The Pros and Cons of Right to Manage

Sinead Campbell from London Flats Insurance looks at the pros and cons of having the right to manage your block.

The statutory Right to Manage can be used by Leaseholders who wish to take over the management of their building.

This option for self-management relieves the landlord of their responsibilities but doesn’t affect their ownership of the property (as would be the case with collective enfranchisement).

If you and your fellow leaseholders are considering taking over the management of your building via RTM, read on as we explain what invoking the Right to Manage entails and what some of the pros and cons to the decision may be.

What is the Right to Manage?

The Right to Manage is part of the Commonhold and Leasehold Reform Act 2002.

It allows qualifying leaseholders to collectively transfer the freeholder’s management responsibilities to a company, known as the RTM Company. This company is set up by the leaseholders as a collective.

The landlord does not need to consent, and nothing needs to go through the courts for it to be enforced. Importantly, leaseholders don’t need to prove previous mismanagement- the right is available regardless.

To qualify:

The building must be made up of individual flats; at least two thirds of which must be leasehold.
The leasehold flats must have had a lease of more than 21 years when they were granted.
At least 75% of the building must be residential.
If there are less than 4 flats in the block, the landlord must live elsewhere (unless the block was purpose-built).

Any number of leaseholders can set up an RTM company, but at least 50% of the flats in the building will have to be members of the company before the RTM can actually take over management.

All qualifying leaseholders will be allowed to become members of the RTM company with no exceptions. No one can be refused, and the landlord is automatically invited to become a member of the company too.

Notices

Once you have decided to form and RTM Company and you fulfil all the qualifying criteria, notices must be served to the landlord. If there is information you need from the landlord before being able to claim the RTM, you can send a ‘right to information’ notice.

Once you have everything you need, you then supply the landlord with a ‘notice of claim’. This must detail when you intend to take over management of the building (the date of acquisition) and provide them a date by which they need to respond (the deadline must be more than one month from the date of the notice).

The landlord can then either accept the claim or dispute it via a counter-notice. The only reasons the landlord can give to dispute the claim are:

If they believe the building doesn’t qualify
If they believe the RTM company doesn’t comply with the legal requirements
If they don’t believe the RTM company members represent half the flats in the building

If you receive a counter notice and don’t agree with the landlord’s reasons for disputing the claim, you will then need to apply to the Leasehold Valuation Tribunal (LVT) within 2 months of receipt. The LVT will then decide whether or not your claim is valid.

The Date of Acquisition

Once the decision is made and it’s decided that the RTM claim is valid, the date the RTM company takes over management responsibilities will be decided.

If the landlord simply accepted the claim following the ‘notice of claim’ then the date of acquisition will be as stated on the notice.
If the landlord disputed the claim and subsequently lost, then the date of acquisition will be set for three months after the LVT decision became final.
If the landlord disputed the claim but then later came to an agreement with you outside of the LVT, then the date of acquisition will be set for three months after the agreement was made.

The landlord must transfer any service charge funds over to the RTM Company on the date of acquisition or as soon after as ‘reasonably possible’.

Your Ongoing Obligations to the Landlord

The landlord is still the owner of the property and more than likely a member of the RTM Company, and they are therefore afforded the right to be notified of certain events.

You must give the landlord at least 30 days’ notice before approving assignment (selling or transferring the flat into someone else’s name), approving a sublet or approving a charge to leaseholders.

If the lease states that the landlord’s consent is needed, you must give them 30 days’ notice before approving any changes to the structure of the building and/or any changes to the use of the building.

For any other approvals, you must give at least 14 days notice.

What Are the Pros of Exercising Your Right to Manage?

The RTM company assumes full control of all expenses which can result in more affordable service charges for all residents.
No more Management Fees will be applied to leaseholders.
RTM companies guarantee fairness in decision-making as all leaseholders have the same voting power.
With an RTM Company in control, no unnecessary work will be carried out, and delays to necessary works will be minimised.
RTM also allows residents to choose their own contractors, which could result in higher quality work at a more affordable price.
No blame is required to exercise your RTM.
The Landlord can’t claim any compensation as you are simply exercising a right.

What Are the Cons of Exercising Your Right to Manage?

You’ll need to cover any reasonable expenses incurred by the landlord during the takeover process (if you deem the amount unreasonable, you can challenge it).
Any existing service charge disputes will need to resolved before management responsibilities can be transferred.
RTM companies rely on their members to volunteer their time, and it takes a lot of time and commitment to run a block successfully. Not all members will continuously pull their weight.
Exercising your RTM can result in a strained relationship with the landlord. They remain the freeholder and they have to be consulted re any major works to the building- if your opinions don’t align, there can be trouble.
As part of an RTM company, you leave yourself open to criticism from other leaseholders who don’t support the decisions being made or who didn’t want an RTM company to be formed in the first place.
You’ll need to handle some sticky situations with your neighbours including chasing service charge payments and enforcing the terms of their leases (although this can be avoided if you appoint a managing agent of your choice).
As a Company, annual reporting and accounting is involved. Unless a member of the company is trained in these areas, you may need to take on an accountant.

For more information, please contact a member of the London Flats Insurance team on 020 7993 3034.