The Right to Manage: Pros and Cons

For many leaseholders, the management of their building can be a significant concern, especially when they feel that the services provided by their current managing agent or landlord do not meet expectations. Similarly, landlords often face the challenge of meeting diverse demands while ensuring compliance with legal and financial obligations. In such situations, the Right to Manage (RTM) can present a viable solution for leaseholders, enabling them to take control of their building’s management. However, as with any decision, there are pros and cons to consider.

This guide aims to provide a comprehensive overview of the RTM legislation, its implications for leaseholders and landlords, and the responsibilities it entails.

What is the Right to Manage (RTM)?

The Right to Manage (RTM) is a legal provision introduced under the Commonhold and Leasehold Reform Act 2002. It allows leaseholders of a building to collectively take over the management of their property without having to prove fault on the part of the landlord or existing management company. By exercising this right, leaseholders can form an RTM company to assume responsibilities such as maintenance, repairs, and financial management.

The RTM process relieves the landlord of their responsibilities and day-to-day management duties, although they retain ownership of the property and certain rights. 

Both leaseholders and landlords must adhere to specific legal requirements, and engaging a professional property management company can be beneficial to ensure compliance and effective building maintenance.

What are Right to Manage Companies?

To exercise the RTM, leaseholders must establish a Right to Manage company. This company, which is limited by guarantee rather than shares, must follow prescribed Articles of Association. Forming an RTM company requires adherence to statutory procedures, including serving the necessary notices and allowing all qualifying leaseholders and the landlord the opportunity to become members.

Right to Manage Qualification and Criteria

To establish a Right to Manage company, both the building and its residents must meet specific criteria to qualify. The qualification criteria include:

• The building must consist of at least two flats.
• At least 75% of the building must be residential.
• At least two-thirds of the flats must be leasehold properties with leases longer than 21 years.
• At least 50% of the leaseholders in the building must agree to form the RTM company.
• The building must be self-contained or capable of being managed independently.

The Right to Manage may not apply in certain cases, such as under the Residents’ Landlord Exemption. This exemption occurs if the property contains four or fewer flats, and the freeholder or an adult member of their family has lived in one of the flats as their main residence for at least the past 12 months, unless the block was purpose-built.

It is important to note that the landlord cannot be a ‘local housing authority’, and they do not have to consent to the formation of an RTM company. However, they are entitled to membership of the company and must be properly notified as part of the process.

Right to Manage Company Formation Process

If the building and leaseholders meet the qualifying criteria, the steps to form an RTM company include:

1. Establishing the Company: Form the RTM company using prescribed Articles of Association. The company must be limited by guarantee and cannot have shareholders, only members.
2. Serving Notices: Notify all qualifying leaseholders and the landlord, providing them the opportunity to become members of the RTM company.
3. Adhering to Procedures: Follow statutory processes, such as issuing notices inviting participation and serving formal RTM claims.
4. Assuming Management: Once the RTM is in effect, the company takes over management responsibilities while maintaining communication with the landlord.

Responsibilities of a Right to Manage Company

If leaseholders take over the management of the building via the Right to Manage, the landlord retains ownership of the building but the leaseholders will be responsible for various duties surrounding property management, maintenance, finance, and compliance, such as:

• Decision-Making: Convening meetings to vote on key issues, such as selecting contractors and approving budgets.
• Property Maintenance: Addressing and overseeing repairs, cleaning, landscaping, and other essential tasks to maintain the building and its structure, including roofs and external walls.
• Service Charge Management: Collecting and managing the service charge to ensure sufficient funds are available for necessary works and maintenance.
• Communal Areas Upkeep: Ensuring the upkeep of communal areas such as hallways and stairs to maintain a safe and pleasant environment for residents.
• Handling Complaints: Managing and resolving complaints from residents related to the building or its management.
• Compliance: Ensuring adherence to lease terms and legal requirements, including health and safety regulations.
• Communication: Providing the landlord with required notices, such as 30 days’ notice for certain approvals, including subletting or structural changes.

While the RTM empowers leaseholders, it can also be a demanding process. A professional property management company can ease this burden by handling day-to-day management tasks, ensuring compliance, and leveraging their expertise to maintain the building effectively.

