RTM Directors’ Responsibilities

RTM Directors' Responsibilities

A Right to Manage Company is legally bound to operate in line with the Memorandum and Articles of Association of the company. These set out the structures and approach within which the Right to Manage Company has to operate.
Directors of RTM Companies have the responsibilities of any Company Director as defined in the Companies Act 2006, as well as specific responsibilities for carrying out the landlord’s functions in the property.

In this article we have set out a simplified interpretation of the Directors’ responsibilities.
However, reference should be made to the Companies Act 2006 and your company’s RTM Articles for a precise understanding of your responsibilities. Companies House produces several free explanatory leaflets that may help in this regard e.g. Directors’ and Secretaries’ Guide (GBA1).
These responsibilities may seem broad when initially reviewed, but Directors can be protected by taking out Directors’ insurance with their block insurance, which is not that expensive, and by getting assistance from the likes of Urban Owners or a managing agent, such companies help ensure the Directors are following statutory requirements.

Company Director Responsibilities

The role of the company director has recently been defined by The Companies Act 2006 and requires company directors to act in a way most likely to promote the success of the business (or in this case the RTM Company).

You must exercise a degree of skill and care. In particular, you must:

  • Show the skill expected of a person with your knowledge and experience.
  • Act as a reasonable person would do looking after their own business.

You must act in good faith in the interests of the company as a whole. This includes:

  • Treating all shareholders equally (in the case of the RTM this translates to members).
  • Avoiding conflicts of interest.
  • Declaring any conflicts of interest.
  • Not making personal profits at the company's expense.
  • Not accepting benefits from third parties.

You must obey the law.

Company law requires you to produce proper accounts and send various documents to Companies House.

  • Other laws include areas such as health and safety, employment law and tax
  • You may be responsible for the actions of company employees
  • Acting improperly can lead to fines, disqualification from being a director and/or personal liability for the company's debts or a criminal conviction.

Responsibilities to undertake Landlord Functions on the property

Once an RTM Company successfully completes its Right to Manage acquisition from the Landlord, it has responsibility to undertake the Landlord functions in relation to the property. It is the responsibility of the Directors of the RTM

Company to ensure these functions are undertaken appropriately.

The key responsibility of the RTM Company (and hence the Directors) is to undertake these functions in line with the Leases of the flats in the property. Note: Leases of flats can be different from each other.

This relates to all those areas for which a service charge is payable:

  • Services
  • Repairs & maintenance
  • Improvements
  • Insurance.

The Directors’ have responsibility to ensure that:

  • These functions are undertaken in line with any statutory requirements, e.g. the legislation surrounding the format of service charge invoices.
  • Accurate financial records are maintained, and that service charge accounts are produced in line with statutory and Lease requirements
  • Statutory health and safety legislation is abided by for the property and the maintenance work undertaken in the property.

The Directors may be held accountable, if they are derelict in these responsibilities.

The RTM company has a duty of care for defective premises (i.e. it must fix them), and has a duty to the Landlord not to let their property deteriorate through lack of maintenance.

Directors should note that the RTM Company should not:

  • Improve or make structural changes to the property without the Landlord’s permission. There are legislated processes for getting such permission.
  • Collect service charge payments that relate to a period prior to the acquisition of the Right to Manage.

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Date: 21 October, 2016