Unlocking Control: Your Guide to Right to Manage

For many leaseholders across the United Kingdom, the management of their residential building can often feel like an opaque and sometimes frustrating experience. Decisions about maintenance, finances, and service standards are typically made by landlords or their appointed agents, leaving those who live in and own the flats with little direct influence. However, the Commonhold and Leasehold Reform Act 2002 introduced a powerful mechanism to address this imbalance: the Right to Manage (RTM). This right empowers leaseholders to take over the management functions of their building by transferring them to a company they themselves establish – the RTM company. This guide aims to demystify the process, offering a comprehensive overview of how to form and operate an RTM company, and what to expect on this journey towards self-determination.

It's important to understand from the outset that the RTM process is designed to be relatively straightforward. It doesn't require the landlord's consent, nor do leaseholders need to prove any form of mismanagement. The right is available irrespective of whether the current management has been good, bad, or indifferent. The core principle is empowerment, allowing those with the primary financial interest in the property to take responsibility for its upkeep and future. While the process itself is formal, involving specific notices and timelines, the underlying aim is to give control back to the leaseholders. This leaflet offers practical insights into the issues and operational aspects of exercising this right, from initial considerations to assuming full management responsibilities.

Preparation: Laying the Groundwork for Success

Before embarking on the RTM journey, the very first step should be to clearly define what the leaseholders collectively wish to achieve. Taking over management brings significant duties and liabilities. While it grants the power to make approvals and enforce lease covenants, it also means becoming wholly responsible for all decision-making regarding budgets, reserve funds, service standards, repairs, and major works.

Defining Your Management Approach

Exercising the RTM does not automatically mean self-management. The RTM company has the flexibility to either handle day-to-day management itself or to delegate this function to a professional managing agent. For buildings with more than, say, six flats, appointing a professional agent is often the most sensible approach. Management demands specific skills and experience, carrying substantial responsibility. Sometimes, dissatisfaction with an existing managing agent stems more from a feeling of powerlessness in decision-making than from actual incompetence. The same agent, operating under the explicit instructions of an RTM company, might deliver a perfectly satisfactory service without the upheaval of a complete change.

A common motivation for RTM is to achieve cost savings on maintenance and repairs. While a valid objective, the RTM company must adopt a responsible attitude towards the long-term upkeep of the building. The property remains in the landlord’s ownership, and the flats are the leaseholders’ principal financial assets. It would be irresponsible to cut costs by reducing essential services or allowing the block to deteriorate, as lease covenants will still require proper maintenance.

Responsibilities and Challenges

Taking on management responsibilities is a significant undertaking. The RTM company, like any landlord, will be required to comply with Government-approved codes of management practice, such as those from the Royal Institution of Chartered Surveyors (RICS). Failure to comply could lead to an application to the First-tier Tribunal (Property Chamber) for a new manager to be appointed or for the RTM to be terminated.

Key responsibilities to consider early on include:

• Learning about company procedures or hiring professional advice.
• Finding individuals willing to serve as officers (directors and secretary) of the RTM company on an ongoing basis, as they will have the normal responsibilities of company directors and residential landlords.
• Being prepared for criticism from other lessees and residents, some of whom may have irrational expectations.
• Arranging regular meetings to discuss and decide on management matters.
• Dealing with technical issues such as budgets, accounts, specifications, and legal requirements.
• Ensuring the RTM company remains solvent and addressing issues with leaseholders who default on payments.
• Navigating difficult and sensitive issues when dealing with neighbours and fellow leaseholders.
• Complying with a wide range of company, housing, and health and safety laws.

Additionally, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may apply if the landlord or current management company employs staff who serve the building. Specialist advice should be sought to determine if TUPE applies, as it protects employees' terms and conditions during a transfer.

Despite these challenges, the RTM offers a unique opportunity for leaseholders to control their own affairs and make their own decisions about the management and upkeep of their homes.

Qualification for RTM: Is Your Building Eligible?

