For many leaseholders, who are battling with excessive fees and mismanagement from their existing managing agent, it can feel like there is no way out. Whilst many discuss the idea of forming a Right to Manage Company, for many leaseholders, this is a daunting, and potentially expensive, prospect. However, this does not need to be the case. Qualifying tenants of leasehold flats have the right to force the transfer of the management functions of their building to a special residents’ company, known as an RTM company. There is no need to evidence poor performance of the landlord or existing agent, no requirement for the freehold to be purchased and the process is comparatively quick.
To help make the decision easier, we have summarised the key steps and processes that a group of leaseholders need to take to set the project in motion.
Step 1 – Does the premises qualify?
For premises to qualify for the Right to Manage scheme, the premises in question must;
- Be self-contained;
- Contain at least two flats held by qualifying tenants;
- If there is a commercial element to the building, this must not take up more than 25% of the total building space.
Buildings owned by a housing association or local authority do not qualify for the scheme. If the landlord is a resident of the building, the premises may also be excluded.
Step 2 – Who is a ‘Qualifying Tenant’?
A qualifying tenant is someone who is a leaseholder of a flat under a long lease. A long lease means a lease for a term of over 21 years. Put simply, and given that most flat leases range from between 99 years to 999 years, the majority of flat owners in England and Wales will be ‘Qualifying Tenants.’
Step 3 – Forming the company
The first step practical step in forming an RTM company is registering the RTM Company at Companies House. The company must be a private company, limited by guarantee and it is important that the correct name and articles of association are chosen, or the company will not meet the required criteria. It is also essential to remember that each individual block requires their own RTM company, so on a large estate that comprises various blocks of flats, several separate companies may need to be set up. We recommend you ask an expert to incorporate the company for you to avoid unnecessary delays or expense.
Step 4 – Inviting leaseholders to participate
Once the company (or companies) are incorporated, the RTM Company must give notice to each leaseholder inviting them to become a member of the company. It is important that the notice follows the correct protocol and the prescribed form, as even small discrepancies could invalidate the notice, meaning the process would need to be started again. This could be costly. Amongst other things, the notice must contain information about the RTM company, information about the future management of the development, cost consequences and a recommendation for each leaseholder to seek independent legal advice.
Step 5 – Serving the claim notice
Once the requisite number of leaseholders have confirmed their participation in the RTM, a claim notice must be served on the landlord. If a management company or managing agent is also a party to the lease, notice must be served on them also. Again, it is fundamental that the claim notice is served in a prescribed form and following the rules for service. A copy of the claim notice must also be given to each leaseholder. The landlord must be given at least one month to respond to the claim. A landlord may serve a counter-notice denying the claim if it believes the notice is invalid or if there are certain circumstances that mean the building does not fulfil the RTM criteria. If a landlord fails to serve a counter-notice within the specified time frame, they lose their right to defend the claim.
Step 6 – Taking over
Once the RTM company has successfully taken over the RTM, it will assume the management functions with effect from the acquisition date. The acquisition date will vary depending on whether the claim is disputed or not. Where this is not a dispute, the acquisition date will be the date as specified in the claim notice.
It is fundamental that the RTM have a managing agent lined up to take over the existing management contracts, service charge funds and other responsibilities from the acquisition date. The handover procedure can be complex and take up to 3 months to complete so it is always a good idea to secure a new agent from the outset.
Whilst the prospect of forming a Right to Manage Company can seem scary, expensive and even time consuming, once the company is in place and has assumed the management responsibilities of the landlord (and delegated these to a new managing agent), the cost savings and improvements to the running of the estate can be huge. Here at Mandeville, we encourage and even assist leaseholders in forming a Right to Manage company so that leaseholders up and down the country can finally take control of the running of their properties. To find out how we can help you further with this process please contact us by email or give us a call on 01932 640 375.
DISCLAIMER: The above is simply a snapshot of the key processes and procedures that must be followed when considering forming an RTM company. It is fundamental that the statute that governs this procedure is strictly adhered to, or our efforts could be wasted. We strongly recommend that further expert advice is taken before a final decision to move to an RTM is made.
