What is the Right to Manage?

The Right to Manage (the “RTM”), is a legal right that allows Leaseholders to take over management of their building.

Under the relevant act, Leaseholders can acquire management functions which are defined as: “functions with respect to services, repairs, maintenance, improvements, insurance and management”. This will often cover all the functions, rights, powers, and obligations involved in the day-to-day running of a building.

What are the benefits of the Right to Manage?

Exercising the RTM has a number of benefits:

• Leaseholders gain control of the management of the building;
• Leaseholders will be in control of the level of services for the building and the level of cost;
• It is cheaper than other options to acquire management control, such as enfranchisement, as you don’t have to pay a premium to the Landlord; and
• It is relatively straightforward as there is no need to evidence poor performance by the Landlord.

How do you qualify for the Right to Manage?

The main criteria to qualify for the RTM are:

• There must be at least two flats in the building containing qualifying Leaseholders (i.e. two separate flats each with a Leaseholder who was granted a residential lease of over 21 years);
• At least two thirds of the total number of flats in the building must be owned by qualifying Leaseholders;
• 50% or more of the qualifying Leaseholders must want to proceed with the RTM;
• The building or part of the building must be self-contained (i.e. structurally detached from other buildings or parts of buildings);
• No more than 25% of the building can be used for non-residential purposes (e.g. commercial leases); and
• No other exclusions apply (e.g. there are four or fewer flats and the Landlord lives in one).

What are the steps in the Right to Manage?

The key steps for the RTM process are dictated by the set timetable in the relevant law. Once the process is started by service of the  relevant notice, the timetable must be followed. If a key step is missed there can be legal and cost consequences for the defaulting party.

The key steps are:

• Preparation of a survey and valuation to assess the current condition of the building, any potential risks, or issues.
• Preparation of a participation agreement between the Leaseholders so they have contractually agreed their rights and responsibilities for the RTM process.
• Under the relevant law, a limited company must be used for the RTM process.  This will usually mean that the Leaseholders will need to incorporate a company with Companies House for the purpose of initiating the process.
• Invitations to join the RTM Company must be sent to any qualifying Leaseholders that are not already members of the RTM Company.
• Service of a Notice of Claim by the RTM Company on the Landlord:
  • claiming the RTM;
  • giving the Landlord at least two months to respond (the “Response Date”);
  • giving a date three months after the Response Date on which the RTM Company intends to acquire the management rights (the “Acquisition Date”).
• Service of a Counter Notice by the Landlord on the RTM Company either:
  • accepting the right of the Leaseholders to claim the RTM; or
  • disputing the right of the Leaseholders to claim the RTM.
• On the Acquisition Date, the RTM company acquires management rights and can renew or enter into new contracts for the provision of services for the building.

If the Landlord disputes the right of the Leaseholders to claim the RTM, the RTM Company can apply to the Tribunal within two months of the Landlord’s Counter Notice to decide the matter.

How much does it cost to exercise the Right to Manage?

Once the RTM Company serves the Claim Notice, the RTM Company and the individual members of the RTM Company become liable for any of the Landlord’s reasonable costs (e.g. legal costs in dealing with the notice, accountancy costs arising from provision of accounts, and the costs of their managing agent in the hand-over of management records and control).

As a result, the costs for a Leaseholder to consider for the RTM process are:

• The Landlord’s costs (e.g. legal, accountancy, surveyor, management); and
• The RTM company’s costs (e.g. legal (including setting up a limited company), accountancy, surveyor, management).

Should I exercise the Right to Manage?

The RTM process can be a quick and cost-effective way to forcibly take control of management from a Landlord. When compared to enfranchisement, the lack of need to pay a premium can make the RTM process a significantly less expensive option.

As with enfranchisement, a majority of Leaseholder’s support is necessary. This is often the biggest stumbling block as it is increasingly less common to have a close relationship with your neighbours. Thus, marshalling a majority of the Leaseholders can be difficult where there is no pre-existing relationship or trust.

Once the RTM is exercised, the RTM Company will have new powers, but new responsibilities:

• The RTM Company will be a limited company bound by the usual laws governing limited companies so it will need to consider employing a professional company secretary to deal with budgets, accounts, and other legal requirements;
• The RTM Company will need to have directors who will have all the normal responsibilities of a company director;
• There may be difficult and sensitive issues in dealing with neighbours and fellow Leaseholders; and
• Any employees currently employed by the Managing Agent may have protection under employment laws and would be entitled to continuation of their employment and would therefore need to be taken on by the RTM to continue in their current role.

Overall, the RTM process is not simply a tool to stop poor performing Landlords. It also empowers Leaseholders to take responsibility for their own building. However, some Leaseholders, for legitimate reasons, do not want this responsibility. Whether the RTM is the right process for you and your block will depend upon the above factors. Taking specialist advice is important before initiating the process.

How can Pinney Talfourd help?

Pinney Talfourd have experienced and professional solicitors who regularly deal with the RTM process, challenging RTM claims, and presenting matters before the First-tier Tribunal (Property Chamber).

We understand the process and requirements and can ensure that the RTM claim is dealt with professionally.

Pinney Talfourd is an established member of the Association of Leasehold Enfranchisement Practitioners (ALEP). This means that we are trusted, accredited solicitors who can offer expert advice. It also means that we have access to a network of vetted professionals who we can assist with every stage of your matter.