For a building to qualify for the Right to Manage, certain conditions must be met, and a minimum number of leaseholders must participate:

• At least two-thirds of the flats must be let to ‘qualifying tenants’. A ‘qualifying tenant’ is a leaseholder whose lease was originally granted for a term of more than 21 years. There are no requirements for residence, nor a limit on the number of flats one person can own.
• The non-residential part of the building (if any) must not exceed 50% of the total internal floor area, excluding common parts.
• The RTM does not apply if the immediate landlord of any qualifying tenant is a local housing authority.
• The RTM does not apply if the premises fall within the Resident Landlord Exemption. This applies to converted houses (not purpose-built blocks) with no more than four flats, where one flat has been occupied by the freeholder or an adult family member as their only or principal home for the last twelve months.

The RTM may only be exercised by an RTM company, and its members must include a sufficient number of qualifying tenants. This minimum number must be equal to at least half the total number of flats in the building. For instance, in a block of 10 flats, at least five qualifying tenants must participate. If there are only two flats, both qualifying tenants must participate.

The right relates to a specific building. Therefore, in an estate with multiple separate blocks, each block would need to qualify individually, and a separate RTM notice served for each.

Establishing Your RTM Company

The Right to Manage is exercised by the company itself, not by individual leaseholders. Consequently, forming the company is an essential first step. It is the company that acquires the right and assumes responsibility for management; individual leaseholders may change over time, but the company provides continuity.

Company Formation and Articles of Association

The RTM company must have Articles of Association that govern its purpose and operation. These Articles are prescribed by law (Statutory Instrument 2009 No 2767), and the company will not be valid for RTM purposes if its Articles do not conform to these provisions. A Memorandum of Association is also required upon registration, stating the subscribers' intention to incorporate the company.

Forming the RTM company is a relatively simple process and can be handled by a solicitor, a company agent, or even by the qualifying leaseholders themselves. Companies House (contactable at 0303 1234 500 or via their website) provides free explanatory leaflets on various aspects of company administration.

At this initial stage, any number of qualifying leaseholders can set up the RTM company; the full required number of participants is not needed immediately, just enough to provide a chairman, directors, and a secretary. Identifying a dedicated group prepared to take on this responsibility is crucial, as the exercise of the right is impossible without their commitment.

Once the RTM company is registered with its initial members, it must then formally invite all other qualifying leaseholders to join.

The Notice Inviting Participation

All qualifying leaseholders have a statutory right to become members of the RTM company; no one can be excluded. This is not optional. Furthermore, once the RTM has been acquired, the landlord is also entitled to membership.

The Notice Inviting Participation must be in writing, in the prescribed form (Statutory Instrument 2010 No 825), and served on all qualifying leaseholders who are not already members or have not agreed to be members. It must:

• State the RTM company's intention to acquire the right to manage.
• List the names of the current RTM company members.
• Invite the recipient to become a member of the RTM company.
• Provide other required information: the RTM company’s registered number and office address, names of its directors and secretary, and the name of the landlord and any other parties to the lease.
• Clarify that management powers obtained through RTM do not extend to landlord-controlled flats or commercial units.
• State whether the RTM company intends to employ a managing agent or manage the building itself, including details of any management experience if self-managing.

The notice must be accompanied by a copy of the RTM company's Articles of Association, or state where they can be inspected. Accuracy and proper service are paramount, and it may be advisable to engage a solicitor specializing in this area for drafting and serving the notice.

Service can be by post or by delivery to the flats. Retaining evidence of satisfactory delivery is crucial, as the adequacy of this procedure can be grounds for a landlord to challenge the RTM company's constitution. It is prudent, though not compulsory, to include an application form for membership with each notice.

Gathering Vital Information for Smooth Transition

Even with the company formed, it would be unwise to proceed without a thorough investigation into the current management arrangements and the implications of taking on management. The legislation provides rights to information from the landlord and access for inspection, but the RTM company must first identify what information it needs.

