day efficiency and costs can be improved, as the leaseholders will have a vested interest in the smooth and proper running of the property.

The majority of RTM Companies will call on the services of a professional managing agent to undertake management on their behalf, as the running of a property can be quite complex in terms of ensuring compliance with various legislation requirements.  In such cases, the RTM Company is fully at liberty to choose and agree the service levels with the chosen managing agent, allowing leaseholders to have the final say over who manages their property and how such management is undertaken, rather than being at the mercy of whomsoever the Landlord chooses to appoint and how they decide to manage the property.

Is There Anything Else?

Even though RTM places management power in the hands of leaseholders, nevertheless there are still a number of matters which will require the serious consideration of those persons contemplating such a process.  With power comes responsibility, and a successful RTM process in effect puts the RTM Company in the place of the Landlord for the majority of matters as contained with the property leases.  For example it becomes the responsibility of the RTM Company to carry out repairs, maintenance and insurance of the property, as well as ensuring that service charge demands are issued, collected and monies held as required.  The RTM Company has an obligation therefore to both the Landlord and leaseholders to manage the property in accordance with the leases.  In effect, a delegation of both responsibility and liability has taken place.

The RTM Company also takes on obligations to serve the appropriate notice on the Landlord should they receive requests from leaseholders, for example with respect to Subletting, Assignments and Structural Alterations as prescribed within the various leases.

In most situations however, an RTM Company will appoint a selected managing agent to ensure all such responsibilities and obligations are undertaken, and that the RTM Company is fully compliant with both legislation and also the obligations contained within the leases.

So How Does It Actually Work?

There are qualifying rules laid forth in the Act which provide criteria that must be met, by both the property in question and also those residing within.  The qualifying rules are found within Sections 72 – 77 of Chapter 1, however in short the main items are:

• The property must be a self-contained building, or part of a building, either with or without surrounding estate areas.
• At least 50% of the leaseholders within the property must sign up for the process and become members of the RTM Company.
• At least two thirds of the leaseholders within the property must have long leases (a long lease being defined as having a term greater than 21 years at the time of issue).
• No more than 25% of the property may be used for non-residential use (excluding car parks/garages and common areas associated with the flats).

In general, meeting the above requirements means there is a good probability that the RTM process would succeed for the property, although it would be wise to seek the advice and input of a professional party first, such as an experienced managing agent, with respect to the specific circumstances surrounding your property and the obligations the RTM Company would inherit.

As with many things in life, the RTM process has the potential to be either relatively straightforward, or somewhat complex.  This can depend on a number of factors, including the research carried out before the process is commenced, the accuracy when undertaking the procedure, and even the actions of the Landlord during and after, the latter party often wanting to frustrate matters.  A successful RTM process starts off with as much knowledge about the property and its residents as possible.  This can be gained either from what is already known by the existing residents or from Government organisations such as the Land Registry, for example the owner names and registered addresses for each flat in the property.

The Procedure

Once it has been decided that RTM is the most suitable way forward, the leaseholders, or indeed the managing agent if one has been instructed to act in this capacity, need to incorporate the RTM Company.  There is a strict wording that must be utilised for the Company Memorandum and Articles of Association so it is important to get this right.  It is vital to note that such items have been subject to amendments since the Act originally came into force, hence the need to get it right by obtaining professional guidance and advice.

All qualifying leaseholders who are not already members of the RTM Company are then served with a Notice of Invitation to Participate, essentially inviting them to become members of the RTM Company.  Again, this is via a prescribed format and must be correctly undertaken and complied with.

Membership of the RTM Company needs to reach a minimum of 50% of the qualifying leaseholders within the property to allow the next step to be undertaken.  This is service of the formal Claim Notice upon the Landlord, advising of the company’s intention to acquire the right to manage the property. 

The Claim Notice allows for a period of one month for the Landlord to reply, and must provide a date of at least 3 months from expiry of the Claim Notice as to when the acquisition of management would take place.  In practice, it is a good idea to time matters so that acquisition of management takes place just prior to the next service charge demands being due, meaning that the RTM Company can immediately go about collecting monies for ongoing services rather than waiting for funds to be transferred from the previous agents.

The Landlord has one month in which to reply to the Claim Notice, either denying the right via a Counter Notice in the correct format, or admitting the right.  If the Landlord does not serve an adequate Counter Notice within one month, then the RTM procedure is automatically successful and deemed to be accepted.  This cannot be challenged at a later date.

However if the Landlord does deny the right, and the Counter Notice is in the correct format, then the RTM Company must apply within 2 months to the Leasehold Valuation Tribunal (LVT) for a determination as to whether they can rightfully acquire the right to manage the Property, depending on the reasons the Landlord has given for denying the right.  The LVT will then decide as to whether the RTM claim is successful or not.

Therefore, depending on the actions of the Landlord, the RTM can be acquired at its swiftest within 4 months.  However if the Landlord proves to be uncooperative, or has genuine reasons for denying the RTM, such a time frame can be longer.  It is essential to note at this point that the Landlord is able to recover their reasonable costs from the RTM Company in dealing with the claim; however such costs must be reasonable.  Should the Landlord seek to recover an unreasonable level of costs, this can be challenged by the RTM Company via the LVT.  A brief perusal of previous decisions with respect to costs, made under Section 88(4) of the Act, can quickly give an indication of what is deemed reasonable

Is It For Us

The RTM can be an effective method for leaseholders to obtain and undertake the management of their property and can serve to resolve a lot of management issues.  It is important however for leaseholders to understand the responsibilities that come with self-management. 

The support of as many leaseholders as possible in the property will be vital, so this is a good place to begin when considering the RTM.  Take note of the qualification criteria and whether your property fits in to this bracket.  Finally, the input and advice of an experienced managing agent can also be a useful tool in deciding whether the RTM process is the best option for your property. 

Philip Sherreard AIRPM, Head of Property & Systems at Sterling Estates Management Ltd