The Right to Manage Pros and Cons

A Right to Manage (RTM) Company is a special type of residents’ management company whose members can usually only include the leasehold property owners (qualifying leaseholders) of the flats themselves.

The right to manage is a statutory right which allows leaseholders to form an RTM company that has the legal right to take over the building’s management from the freeholder, overriding what is stated in the leases using powerful legislation, and the RTM company assumes significant responsibility for everything from insuring the building to making repairs, setting a budget and recovering its expenditure from other leaseholders through service charges.

Homeowners and leasehold property owners have the right to manage their own buildings through this RTM process, but what are the right to manage pros and cons, and how does the RTM process actually work in practice for residential blocks with at least two flats? 

Read on to find out more about the manage pros and cons, key management decisions, and what this could mean for your building’s management and ongoing obligations.

How do I get the Right to Manage?

In order to claim your Right to Manage, you must join with at least 50% of other leaseholders in your building and follow a clear legal process**, and in many cases at least 50% of the qualifying tenants in the block will choose to take part so that the new RTM company is properly managed and has broad support. This is a statutory right and** a ‘no fault’ RTM claim , so there is no need to prove fault or show how well or poorly managed your freeholder or existing property management company has been.

There are certain criteria and qualifying criteria that need to be met: the building will usually need to be self contained, made up of at least two flats, with at least two thirds of the flats held by qualifying leaseholders (qualifying tenants) on long leases, and the RTM company must be correctly set up as a private company limited by guarantee with at least one adult member. In certain circumstances, housing association flats may sometimes qualify.

Leaseholders involved in the takeover process often instruct a legal team at an early stage to ensure the RTM process is followed correctly, meet all legal requirements and ensure compliance with the statutory right to manage legislation.

Does the building owner have to agree to leaseholders’ right to manage?

You do not need the landlord’s consent or formal agreement from the building owner (freeholder) to secure your right to manage , because RTM companies rely on the legislation rather than on permission from the current management company or freeholder.

However, the freeholder does have a right to challenge your RTM claim by serving a counter notice if you have not followed the legal process to the letter or if they believe that specific criteria for the right to manage company have not been met. Disputes between a freeholder and leaseholders can be decided by the First Tier Tribunal, though this is not often necessary when the RTM company is properly managed and the notice procedure has been handled by an experienced legal team.

So long as the RTM company and its members satisfy the qualifying criteria and comply with all legal requirements, the freeholder cannot refuse or block the right to manage, even if not all members of the building support the change.

Advantages of Right to Manage

Taking control over the management of the building through a right to manage company allows you to set an affordable service charge budget, choose your own contractors, prioritise the works to be done, (for example refurbishing the communal areas , tackling fire risks or installing a new communal boiler) and plan for major works and long term maintenance. Leaseholders in buildings which are managed by way of an RTM Company benefit from several advantages and enjoy greater control over key management decisions, including decisions about management fees, insurance policies and service standards.

Lower service charges

Service charges are often lower and more affordable service charges become achievable because leaseholders exercise direct control over what they spend, which contractors they appoint and which property management company or professional managing agent they instruct. Many leaseholders find they save money in the long run because they can challenge unnecessary costs, reduce management fees and deal more quickly with service charge disputes when they have more control over the building’s management.

Potentially better rates for mortgages

Mortgages on leasehold flats are often easier to obtain at better rates**, when a building is well run,** because mortgage lenders know that the flat is in a building which will be properly managed , compliant with health and safety regulations and safety regulations, with clear responsibility for ongoing obligations. Flat owners often find that their flats are easier to rent and that the value of the flat increases, making them easier to sell for a higher price once a competent managing agent or property management company is in place under the RTM company.

Control over building management

Another key advantage is that each participating leaseholder in the RTM company normally has the same voting power, giving leaseholders involved a fair say in how the building is run and ensuring that fellow leaseholders collectively decide on major works, budgets and appointment of any managing agent. This greater control and full control over management responsibilities gives leasehold property owners confidence that service standards will improve and that important issues like fire risks, health and safety regulations and insurance policies will be dealt with promptly.

Disadvantages of Right to Manage

While there are many benefits of enacting your Right to Manage, there are some potential drawbacks to consider, to make sure it’s the right choice for you.