Managing a building, especially a large one, can be as complex as running a sizeable business. The RTM company needs a clear understanding of what is involved before committing to the takeover. Essential information includes:

• The proper name and address of the immediate landlord and any other landlords with interests.
• Full names and addresses of all leaseholders.
• Details of any non-residential or commercial use in the building.
• Current arrears position.
• Building insurance arrangements.
• How the building is currently managed, including the managing agent's details if applicable.
• Details of all current maintenance and service contracts.
• The overall state of repair, identified major works, and recent survey reports.

Some of this information may already be known. The rest can be obtained via:

• Landlord and Tenant legislation: The Landlord and Tenant Act 1985 provides rights to obtain the landlord's name and address (within 21 days) and an annual service charge account statement, along with the right to inspect supporting documents.
• Land Registry: For registered properties, you can inspect the register and obtain copies of the freehold certificate, revealing ownership and other interests.
• Information notice (Section 82 of the 2002 Act): The RTM company can serve a notice requiring information reasonably needed to complete the Notice of Claim. This is not a general power but specific to preparing the claim notice. The landlord must comply within 28 days.

Once the Notice of Claim is served, Section 83 provides a right of access for inspection of any part of the premises, given at least ten days' notice. This is crucial for assessing the building's fabric, plant, and facilities, such as lifts, boilers, and electrical installations, to identify necessary repairs or renovations.

Planning for Success: Budgets and Programmes

While the legislation does not mandate the RTM company to produce a business plan or budget for the landlord, it is highly prudent to do so. Recipients of the Notice Inviting Participation will naturally want to know how the RTM will affect their costs and what management standards the company aims to deliver.

A well-prepared RTM company will look ahead, examining how the building should be managed, potential advantages, and achievable cost savings. The management strategy should be based on the group's motivations, whether it's saving money, improving standards, gaining control, or removing a poor landlord.

Considering the employment of a managing agent, their costs, and service delivery objectives is vital. Interviewing several agents can help in making an informed decision. The RTM company should remember that while management passes to them, ownership does not, and leases remain unaltered. The building's fabric remains the landlord's property, and the RTM company has a duty not to allow its value to depreciate through neglect or mismanagement.

For larger buildings, drafting a planned maintenance programme, ideally for at least 25 years, is essential. This programme, requiring professional help, should cover all elements needing periodical renewal and include budget costs (with fees and VAT) to properly programme both routine and irregular expenditure. This will form the basis for establishing a robust reserve fund. A sensible RTM company will always manage the building in accordance with the lease terms, ensuring its long-term viability.

The Formal Claim: Notice of Claim

The Notice of Claim is the formal document that initiates the exercise of the Right to Manage and sets the date for the RTM company to take over. It can only be served once the building qualifies, the RTM company meets statutory requirements, and its membership comprises qualifying leaseholders of at least half the flats. It cannot be served until 14 days after the Notice Inviting Participation.

The Notice of Claim must be served on:

• The landlord of the whole or any part of the premises.
• Any intermediate landlords.
• Any parties to the lease other than the leaseholders (e.g., a management company).
• Any manager appointed by a court or tribunal.

A copy must also be sent to each qualifying tenant in the building and, if applicable, to the relevant court or tribunal where a manager was appointed.

The prescribed form for the Notice of Claim (Statutory Instrument 2010 No 825) must be in writing and include specific details:

• Specification of the premises and grounds for qualification.
• Full names and addresses of qualifying tenant members, with lease details.
• The RTM company’s name and registered office.
• A date for landlord counter-notice (at least one month after service).
• The Acquisition Date, at least three months after the counter-notice date, on which the RTM company intends to acquire the right.

The notice also reminds the landlord of his right to membership and his duty to serve 'contract' and 'contractor' notices. The ability to set the acquisition date allows the RTM company to plan and prepare for a seamless transfer, though a longer period might be prudent in some cases to engage a new managing agent and make other arrangements.

