Right to Manage (RTM) companies are a special form of private company limited by guarantee that enable leasehold property owners to legally take over the management of a building (i.e. to exercise their right to manage) from the landlord/freeholder. In some cases, this may happen without the express agreement of the landlord. RTMs were first introduced under the Commonhold, and Leasehold Reform Act 2002 and allow leaseholders to take responsibility for such tasks as collecting and managing the building service charge, maintaining communal areas and the building structure, and dealing with leaseholder complaints while allowing the landlord to continue to own the building. In this article, we will take a closer look at the function of Right to Manage companies, how they operate, the statutory qualification criteria, and how to set up an RTM.
What is the Right to Manage?
Under the Commonhold and Leasehold Reform Act 2002 (CLRA 2002), leaseholders of flats can establish a Right to Manage (RTM) company and use this to forcibly take over the management function of their building. Crucially, tenants do not need to demonstrate that their building has been mismanaged in order to exercise their Right to Manage. What matters is that the statutory criteria under the CLRA 2002 have been met. Furthermore, to gain the RTM, approval by a court is not required. As stated in section 95 of the CLRA 2002, as soon as an RTM company has successfully acquired the RTM of a building, it can take over management functions that would normally be the responsibility of the landlord or another party, including the services, repairs, maintenance, improvements, insurance, and management. An RTM company can choose to manage a building directly or pay for a managing agent to perform this role on their behalf.
Because taking over the management of a building entails considerable cost and responsibility, it is essential that leaseholders/tenants considering carefully consider the implications and practicalities before doing so.
In addition to the CLRA 2002, there are four sets of statutory regulations that must be adhered to when it comes to serving notices under the RTM procedure and drafting the company articles:
- English RTM Prescribed Form Regulations 2010
- Welsh RTM Prescribed Form Regulations 2011
- English RTM Model Articles Regulations 2009.
- Welsh RTM Model Articles Regulations 2011.
It is important to differentiate RTM from collective enfranchisement; notably with an RTM:
- there is no requirement to acquire the freehold or another interest in land
- tenants do not incur the liabilities or bear the responsibilities of freehold ownership
- the process is much easier than making a successful collective enfranchisement claim
Why form an RTM Company?
Leaseholders may choose to form an RTM company and seek the RTM of their building for a number of reasons, including if the property management service provided by the landlord or their service provider is of poor quality or if the existing service charge is excessive. It is common for tenants to believe that their building’s managing agent is acting on their behalf; in practice, however, they are accountable to the landlord. As such, leaseholders often wish to have greater autonomy over the management of their building.
Applying for the RTM can confer greater control over:
- building management costs, finances, and investment
- overall management of the building
- when and how work is carried out
- the choice of building service providers (e.g. security providers) and contractors (e.g. maintenance and decoration)
Having the RTM also means that decisions relating to the management of a building can be made with greater efficiency and in a manner that is fair for all leaseholders involved.
While there are many advantages of holding the RTM for a building, it is important to ensure that all leaseholders who are members of the RTM can cooperate effectively, conflicts can be managed if and when needed, and there is a common agreement about how the building should be managed going forward. A Solicitor specialising in RTM can explain the procedure, risks, and obligations of taking on such a commitment.
What are the statutory criteria to qualify for RTM?
To qualify for the RTM, leaseholders must be able to show that:
- the building is made up of flats (not houses)
- a minimum of two-thirds of the flats in the building are leasehold (the leases must have been for a duration of more than 21 years when granted)
- at least three-quarters of the building must be residential – this is an important consideration if part of the building serves a commercial function.
- they live elsewhere if there are fewer than four flats in the building – the exception being if the building was purpose-built for flats and not converted
- at least half of the flat owners must be members of the RTM company
According to the rules, the RTM only relates to a single building. This means that when applying for the RTM for an estate with several buildings (or blocks), a separate ‘notice of claim’ must be issued for each. An RTM company is, however, able to manage multiple qualifying properties within the same estate.
What are RTM companies responsible for?
Once an RTM company has taken over management of a building from the landlord/freeholder, they are then responsible for a wide range of functions, including overseeing the:
- building insurance
- building structure, e.g. roof, floors and ceilings and walls
- charging and collection of building management service charges
- complaints from neighbours, freeholders, and leaseholders.
- exterior maintenance (e.g. gardening, clearing gutters), and refuse collection services
- fire risk assessments and putting in place any necessary safety measures
- maintenance of any communal areas (e.g. stairs, elevators, hallways, gardens)
- maintenance of building security (e.g. exterior doors, locks, door intercom systems, boundary walls and fences, windows and doors, concierge, security services)
- maintenance of plumbing and electrics
- repair and redecoration of the building structure and communal areas
By taking over the RTM, the RTM company takes responsibility for covering all of the costs that are required to cover the management of the building.
RTM Company membership and voting rights
RTM company voting rights are given to company members/leaseholders and the building’s landlord. The entitlement of votes depends on the number of flats owned by the individual, e.g. if there are 12 flats in the building, of which 10 are owned by leaseholders, and 2 are owned by the landlord and rented out to tenants, the leaseholders have one vote each, and the landlord has 2 votes. If the landlord has no flats in their ownership, they will still have a single voting right.
How do I form an RTM company?
The process of registering an RTM company with Companies House can be completed either online, by post using form IN01, through an agent, or by using third-party company filing software. As part of the RTM registration process, you will need to provide details of your registered office address, Standard Industrial Classification (SIC) code, directors, guarantors, and persons with significant control (PSCs). You will also need to provide three items of personal information about yourself and your shareholders or guarantors, such as town of birth, mother’s maiden name, father’s first name, telephone number, national insurance number, or passport number.
The easiest and fastest way to set up an RTM company and to ensure the process is completed correctly is to engage the services of a company formation specialist. A company formation specialist will first draft an RTM-specific bespoke articles of association and then register a limited by guarantee company. The RTM articles of association define the management and administrative structure of the company, including how members can join and leave the company, how meetings are conducted, the voting and other rights of members, and the provisions relating to the directors and officers of the company.
Once registered, the company name will end with “RTM Company Limited”. You will also receive a “certificate of incorporation” confirming that the new RTM legally exists, the company number, and the date of formation.
To acquire an RTM, a notice of the claim must be served on the landlord. Section 79(2) of the CLRA 2002 states that the claim notice may not be given unless “each person required to be given a notice of invitation to participate has been given such a notice at least 14 days before”.
If you are considering establishing an RTM company to exercise your Right to Manage your building, it is essential to weigh up whether you and your fellow leaseholders have the necessary time, skill and expertise to effectively manage your block of flats. This includes adhering to your Companies House filing duties. Taking on the RTM of your building can offer considerable benefits, but remember to do your homework before you proceed.