No ownership

Right to Manage company takes over the management responsibilities from the freeholder, but not the ownership of the property**, so the freeholder still owns the fabric of the building, the grounds and the airspace. If the handover from the existing management company or freeholder is not very carefully managed, the new RTM company and its directors could find themselves having to account for the freeholder’s past actions, including service charge funds it collected and spent, and untangling historic service charge disputes can take significant time and effort.**

High responsibility

The RTM company is fully responsible under law for meeting all management obligations under the leases as well as all statutory obligations such as health and safety requirements and wider safety regulations. This is a large responsibility for any management company and can be a full time job for the RTM company directors, but a Right to Manage Company will normally employ a professional managing agent or specialist property management company to manage and administer all the work and ensure compliance with ongoing obligations, annual reporting and legal requirements.

Dispute management

Disputes between leaseholders and fellow leaseholders can sometimes disrupt the smooth operation of a Right to Manage Company , for example where not all members agree on major works, management fees or which managing agent to appoint. However, as the company has prescribed articles of association, the same voting power for members and clear management responsibilities, disputes are often settled by majority voting if the need arises and an experienced managing agent can help mediate and keep the building’s management on track.

Freeholder rights

The RTM secures the management of the property but it does not eliminate the potential for disputes with the freeholder , who still owns the structure of the building, the grounds and airspace and may still be involved in certain decisions. There are certain actions such as major works affecting the structure, alterations or developments that require the freeholder’s consent, and the freeholder can still develop the property (for example by adding flats on the roof or renting out parking spaces), so leaseholders may still face disagreements even after the new RTM company assumes control of day to day management.

Right to Manage pros and cons compared

Aspect	Pros of a Right to Manage company	Cons of a Right to Manage company
Control over management	Leaseholders gain greater control and direct control over key management decisions and own contractors.	RTM company assumes significant responsibility for all management obligations and ongoing obligations.
Service charges and costs	Ability to set more affordable service charges, reduce management fees and save money over time.	Risk of under-budgeting for major works if the building is poorly managed or costs are underestimated.
Choice of managing agent	Freedom to appoint a professional managing agent or property management company that meets service standards.	Time and effort needed to select and supervise a managing agent and manage the relationship effectively.
Decision-making and voting	Same voting power for members so qualifying leaseholders share control over the building’s management.	Disagreements between fellow leaseholders can slow decisions or create internal disputes.
Legal rights and processes	Statutory right to manage with no need to prove fault and clear legal process to follow.	Need to follow detailed legal requirements and RTM process precisely, often requiring a legal team.
Relationship with freeholder	Ability to challenge previous service charge disputes and improve how the building is run.	Freeholder still owns the building and may require landlord’s consent for some major works or alterations.
Long-term property value	A well run, properly managed building can support higher property values and better mortgage options.	Significant time commitment for RTM directors, especially in the early stage of the takeover process.

Can a Right To Manage company buy the freehold?

An RTM Company does not have any special rights to purchase the freehold , and the manage company buy route is not automatic, but its member leaseholders can follow a similar, though far more complex, legal process to buy their freehold. The process, known as collective enfranchisement , has its own specific criteria and legal requirements and is far more complex and costly than a Right to Manage claim, but specialist companies can arrange all the organisational, legal and valuation work for leaseholders so the management responsibilities and ownership ultimately sit with the same group.

A freehold purchase comes with the right to manage out of the box so leaseholders often exercise their right to a share of freehold instead of their right to manage , especially where at least over 50% of qualifying tenants are ready to club together. For many leaseholders, starting with an RTM company gives more control over management first, then collective enfranchisement can be considered later once the building is stable, well run and the leaseholders involved are confident working together as a management company.

Key Takeaway and how The Freehold Collective can help

So long as you seek expert advice and professional help in the legal process, RTM claim and management handover , and the new RTM company is organised correctly with a suitable professional managing agent, you will reap all the benefits of affordable service charges, clearer management responsibilities and greater control over your leasehold property.

If you’re wanting to find out more about the value of your freehold, try our Freehold Purchase Calculator for an instant estimation or Purchase Your Freehold to see how our legal team can support you.

Is Right To Manage a good idea?

In a word, Yes. Like any statutory right, if exercised and managed correctly, the only regret will be not exercising the right earlier , because leaseholders gain more control, better service standards and the chance to improve a previously poorly managed building.