Absent Landlords and Right of Access

If the landlord or other required parties cannot be found, this does not prevent the exercise of the right. An application can be made to the First-tier Tribunal (Property Chamber) for an order entitling the RTM company to acquire the right, provided all reasonable steps to find the landlord have been taken and other qualifying leaseholders are informed.

After serving the Notice of Claim, Section 83 of the 2002 Act grants the RTM company a statutory right to access any reasonable part of the premises with at least ten days' notice. This is critical for professional inspection of communal areas and facilities not generally accessible to leaseholders, such as lift motor rooms, communal heating systems, and roof spaces.

The Landlord's Response: Counter-Notice

By the date specified in the Notice of Claim, the landlord(s) may serve a counter-notice. This counter-notice can only do one of two things: either agree to the RTM or allege reasons why the RTM company is not entitled to proceed. It is not an opportunity to raise queries or dispute the RTM on other grounds.

If the landlord admits the right, management transfers to the RTM company on the specified acquisition date. If no counter-notice is served, the acquisition date in the original notice stands.

If the landlord disputes the claim, the grounds are limited to:

• The building does not qualify.
• The RTM company does not comply with legislative requirements.
• The RTM company members do not represent half the flats in the building.

The counter-notice must specify the reason for non-qualification by reference to the Act and state that the RTM company may apply to the First-tier Tribunal (Property Chamber) for a determination. If the RTM company does not make this application within two months of the counter-notice, the claim is deemed withdrawn. The Tribunal then determines entitlement, with a right of appeal to the Lands Tribunal.

Financial Considerations: Landlord's Costs

Generally, the RTM company is not liable to reimburse the landlord for costs incurred during the RTM process, except as permitted by Sections 87A and 87B of the Commonhold and Leasehold Reform Act 2002. As RTM is not fault-based, the landlord should not suffer financial loss (beyond lost management fees).

Recoverable costs are typically limited to 'professional services' for which the landlord is 'personally liable', such as legal expenses for dealing with the claim, accountancy costs for fund transfers, and costs for handing over management records. However, under new legislation, landlords cannot recover costs related to a Tribunal hearing on entitlement unless the Tribunal rules against the RTM Company. All recoverable costs must be 'reasonable', and disputes can be referred to the Tribunal for determination.

Costs may still be recoverable if the RTM claim does not proceed (e.g., if withdrawn, deemed withdrawn, or the company is wound up). It's crucial to understand that liability for the landlord’s costs can extend to all RTM company members; winding up the company does not relieve members of liability for costs incurred during an unsuccessful application.

The Takeover: Acquisition Date and Handover

The Acquisition Date is the pivotal moment when the RTM company formally assumes control of management from the landlord. This date is:

• The date specified in the Notice of Claim, if the landlord does not dispute the claim.
• Three months after the Tribunal's final determination, if a dispute was resolved in favour of the RTM company.
• Three months after the landlord's written agreement, if they originally disputed but later consented.

Before this date, several steps must be completed to ensure a smooth transition.

Landlord's Membership of the RTM Company

Upon the acquisition date, the landlord automatically becomes entitled to membership of the RTM company, with full voting rights if they choose to exercise them. This reflects that RTM is not default-based; the landlord retains an interest in the building and can contribute to its management. Voting rights are determined by the number of units (flats, non-residential parts) the landlord holds. If no units are held, one vote is allocated as the landlord. In cases of multiple landlords (e.g., freeholder and head-lessee), votes are allocated pro-rata to reflect the number of landlords, ensuring flat-owners are not outnumbered. If the landlord holds non-residential units, votes are allocated proportionally based on the internal floor areas of residential and non-residential parts.

Management Contracts and Information Transfer

The landlord will likely have various contracts in place for building services (e.g., lift maintenance, cleaning, heating). The RTM company must be aware of these to ensure continuity. The landlord has a duty to serve 'contractor notices' on all appointed contractors and 'contract notices' on the RTM company, informing them of existing contracts and their details. This allows the RTM company to decide whether to renew or seek new contractors.

