A guide to Right to Manage
Since the 2002 Commonhold and Leasehold Reform Act, leaseholders have had the legal right to take control of their block away from their landlord, and therefore, replace their managing agent, through the Right to Manage. It is a relatively inexpensive, swift and straightforward means of doing so. Increasingly common amongst leaseholders, figures obtained by Companies House show that as of November 2009, there were 1,968 registered RTM companies, a 20% increase on the figure twelve months before. And it comes as no surprise that more and more people are choosing to exercise their Right to Manage, given that it’s simply a case of following a sequence of clearly set out steps whilst abiding by some well-established legislative requirements. On meeting certain government-specified criteria, the Right to Manage is exercisable by all leaseholders. What’s more, leaseholders are not required to prove that their existing managing agent has been incompetent or otherwise, and it takes just one person to initiate the process. The minor stumbling blocks in the process are easily overcome with a little due care and attention; typically, it is only a matter of ensuring that your block meets the qualification criteria in the first place, and thereafter carefully following the technical legalities involved. Nevertheless, when outsourced to professionals, forming an RTM company is a simple, undaunting process, and the chances are that your block will sail through the Right to Manage acquisition without any complications or hold ups.
There are five steps to the Right to Manage process:
Step 1 – Ensure your block qualifies
This is typically a cut and dried process for most blocks – to qualify, your block must meet the following criteria:
Step 2 – Create an RTM company
The RTM company is the actual body that takes on the management responsibility. This is a relatively straightforward process when carried out by a company formation agent. We advise that all company-founding leaseholders are made directors of the RTM company in smaller blocks, and that larger blocks have a minimum of three directors.
Step 3 – Secure participating leaseholders
To progress with acquiring the Right to Manage, at least 50% of leaseholders in the block must be willing to become members of the Right to Manage company. Generally, come this point in the process, this figure will already have been met, as leaseholders will often hold an informal meeting to discuss the prospect of undertaking the Right to Manage. A notice to participate must be issued to all as-yet unparticipating leaseholders, who then have fourteen days to respond. The form and content of this notice is dictated by the legislation.
Step 4 – Serve a claim notice on the landlord
Assuming at least 50% of leaseholders are willing to become members of the Right to Manage company, a formal notice must be submitted to the landlord informing them that the company intends to acquire the Right to Manage. This is a critical step, in that any infringement of the legislative technicalities can potentially stall the Right to Manage process. The form and content of the notice is dictated by legislation. The claim notice must contain:
Once the claim notice has been served, the landlord has one month in which to respond. If no response is issued, it is deemed that the landlord has consented to your acquiring the Right to Manage.
If the landlord contends your claim, they will be required to provide the reasons for their dispute. If, having heard the landlord’s contention, the leaseholders still wish to proceed with acquisition, they will need to take their landlord to the First Tier Tribunal (property). The First Tier Tribunal – Property will assess whether the leaseholders do, indeed, have the Right to Manage.
However, there is little with which the landlord can reasonably take issue, other than if your building has not qualified under the criteria outlined in Step 1.
Step 5 – Prepare to take-over management of your property
Once leaseholders have obtained consent to acquire the Right to Manage, they usually have around three months in which to prepare for handover ahead of the acquisition date. We recommend that leaseholders do the following in this time:
The costs involved in Right to Manage acquisition can be split into two groups:
Very occasionally, the landlord will issue a counter-notice, denying the leaseholders the right to takeover on the specified acquisition date. In this instance, the RTM company would have to take the case to the First Tier Tribunal -Property to progress the process. In doing so, the Right to Manage company would incur the cost of booking the case, and further costs of engaging legal advice. Who is responsible for meeting these costs? The responsibility for meeting all the associated costs lies with whichever parties initiated the Right to Manage process. Although the Right to Manage company should receive uncommitted service charge monies from the previous managing agent, they cannot be used to pay the landlord’s reasonable costs.
The benefits of the Right to Manage may well be clear by now – essentially, it’s all about getting more control over the management of your block and thereby saving money and improving service.
Research suggests that on average leaseholders can save over 25% on their service charge bills by taking control of their own property.
Average saving per flat
Cost Average annual saving (%)
Management Fees 25%
Repairs & Maintenance 25%
Grounds Maintenance 30%
*Legal services, bank & accountancy charges, utilities, security and lifts
However, with control comes responsibility
It is sometimes the case that the various leaseholders in a block have a degree of experience in relevant fields like finance, company law and construction, so that they can collectively self-manage their block without having to engage a managing agent.
However, in just as many cases, and particularly in those involving larger blocks, leaseholders are dissuaded from going down the self-management route having considered the vast amount of administration and ever-increasing risk of violating legislation it entails.
It is in this scenario when engaging block management professionals to help in running a block, whether in the form of a managing agent or of Block Administration Services, is recommended.
Experience shows there is very little that can prevent a Right to Manage acquisition from progressing. The Right to Manage is now nothing more than a regulation process, and with experienced professionals handling your Right to Manage transition and negotiating the legislative and administrative steps along the way, you can be virtually assured of success.
We have overseen cases that have been taken to the First Tier Tribunal and have a near 100% success record in successful Right to Manage acquisitions – even when there is a challenge from the freeholder.