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.

We should say up front where we stand, because it is unusual for this industry: we run Right to Manage claims, and we recommend them less often than you might expect. The reason is a building called Lancaster Court, whose story runs through this article. RTM done well is a genuinely powerful tool; RTM entered blind can hand you someone else’s financial mess with none of the ownership powers needed to fix it. The honest pros-and-cons list below is built on both outcomes.

How do I get the Right to Manage?

To claim the right to manage under the Commonhold and Leasehold Reform Act 2002, leaseholders of at least half the flats in the building must become members of the RTM company and follow a clear legal process. It is a ‘no fault’ right: there is no need to prove your freeholder or existing managing agent has done anything wrong — you do not have to show poor management, only meet the criteria and serve the notices correctly.
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?

No. The right to manage does not require the landlord’s consent — RTM companies rely on the legislation itself, not on permission from the freeholder or the current managing agent.

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.

We have watched resident control deliver exactly this. At Bridge Court in Taplow — a 24-flat building beside the Thames where 22 of the 24 flats joined the purchase — once the residents took control of the management, service charges and ground rent were cut and flat values rose. (That control came via a freehold purchase rather than RTM, a distinction that matters, as you’ll see below — but the management dividend of resident control is the same.)

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.**

What that looks like when it goes wrong: Lancaster Court

That last paragraph is not a hypothetical. Lancaster Court is a high-net-worth mansion block opposite Kensington Gardens with 34 leaseholders. Twenty years earlier, when the freehold came up at auction, one resident proposed a joint bid to his neighbours — then bought it alone. Two decades of failed self-organisation followed. Eventually the residents did what this article describes: they formed an RTM company and took over the management.

It went badly. On taking over, the RTM company found the building’s £500,000 reserve fund had £300,000 spent and untraceable. And here is the trap in the legislation: because the management functions had transferred, the liability to account for that fund fell on the RTM company — the leaseholders themselves. The freeholder demanded the money back, and got it. The residents had acquired responsibility for the building’s finances without acquiring any of the ownership leverage over the person who had emptied them, and the building itself remained neglected.

When we took on Lancaster Court, the answer was not a better-run RTM — it was ownership. We spent about a year engaging the leaseholders: 24 newsletters and circulars, overseas owners tracked down, payment logistics solved. 26 of the 34 joined — 90% of qualifying residents against the 50% the law requires (of the eight who didn’t, three declined and three were the freeholder’s own flats). The group offered £1.3 million; the counter-notice came back at £7.9 million plus leasebacks, with tribunal exposure our advisers put at around £4 million. Our valuation and legal strategy settled it at £2 million — unencumbered, no leasebacks, no tribunal. In Phase 3 we structured the funding: £600,000 in long-lease shares, £500,000 of short leases funded by internal investors, and a £900,000 30-car garage funded by ten leaseholders at £90,000 each — without which every leaseholder would have paid roughly £54,000 more. One resident who joined to future-proof the building for her daughters is now an investor and a director on both boards. The whole journey took about three years, and it began with an RTM that had made things worse.

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.

Our view: when RTM is the right call — and when it isn’t

Our position, formed the hard way at Lancaster Court: RTM transfers liability the day it transfers management, but it never transfers ownership power. For a building whose finances are clean and whose freeholder is merely absent or unresponsive, that trade is usually worth making. For a building with murky accounts, a depleted reserve fund, or a freeholder you already distrust, RTM can mean formally inheriting the mess while the person who made it keeps the asset. In those cases we often advise skipping RTM and going straight to a collective freehold purchase — which includes the right to manage ‘out of the box’ and removes the freeholder from the equation entirely.

Your situation	Our usual advice
Freeholder unresponsive; building sound; service charge funds clean and documented	RTM works well — fast, no premium to pay, no need to prove fault
Reserve fund unclear, historic service charge disputes, accounts you can’t verify	Be very careful: RTM inherits the accounting liability (Lancaster Court’s RTM company was pursued for £300,000 it never spent)
50%+ of neighbours engaged and able to fund a premium	Consider going straight to collective enfranchisement — ownership includes management control
You want to end ground rent, extend leases to 999 years, or stop freeholder development	RTM cannot do any of this; only buying the freehold can

Before we recommend an RTM claim, we ask five questions — ask them of your own building:

• 1. Have you seen audited service charge accounts for the last three years, and do they reconcile?
• 2. Has the reserve fund balance been independently verified — not just asserted?
• 3. Are there major works looming that the current freeholder should fund or account for first?
• 4. Do you have directors willing to carry the statutory responsibility, and a managing agent lined up?
• 5. Is RTM actually the end goal — or is it a stepping stone to the freehold that you could skip?

Can a Right To Manage company buy the freehold?

An RTM company has no special rights to purchase the freehold, but its member leaseholders can follow a separate — and more complex — legal process to buy it: collective enfranchisement. It has its own qualifying criteria and legal requirements and is costlier than an RTM claim, because you are buying an asset rather than borrowing its controls — but specialist firms can arrange all the organisational, legal and valuation work so that management and ownership ultimately sit with the same group of residents. That is exactly the road Lancaster Court’s leaseholders took after their RTM experience.

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.

One instruction above all, learned at Lancaster Court: the handover is the point of maximum risk. Insist on a full, verified account of the service charge and reserve funds before your RTM company accepts responsibility for them.

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. If you’re weighing RTM against a purchase, book a free consultation — we’ll tell you honestly which one your building needs, because we’ve cleaned up what happens when that call is made wrong.

Is Right To Manage a good idea?

Usually, yes — with one hard caveat. Exercised on a building with clean finances, RTM delivers more control, better service standards and the chance to rescue a poorly managed building, and the common regret is not doing it sooner. But it is a management fix, not an ownership fix. If your building’s problem is the freeholder rather than the managing agent — or if the money trail behind your service charges doesn’t add up — Lancaster Court is your cautionary tale, and the freehold, not the RTM, is your answer.