Furthermore, the landlord has a statutory duty to provide the RTM company with all information and records reasonably required for managing the building. This includes contracts, accounts, service charge details, maintenance schedules, and future works proposals. While the landlord is not obliged to volunteer information, they must comply within 28 days of receiving a formal request. Serving this notice at least 28 days before the acquisition date is advisable to ensure information is available from day one, preventing management difficulties.

Transfer of Funds

Where the landlord holds unspent service charges or reserve funds collected in advance, they are legally obligated to transfer these sums to the RTM company on or soon after the acquisition date. This includes service charges and any interest, minus the landlord's outgoings up to the acquisition date. Disagreements over the exact sum are common, especially if accounts are not up-to-date. An application can be made to the First-tier Tribunal (Property Chamber) to determine the amount. An external audit of service charge accounts, paid for by the RTM company, can ensure fairness and provide surety for all parties. Delays in fund transfer can pose significant challenges, and the RTM company should anticipate this by making alternative financial provisions for the initial months of operation.

Management Functions and Responsibilities

On the Acquisition Date, the RTM company assumes all management functions for the premises as defined in the lease. These functions typically include:

• Repairs, redecorations, and maintenance of the building's structure and common parts (including cyclical maintenance, plant, and facilities like lifts and central heating).
• Improvements to the building (if permitted by the lease).
• Provision of services (e.g., lighting common parts, heating, cleaning, gardening, caretaking).
• Arranging building insurance.
• Levying and collecting service charges, accounting, and providing statutory information.
• Ensuring compliance with all statutory requirements related to building management and fabric.
• Day-to-day management of the building.

The RTM company also gains the power to grant approvals and enforce covenants under the lease.

What is Not Included

It's crucial to understand what the RTM company's powers do not extend to:

• Management of non-residential parts or non-qualifying flats: If the building contains shops, offices, or flats let on short tenancies, their management remains the landlord's responsibility. While the RTM company's management will impact these parts (e.g., shared access, external appearance), disputes will need resolution through negotiation or legal means.
• Right to receive ground rents: This right remains with the landlord.
• Forfeiture and possession: The RTM company cannot institute forfeiture proceedings to recover service charge arrears. If other recovery means fail, the company must seek the landlord's cooperation. However, the RTM company can sue for arrears incurred on or after the acquisition date.

The original landlord remains the landlord under the lease and is responsible for covenants outside general management duties, such as providing quiet enjoyment. They also retain the right to collect service charges for costs incurred prior to the acquisition date.

Approvals and Covenant Enforcement

Most leases require landlord consent for actions like sub-letting, assigning the lease, or making alterations. The power to issue such approvals transfers to the RTM company, which must keep the landlord informed. Before granting approval for significant actions (assignment, sub-letting, structural alterations, change of use), the RTM company must give 30 days' notice to the landlord. For all other approvals, 14 days' notice is required. The RTM company does not need the landlord's specific consent; if the landlord raises no objection, approval can be granted. If the landlord objects, consent cannot be granted until the objection is withdrawn or the First-tier Tribunal (Property Chamber) makes a determination.

The leaseholders' covenants (obligations) also become the RTM company's responsibility. The company has a statutory duty to review compliance and take steps to remedy any breaches. Breaches not remedied must be reported to the landlord (unless specifically waived), who can then enforce the covenant, potentially through forfeiture. The RTM company also gains the right of access into flats for compliance or enforcement purposes, as provided in the lease.

