What is Right to Manage?
The Right to Manage (RTM) is a legal option for leaseholders (flat owners) to take control over the way their building is looked after and to decide how their money is spent. It was first introduced through the Commonhold and Leasehold Reform Act in 2002.
When leaseholders exercise their Right To Manage, their Freeholder is obliged to hand over all aspects of management of the building. Leaseholders then set their own service charge budget, decide on what management and maintenance works are required, prioritise those works and hire and fire their own contractors.
What are the minimum requirements for a Right to Manage (RTM)?
The Right to Manage is a collective claim. No one leaseholder can exercise their Right to Manage by themselves. To qualify:
- At least half of the flats (50%) owned by long leaseholders must apply together.
- The building must be a residential property with at least 2 flats
- At least two thirds (67%) of the flats in the building must be owned on leases that were for more than 21 years when first granted.
- Less than 25% of the floor area of the building must be non-residential, such as shops or offices. (The government may ease this restriction to 50% in future).
- If the freeholder lives in one of the flats the building must have no fewer than four flats in total.
- The building cannot be council or a housing association property (though other solutions exist).
- The right is per building. If a development comprises multiple blocks of flats, the criteria must be met for each.
What is the Right to Manage (RTM) Process?
The law defines the specific legal procedures that leaseholders and freeholders must follow and the timeline for each step in the right to manage process.
It is important to follow each step to the letter as proscribed in law, otherwise leaseholders could find that they need to start from the beginning.
- Once leaseholders confirm that their residential building and their group qualify, they incorporate a limited company with specific articles of association which govern the role and responsibilities for leaseholders when managing the building.
- All qualifying leaseholders (not just those of the initial group) must be invited to become members of the RTM company.
- Leaseholders serve a notice on the Freeholder, and other parties such as intermediate landlords or a management company, informing them of their intention to exercise their Right To Manage.
- The Freeholder issues a counter notice which either admits the claim is valid or contests the claim on specific technical or procedural grounds. A freeholder cannot contest the claim on principle.
- Leaseholders have a right to information from the Freeholder and can demand to see budgets, current contracts as part of their preparation. Whilst this step is optional, it is highly recommended.
- On the agreed acquisition date, either listed on the initial claim notice or determined by a first tier tribunal (FTT), what were the landlord’s management functions of the building will instead be transferred to the RTM company. It is then up to the RTM company members as to whether they hire a professional managing agent to handle the management responsibilities of the building, or whether the company itself undertakes the ongoing management of the building.
What are the management responsibilities of Right to Manage companies?
The Right To Manage company and its directors have a number of freeholder rights and responsibilities including:
- Inviting all the leaseholders to join the RTM company and maintaining a register of members.
- Setting annual budgets
- Demanding and collecting service charges
- Recovering service charges from late payers or non-payers
- Entering into service agreements (such as gas, electricity, garden maintenance)
- Paying of contractors, site staff and other services and suppliers
- Taking out suitable buildings insurance
- Responding to leaseholder enquiries and complaints.
- Health & Safety inspections/assessments
- Submitting 5-10-year maintenance plans and reserve fund management
In practice, RTM Companies employ professionals such as residential managing agents, solicitors and accountants to manage most of not all of the work.
How can a Right to Manage company help when purchasing freehold?
In order to purchase the freehold (for example via Collective Enfranchisement) a very similar process to RTM is required to be followed including the need to have over 50% of qualifying tenants working together.
An RTM company is often seen as a stepping stone to purchasing the freehold. It can therefore be helpful with the initial, and most difficult first stage of a freehold purchase, since its company directors could assist with reaching out to and coordinating between members who are interested in benefiting from a share for freehold.
What’s better for freehold acquisition: RTM or Collective Enfranchisement?
Without question, Collective Enfranchisement is the better option than RTM.
Both are similar processes and require expert guidance.
However, Collective Enfranchisement provides the same benefits of Right To Manage along with additional benefits that come with owning your property, rather than just leasing it.
RTM is therefore often seen as an easier and cheaper option but is ultimately a stepping stone to Collective Enfranchisement.
The Right to Manage (RTM) is a legal option allowing a majority of flat owners to take control over the management practice of their building, collectively.
Whilst there are many advantages to RTM, it comes with responsibilities and is often seen as a stepping stone to purchasing the freehold through collective enfranchisement.
Exercising the Right To Manage is a complex process and professional guidance from a project manager and consultant is highly recommended. Thankfully, at the Freehold Collective, that’s us. Let us help with your Right to Manage incorporation and freehold acquisition process. Contact us now.
What is Right To Manage? FAQs
What does the right to manage mean?
The Right to Manage (RTM) is a statutory right that allows leaseholders, in a majority of flats, to transfer the management of their building from their landlord to themselves. This includes taking on responsibility for all necessary works and maintenance, setting service charges, and collecting money owed by other tenants.
Is the right to manage a good idea?
The Right to Manage is often seen as a stepping stone to purchasing the freehold, allowing flat owners to gain more control over the management of their building until they are ready to purchase the freehold and take complete control of the building. This makes it a great option for those looking to gain control, manage costs, and improve flexibility in the short term.
Is the right to manage the same as freehold?
No, the Right to Manage is different from freehold. The Right to Manage allows flat owners to gain control of the management of their building, whereas freehold ownership gives them full ownership rights and even more control over their property.
What’s the difference between an RTM company and a property management company?
RTM companies are established to manage the Right to Manage process, which involves setting up a company made up of members from the majority of flats in the building. Property management companies, on the other hand, are often external companies responsible for managing day-to-day operations on behalf of the property owners or landlords.
As opposed to a tenant management organisation, a managing agent is often paid a fee to manage the building on behalf of its owners. In the case of a Right to Manage company, the RTM company directors are made up of the members from the majority of flats in the building and therefore don’t receive management fees.