The Pros and Cons of Right to Manage

Pros of Right to Manage

One of the key advantages to exercising RTM is that it does not require proving fault or mismanagement by the landlord, and landlords are not entitled to compensation when leaseholders exercise their Right to Manage, as it is a statutory right. There are also many other benefits, including:

1. Control: Leaseholders gain direct control over the management of their building, allowing them to address concerns promptly and tailor services to their needs.
2. Transparency: Greater visibility into service charges and expenditures ensures better financial accountability.
3. Improved Quality: Leaseholders can prioritise high-quality services, from maintenance to contractor selection.
4. Cost Efficiency: The RTM company assumes full control over expenses, potentially leading to more affordable service charges for residents and eliminating management fees for leaseholders.
5. Fairness: RTM companies ensure equality in decision-making, as all leaseholders have equal voting rights.
6. Timely Maintenance: With leaseholders in control, unnecessary delays in essential works can be minimised, and only necessary maintenance is carried out.
7. Contractor Choice: RTM allows residents to select their own contractors, which can lead to better quality work at competitive prices.

Cons of Right to Manage

The substantial time commitment involved and the potential stress of assuming full responsibility for the building’s management are arguably the biggest drawbacks to RTM. There are several potential disadvantages such as:

1. Responsibility: Managing a building involves significant time, effort, and expertise, which can be overwhelming for some leaseholders. RTM companies rely on their members to volunteer their time, which can be demanding, and not all members may consistently contribute equally.
2. Costs: While RTM can lead to cost savings, initial expenses for forming the company and legal procedures can be considerable. Additionally, leaseholders must cover any reasonable costs incurred by the landlord during the takeover process, though these can be challenged if deemed unreasonable.
3. Service Charge Disputes: Any existing disputes over service charges must be resolved before management responsibilities can be transferred.
4. Resident Disputes: Collective decision-making may lead to disagreements among leaseholders, especially on budgetary or service-related issues. Conflicts may also arise with the landlord, who retains ownership of the property and must be consulted for major works, potentially leading to strained relationships.
5. Criticism: Members of the RTM company may face criticism from other leaseholders who are unhappy with decisions or opposed to forming the RTM in the first place.
6. Neighbour Relations: Dealing with neighbours can become challenging, especially when enforcing lease terms or chasing unpaid service charges, though appointing a professional managing agent can mitigate this.
7. Administrative Burden: Running an RTM company involves annual reporting and accounting, which may require hiring an accountant if no member has the necessary expertise.

Conclusion

The Right to Manage offers leaseholders an opportunity to take greater control over their building’s management. However, it comes with responsibilities and challenges that require careful consideration. For landlords, the process may mean reduced involvement in managing the property but not a complete loss of oversight.

Both leaseholders and landlords can benefit from engaging a professional property management company to navigate the complexities of RTM. With their expertise, such companies can ensure compliance, reduce administrative burdens, and maintain the building to a high standard.

Right to Manage FAQs

How do I get the Right to Manage?

Leaseholders must meet the qualifying criteria, form an RTM company, and follow statutory procedures, including notifying the landlord.

Does the landlord have to agree to the leaseholders’ Right to Manage?

No, the landlord’s consent is not required. However, they are entitled to be a member of the RTM company and must be notified of the process.

Do I need to register my RTM company with Companies House?

Yes, the RTM company must be registered with Companies House and comply with its requirements.

Who can be a member of a Right to Manage company?

Any qualifying leaseholder of the building can become a member of the RTM company. The landlord is also entitled to membership.

Who can be a director of a Right to Manage company?

Any member of the RTM company can be elected as a director, subject to the company’s Articles of Association and relevant legal requirements. An RTM company must have at least one director, but will usually have three to five directors. While not a legal requirement, directors are typically residents of the building, but may sometimes be relatives of residents. 

Are Right to Manage and Residents’ Management Companies the same thing?

No, they are different.

An RTM company is created specifically to exercise the Right to Manage under the 2002 Commonhold and Leasehold Reform Act, allowing them to assume the legal right to take over the management of the freehold of a property.

A Residents’ Management Company (RMC), however, may be established by developers or as part of the lease agreement but does not assume ownership of the freehold. While it can grant residents control over service charge expenditure, an RMC does not allow them to take over the management entirely, instead managing it on behalf of the leaseholder.

Can a Right to Manage company buy the freehold?

Setting up a Right to Manage company does not grant the ability to purchase the freehold. While RTM companies allow leaseholders to manage and oversee maintenance and day-to-day building operations, their legal framework and required Articles of Association do not allow for the acquisition of the building’s freehold.

Can I change my property management company instead?

Yes, leaseholders may collectively decide to appoint a new property management company through a tribunal without pursuing the RTM process, provided their existing management arrangements allow for such changes.