Ending the Right to Manage

Once acquired, the Right to Manage has no time limit and continues indefinitely until terminated. There are three primary circumstances under which the right may cease:

1. Agreement with the landlord: The RTM company may agree to return management to the landlord. This requires mutual consent; it cannot be unilaterally imposed on a reluctant landlord.
2. Collapse of the RTM company: If the company is wound up, enters receivership, goes into voluntary insolvency, or is struck off by Companies House (e.g., due to failure to file annual returns and accounts), the Right to Manage ceases, and management responsibility reverts to the landlord.
3. Appointment of a manager by Tribunal: Part 2 of the Landlord and Tenant Act 1987 allows a First-tier Tribunal (Property Chamber) to appoint a manager to take over the building. This can be in response to an application by leaseholders or the landlord, or the Tribunal may simply order that the RTM company's right ceases. Grounds for such an application include breach of lease obligations, unreasonable service charges, failure to comply with an approved code of management practice, or other circumstances making it 'just and convenient' for the order to be made.

If the Right to Manage is terminated for any reason, no further application for the right can be made for another four years, unless with the consent of a First-tier Tribunal (Property Chamber).

Frequently Asked Questions (FAQs) about Right to Manage

Here are some common questions leaseholders have when considering the Right to Manage:

What is a 'qualifying tenant' for RTM purposes?

A 'qualifying tenant' is a leaseholder whose lease was originally granted for a term of more than 21 years. There's no requirement for them to live in the flat, nor any limit on how many flats one person can own.

Do we need to prove the landlord is doing a bad job to get RTM?

No, the Right to Manage is a 'no-fault' right. You do not need to prove mismanagement or wrongdoing by your landlord. The right is available whether the management has been good, bad, or indifferent.

Can a single leaseholder form an RTM company?

Yes, any number of qualifying leaseholders can initially set up the RTM company. However, for the company to formally exercise the Right to Manage, its members must comprise at least half the total number of flats in the building.

Does the RTM company take over collecting ground rents?

No, the right to receive ground rents remains with the landlord. The RTM company's management functions relate to services, repairs, maintenance, improvements, insurance, and overall management of the building.

What happens if the landlord disappears or can't be found?

If the landlord cannot be found, the RTM company can apply to the First-tier Tribunal (Property Chamber) for an order entitling them to acquire the right. The company must demonstrate that all reasonable steps were taken to find the missing landlord.

Can the landlord object to the RTM claim?

Yes, the landlord can serve a counter-notice disputing the claim. However, the grounds for dispute are limited to whether the building qualifies, whether the RTM company complies with legislative requirements, or whether the members represent half the flats. They cannot object on other grounds.

Are we responsible for the landlord's costs if we pursue RTM?

Generally, no. The RTM company is usually not liable for the landlord's costs incurred in the process, except for specific professional services and only if deemed 'reasonable'. Costs are typically only recoverable by the landlord if the RTM claim is withdrawn or unsuccessful due to the RTM company's non-compliance.

What if our building has shops or commercial units?

The RTM company's management functions do not extend to non-residential or commercial parts of the building. Management of these areas remains the landlord's responsibility, though practical cooperation and negotiation may be necessary for shared facilities or external appearance.

How long does the RTM last once acquired?

Once acquired, the Right to Manage has no time limit and continues indefinitely until it is terminated by agreement with the landlord, the collapse of the RTM company, or the appointment of a manager by a Tribunal.

Conclusion: Taking Control of Your Property's Future

The Right to Manage offers a transformative opportunity for leaseholders to gain control over the place they call home. It empowers them to make decisions about the building's maintenance, financial management, and overall standards, directly influencing their living environment and the value of their investment. While the process demands careful planning, adherence to statutory procedures, and a commitment from dedicated individuals, the benefits of self-determination and tailored management can be profound.

From the initial considerations of what you aim to achieve, through the formal steps of company formation, notice serving, and information gathering, to the ultimate acquisition of management functions and ongoing responsibilities, each stage requires diligence and informed decision-making. By understanding the intricacies of the Commonhold and Leasehold Reform Act 2002 and preparing thoroughly, leaseholders can successfully navigate this path, fostering a more responsive, efficient, and community-led approach to property management. The journey to RTM is an investment in your building's future, putting the power firmly in the hands of those who live within its walls.

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